Nanometrics BUY

NANO : NASDAQ : US$16.41 BUY Target: US$20.00 COMPANY DESCRIPTION: Nanometrics is a provider of high-performance metrology and inspection systems used primarily in the fabrication of semiconductors to improve yields, increase productivity and lower manufacturing costs. Nanometrics’ systems address numerous applications, including critical dimension and film thickness measurement, device topography, defect inspection, overlay registration, and analysis of the optical, electrical and material properties of films. All amounts in US$ unless otherwise noted. Sustainability — Energy & Power Technologies MORE TOOLS TO BE FOUND IN THE FOUNDRY Investment recommendation We reiterate our BUY on NANO as we believe that the company will continue benefitting from increased memory spending and new design wins at major foundries in 2014. Investment highlights Nanometrics beat Q4 and issued a solid guide for Q1. Revenues were $46.2M compared to our $46.0M estimate and consensus of $44.9M. Non GAAP EPS were $0.04, compared to our and consensus estimate for a loss of one cent. The company guided for revenues of $48M-$54M with EPS of $0.01 – $0.13 compared to consensus of $51M and $0.08. While Q4 reported revenues were strong on their own, we highlight that shipments were even better as the company began delivering systems to a new fab and to a new customer, which we believe is Samsung’s massive Xian 3D NAND fab and TSMC, respectively. These revenues as well as what should be significant follow-on systems will begin to be recognized in Q1. Nanometrics has long been well-entrenched in memory and at Samsung specifically. Samsung is currently the most aggressive with respect to 3D NAND but Nanometrics also mentioned pilot 3D NAND wins at 2 other memory manufacturers. We believe that 3D NAND will require more etch steps and thus more insertion points for critical integrated and stand-alone etch OCD measurements. Furthermore the win at TSMC, which was pulled in to 20nm from 16nm is also incremental to the model from the previous peak and ramping faster than expected. We believe that the increased capital intensity of leading edge nodes and continue share gains will lead to above-industry growth and a return to strong profitability.


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