UMS Holdings

[mslee888]

51ct? IMO, too much MOS..i doubt its probably quite unachievable unless there is a significant mkt correction.

I would think low 60s shd b a gd entry point. Still can enjoy good yield and PE not overly high.

Still vested

[Boon]

1) Worldwide semiconductor sales figures released by SIA (Semiconductor Industry Association) so far this year (up to April 2014) had surpassed corresponding figures for the same period last year.
2) Similarly, both bookings and billing figures released by SEMI to date (up to April 2014) had also outperformed corresponding figures for the same period last year.
3) Results (2Q) from AMAT so far this year were better than that for the same period last year.
4) 1Q2014 results from UMS were much better than that for the same period last year.
5) As we are approaching the midpoint of the year, it seems that 2014 is playing out to be a better year than 2013 as projected by many industry experts/bodies.
6) With IoT (Internet of Things) gaining traction - global trends in mobility, connectivity etc would continue to drive or accelerate demands for better performing chips going forward - and 2014 could be just the beginning of a bull cycle for the semiconductor industry – I may sound bullish and be totally wrong on this but judging from various trends and how things are playing out, there is no reasons to believe otherwise.
7) As I had posted earlier, as at 31-Mar-2014, UMS had already earned and could afford to pay out DPS of SGD 7.00 cents (post-bonus-issue) for FY2014 – at SGD 70 cents, this still work out to be an attractive 10% yield.
8) AMAT owns about 20 million shares in UMS – roughly worth USD 11 million at today’s value – this is less than 1% of AMAT's annual R&D budget - how much “extra” profit could AMAT gain from “trading” on them?
9) Technically speaking, one would not consider AMAT to be an “insider” of UMS even it has a 6% stake in it – but being almost the one and only one customer of UMS, one could possibly argue that AMAT is – this is interesting and debatable !
10) So, AMAT had finally sold some of its stakes in UMS after holding to them tightly since 2007- understandably, this has caused concerns among investors of UMS – and that possibly explains the sell down today.
11) The rationale behind AMAT’s selling is of anybody’s guess – but my biggest and only concern would be if AMAT had acted on “insider information” - to which even UMS could not have access – for its own benefits, ahead of the market. And I have no reasons to believe or suggest that this has been the case, considering that:
a) Little could be profit from it compared to the size of AMAT’s business – not worth the effort.
b) the amount of shares sold
c) It is not ethical to do so – after all, AMAT has been named as one of the world’s most ethical company consecutively for the past 3 years.
12) That said – I hope I am right – but I could be completely wrong – only time will tell.

http://investors.appliedmaterials.com/ph...&highlight=

(vested)

[specuvestor]

AMAT is certainly not trading it. It is immaterial financially but a vote of confidence on her suppliers. IIRC AMAT was the shareholder of the old UMS Semicon rather than Norelco, so maybe it was to fund the startup.

What we observe is a substantial shareholder and major client who is a major player in the industry selling their stake. It is strange that they did it before bonus issue. Either way it is a red flag to observe further. It may even relate to my previous 18"/ 450mm question

Nonetheless kudos to Nick and Boon on great insight and stock pick. I had too much baggage to recognised it

[Boon]

AMAT is certainly not trading it. It is immaterial financially but a vote of confidence on her suppliers. IIRC AMAT was the shareholder of the old UMS Semicon rather than Norelco, so maybe it was to fund the startup.

What we observe is a substantial shareholder and major client who is a major player in the industry selling their stake. It is strange that they did it before bonus issue. Either way it is a red flag to observe further. It may even relate to my previous 18"/ 450mm question

Nonetheless kudos to Nick and Boon on great insight and stock pick. I had too much baggage to recognised it

AMAT was granted an option (“Original Applied Option”) on 21-Oct-2002, by UMS to subscribe for 30,771,177 new shares in UMS at an exercise price of $0.2867 per share.

In March 2004, in preparation for the M&A between Norelco and UMS, the “original Applied Option” had to be replaced with a “Replacement option” under which AMAT had the right to subscribe for up to 24,116,400 shares in the newly merged entity (Norelco + UMS) at an exercise price of $0.3658 per share

AMAT exercised the option before its expiry in October 2007 by subscribing for 20,639,400 shares – and had not sold a share since then until three days ago where 193,000 shares had been sold off.

It certainly has been a profitable investment venture by AMAT for taking up a stake in UMS then – good dividend payout and capital gain over the years.

The selling by AMAT could just be a truly genuine profit-taking exercise.

Or it could be an exercise on the part of the corporate finance/treasury department of AMAT to show (to their bosses or their potential new merger partner - TEL) that they have not been “sleeping” all these years – ha-ha !.

Or it could be a red-flag – but what could be worse than the termination of manufacturing contract - if it is - it just seems too early to me, as the manufacturing right granted to UMS still has a few more years to run – after all, one would expect the best ethical company to honor its contract. .

Or it could be a signal of better things to come – AMAT intend to give more jobs to UMS – the selling in UMS shares was just a “muscle-flexing” gesture to put AMAT into a better “bargaining” position – I guess I am stretching my imagination just a little bit too far？Ha-ha !.

That said, I could say confidently that migration to 450mm wafer size definitely has nothing to do with it.

The delay in migration to 450mm wafer size has more to do with the top 3 chipmakers and the No:1 chip equipment maker in lithography – ASML.

(vested)
_______________________________________________________________________________________________________________

Is 450mm Dead In The Water?

Posted on: May 15th, 2014 - Posted by: Mark LaPedus

Chipmakers have stopped beating the 450mm drums. So what’s up with 450mm technology?

At one time, Intel, TSMC and Samsung were aggressively beating the 450mm drum. Chipmakers wanted, if not demanded, 450mm pilot line fabs by 2016, with high-volume manufacturing 450mm plants slated by 2018.

At least for those companies, 450mm made some sense. Moving to 450mm wafers would supposedly give chipmakers a 2.25x boost in wafer area and a 30% cost reduction over 300mm substrates. But, of course, the business model was (and still is) shaky. Only a few chipmakers can afford to build 450mm fabs, which, in turn, limits the total available market for selling fab tools.

But after resisting the move towards 450mm technology for several years, the fab tool industry finally decided to follow suit. With some arm twisting from the big chipmakers, the equipment industry started to develop their first tools based on the next-generation wafer size.

More recently, however, the 450mm drums have stopped beating and are now quiet. Needless to say, Intel and the rest of the industry have delayed the shift to 450mm fabs for the foreseeable future, leaving many to ponder the following question—Is 450mm technology dead in the water? The answer: 450mm is currently treading water.

If you ask Intel about 450mm, executives will insist it’s still on the roadmap for the latter half of the decade. But at a recent event, William Holt, executive vice president and general manager of Intel’s Technology and Manufacturing Group, said: “We can’t do it alone.”

Indeed, for 450mm to work, the big three chipmakers—Intel, TSMC and Samsung-must push and synchronize their efforts in 450mm, thereby making it easier for tool makers to align their R&D and tool shipments with the rest of the industry.

TSMC says it’s still interested in 450mm, but the company is now lukewarm about it and for good reason. TSMC discovered that fab tool vendors weren’t going to fund their entire R&D costs in 450mm. In fact, fab tool makers want chipmakers to assume more of the R&D and risk. For that reason and others, Samsung has completely backed away from 450mm.

So as it stands today, 450mm remains at a standstill. And in many respects, the industry hopes that 450mm remains delayed or will just simply vanish. After all, 300mm is doing just fine.

As before, the business model for 450mm remains shaky. Now, the technical rationale for going to 450mm is not as attractive as before. For example, chipmakers already have a tough enough time to fill their 300mm fabs during slow periods. And there really isn’t a new and big product driver that will fill a giant 450mm fab in down cycles.

So, why is 450mm still in the conversation? That’s because fab tool vendors have already invested in 450mm technology. To scrap those efforts would put 450mm on ice forever. “I don’t think 450mm is dead in the water,” said Joanne Itow, an analyst with Semico. “It’s still in the works, but it looks like it could get pushed out even further.”

And in fact, 300mm fabs still have plenty of legs. For example, some foundries, namely TSMC, still have huge fab capacities for 28nm technology within its existing 300mm plants. Many think 28nm will remain a long-lived node; the technology doesn’t require 450mm fabs.

In fact, TSMC is even encouraging customers to stay at 28nm and expand their production at that node, Itow said. “It’s a way to keep their capacity utilization up,” she said.

Nick Kepler, an analyst with VLSI Research, said 450mm still makes sense if the IC industry continues to follow Moore’s Law. Simply put, if the industry continues to move along the two-year or so process technology cadence, then chipmakers could get a substantial boost in wafer area with 450mm fabs. But if the traditional two-year cadence slows to a large degree, then 450mm may get pushed out to the next decade.

So what if 450mm remains delayed or gets scrapped all together? “With 450mm being pushed out towards the latter part of this decade, the industry needs to find more cleanroom space to meet demand,” said Christian Dieseldorff, an analyst with SEMI. “Starting around the 32nm/28nm node, there is an increasing ratio of cleanroom space (needed) when upgrading to the next node. Leading-edge nodes become increasingly complex. More process steps are required in multiple patterning. The loss of installed capacity per transition can range from about 8% to 18%, depending on the product and node.”

For example, a fab may have a capacity of 100,000 wafer starts per month (wspm) at 32nm/28nm. At 20nm, the “trade-in ratio” may end up being 80,000 to 90,000 wspm. “The trade ratio is even larger for 3D NAND. Companies need to find more cleanroom space to fill that hole in order to maintain the capacity,” he said.

So, the industry has three options—retrofit or build out existing 300mm fabs; construct new 300mm plants; or go to 450mm.

The first two options are already in play. At present, there are 90 volume fabs in the world today, in which about 55 of those are leading-edge plants that can make chips with feature sizes down to 32nm/28nm and below, according to SEMI. “We also list about 20 fabs with various probabilities, which will begin volume this year or sometime in the future,” he said. “Most of these are for foundries and memory.”

Then, there is the option to build new facilities. “I see this option happening, especially for the foundries such as TSMC and GlobalFoundries. On the memory side, I would expect no immediate need. But by 2015 to 2016, they need to start construction to have the fabs ready to ramp in one to one-and-half years later,” he said.

“How many do we need? Difficult to say. It depends on how fast the existing fabs will ramp, and how many of the older fabs will be refurbished. In addition, these new fabs will become larger with more capacity. Maybe two to four more memory fabs (may be required in the) 2017/2019 time frame,” he said. “But there are not many companies who can afford these.”

And what about 450mm? Many believe that 450mm fabs will still move into production, or at least in pilot lines, in the 2018 to 2020 timeframe. Here’s the best prediction: Based on the costs and delays, G. Dan Hutcheson, chief executive of VLSI Research, doesn’t see 450mm fabs moving into production until 2020 to 2025.

http://semiengineering.com/is-450mm-dead-in-the-water/

[Nick]

Some details on the Norelco-UMS merger deal Boon mentioned previously in this presentation slides - http://www.nracapital.com/factsheet/IR_n...tation.pdf

(Vested)

[Drizzt]

selling an immaterial stake could mean nothing or something negative. in terms of nothing, it can just be that under some stipulation they can't hold more than this number of shares (a bit out of this world) or that they want to de-link the relationship so that they can make more neutral purchasing and sub-contracting decisions.

[specuvestor]

Just my simple thoughts:

Agree the stake is immaterial to sell. So why did they bother to buy in the first place? IMHO it is a strategic stake in a supplier, not so much about PnL... so what do you think has changed after 12 years?

I agree with Boon that AMAT is not going to cancel their contract. But strategic stakes are not looking at next year anyway, if you get my drift. Will your view chage if AMAT sells down their stake to below 5%?

On 450mm there are many conflicting views because end of the day it is still R&D stage. If it cannot be commercialised you have to abort it. IMHO however I think it probably needs to go on because the node shrinkage is finally reaching a dead end beyond 10nm. Moore's law has already been slowing down dramatically in past few years. I am not unaware of the progress that semicon has made over past 50 years that "nothing is impossible" but the next step is likely to be a revolutionary change as significant as the shift from vaccuum tubes to transistors. There is that much you can improve on vacuum tubes, and I think the point has come for node shrinkage. Material science can only go that far to fit an atom width.

That's why the "easier" step is likely to increase the wafer size rather than shrink node further to cut costs until the next techological replacement is found. But I think we can live pretty comfortably next 2 decades with the die size we have now

I'm enjoying the robust discussion. No ill will intended

[Nick]

I don't think there is any stipulation on holding certain number of shares - if there was, UMS wouldn't have gone through with the bonus issue. This brings back memories of the crash in 2012 when the CEO sold off 2% of UMS shares and Quest World (9% stake) ceased to be a SSH in open market. There were questions on whether insiders thought this was the end of UMS profitability. Yet, profits has risen, share price has doubled and dividends has increased dramatically since then.

Assuming AMAT continues to sell its stake (besides the symbolic 193 lots), I speculate a few reasons:

1) Profit taking - unlikely.

2) They see no reason to continue maintaining a symbolic stake in the company. They may have identified a better manufacturer. Or they don't view Endura system to be very crucial post 2017. This would be bad news.

3) Both AMAT and TE has agreed to divest non-core assets to help streamline the mammoth company post-merger.

4) If it was just a 193 lots sale and no more, perhaps there were 'tax issues' or costs involved in the bonus issue so they sold shares to finance it - unlikely.

We have to wait till tonight or Monday evening to see if AMAT did cease to be a SSH judging by yesterday trading volume.

(Vested)

[Boon]

2000:
UMS secured AMAT as Major Customer

2002:
AMAT was first granted option to take a stake in UMS

2007:
AMAT exercised option and subscribed for 20,639,400 shares in UMS.

2008:
Applied Materials Breaks Ground for Asia Operations Center in Singapore

http://www.appliedmaterials.com/company/...-singapore

2010:
Applied Materials Opens Global Hub in Singapore for Manufacturing Semiconductor Equipment

The 32,000m2 Center, located in the Changi North Industrial Park, will serve as a hub for Applied’s semiconductor equipment manufacturing around the world, as well as support its worldwide supply chain operations and other corporate functions.

http://www.appliedmaterials.com/newsroom...-equipment

2010

From UMS Corporate Presentation Material :

http://umsgroup.listedcompany.com/misc/U...1_11am.pdf

Investment Highlights
- Leveraged competence in components to work with major customer during financial crisis to develop higher-value integrated systems, expanding product portfolio
- Efforts began paying off significantly from 2H2010; major reason for profit increase

Strategy Updates:
- Major customer is relocating more value added manufacturing to Asia
- Two years of process development with customer, reaping fruits only in 2H2010

2013 :

Announcement of merger of AMAT + TEL
Hinting to move more manufacturing jobs to Singapore

AMAT was at Credit Suisse Technology Conference held on December 3, 2013 and during the Q&A session, the statement by Bob Halliday:

Question: John Pitzer – Credit Suisse

Well, Bob, when you think about the Tokyo Electron transaction the cake is truly the fundamental synergies on the product side. I would argue the icing is some of the financial advantages you will get.

Can you walk a little bit through those advantages and, just in general, your view of cash flow and uses of cash and return of cash to shareholders?

Answer : Bob Halliday (AMAT)

Yes, there's a couple of leverage points there. One is generating more income and the second one, which is really fundamental, is generating better cash flow for investors. I think we have a real opportunity for both.

Because the combined companies in the strong wafer fab equipment yield like 37, we said we could do 18 billion. But even in a lesser year, we think we can do significantly better operating margins and that is really my focus for Applied and the combined companies to generate significantly improved operating margins even regardless of the volume. Okay, the wafer fab equipment volume.

So if you can generate 20%, 25% operating margins – and that is very viable even in a low year. Because you look at 50% drop through pretty strong IPs, strong product positions, good service business, we model 25% operating margin. I think that is very doable even in an off year. I don't know why we can't get to 20% or so. So then, what gets to investors? Cash, right?

So if you look at the semi cap industry it is an industry that inherently can generate significant cash returns as long as you don't get too much fixed cost. Because the industry tends to cycle up and down.

So if you look at the history of the industry, you have one boom year, one year you are ascending, its chaos growing, one year you make a lot of money and one year you write off everything. And that is a fundamental issue of putting too much fixed cost into the structures, too much time, it takes too long.

So, if you take these costs and time out you can make 20%, 25% operating margins pretty much year in and year out. And it is cash margins if you do it right. Because we don't have to invest a lot in fixed assets. Its receivables and inventory we cycle up and down and so the cash-operating margin can be 20%, 25%.

And what this merger unleashed for us was almost a unique opportunity structurally to merge the companies. One of the Japanese operating companies was an American operating company and put the parent company structure in Holland and also put a lot of the manufacturing and intellectual property value added through Singapore, which we have already sampled out of that.

So what you get is a much greater flexibility of moving cash around the Company, and returning dividends and higher share buybacks to investors. So, I think it is almost uniquely positioned as a company that can generate high cash returns to investors. And if we are successful in growing the Company, it's a big tech, potentially strong growth. Very high cash-generating business.

http://seekingalpha.com/article/1875061-...art=single

2014:

Research Report from KimEng_Maybank

http://research.maybank-ib.com/pdf/docum...4_5643.pdf

Lucrative OEM contract with Applied Materials
UMS has a five-year supply contract with AMAT to machine and manufacture components, sub-modules and whole systems for the latter’s Endura vapour deposition equipment from 2012 to 2017. As a result, as much as 80% of UMS’s revenue comes from AMAT such that a comparison of the two companies’ sales trends would look like they are the same company! Some investors may not like this single-customer, single-product dependency.
However, AMAT gives UMS a fixed percentage allocation (~80%) of its annual requirements at a fixed margin. In addition, this contract is renewable for another five years after 2017. In our view, UMS’s OEM business with AMAT appears to be sustainable.
We can think of two reasons why the two companies have such a strong relationship.
• First, their factories in Singapore are just five minutes apart. Competitors may be able to offer better pricing but they will never beat UMS in terms of speed to respond. According to management, AMAT practically treats UMS as its extension factory. This makes it difficult for a competitor to break into the business.
• Second, UMS also offers a comprehensive suite of more than 70 metal finishing processes in-house that its competitors cannot, such as chemical cleaning, anodizing and plating.

________________________________________________________________________________________________________________

Comments:
1) So, it appeared that UMS did leverage its competence in components and worked with AMAT during the financial crisis to co-develop higher-value integrated systems and expand product portfolio of AMAT - Efforts began paying off significantly from 2H2010.
2) I did mention this before – any process or product co-developed between UMS and AMAT, would implied sharing of intellectual property right- I don’t know how the R&D costs had been shared between them but the profit sharing seemed to be as reported by KimEngMaybank – AMAT gives UMS a fixed percentage of its annual requirements at a fixed margin.
3) Hence, as long as this shared intellectual property right – be it a process or an end product – still has its value – the strategic partnership between AMAT and UMS would be intact - unless AMAT is willing to buy it off completely from UMS.
4) It does not seem like the Endura system is going to be outdated soon – on the contrary, more PVD process steps are required in 3D chips including FinFET – otherwise AMAT would not have expanded on this platform with new products
5) If this is the case – and it appears to me that it is - it doesn’t really matters if AMAT sells off all its shares in UMS. .
6) It also would not matter much if UMS does not get more job from AMAT + TEL，if they could merge successfully- even if is in their game plans to move more manufacturing job to Singapore - but it would be an added bonus if it happens.
7) Without the co-sharing of intellectual property right - there is no other ways to explain the high margin that UMS has been able to enjoy since 2010.

(vested)

[Boon]

WOW!

No kidding ! Andy Luong sold 10 million shares yesterday.

What is going on?

http://infopub.sgx.com/FileOpen/eFORM1V2...eID=300592

(vested)