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1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.

(NASDAQ:ACL

Axcelis:Undervalued,UnderFollowedBeneficiaryOfThe
TransitionTo3DNANDAndSub20nmDRAM
MustRead | Jan.5,201612:38PMET15comments
by:ThomasMegson
Disclosure:Iam/wearelongACLS.

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Summary
Axcelisisastrongplayonnewcapexprioritiesamongthelargestmemorychipmakers.

Revenueandmarginsarehighlyleveragedtocapexattheleadingedgeofthememorymarket.

Enterprisevalueisbelow$2/shareforacompanythatcouldbeata50runrateinayear.

TheCEOandthreeEVPsboughtsharesrecently,thefirstsignificantinsiderbuyinginyears.

Thecompanyhas$300MinNOLs,$2.50/share,andisanaturalfitforLRCX/KLAC.

Summary

Axcelis(NASDAQ:ACLS)isanunheraldedbeneficiaryoftheshiftinchiparchitectureto3DNAND,includingIntel/Micron's
XPoint,andtheunmetandgrowingdemandforsub20nmDRAMindatacenterandserverapplications.Mostofthe
installedbaseofimplantersarenotcapableoftheprecisionnecessarytoachievesatisfactoryyieldsatsub20nmline
widths.Axcelis'newPuriontoolsaddressthenewmanufacturingchallenges,representthefirstmeaningfulinnovationin
implanttechnologyinadecade,andaregainingshareatseveralofthelargestchipmakers.

Theinvestmentcaseforthestockrestsonrevenuegrowth,specificallybuildingmarketshareinionimplantwithleading
edgememorycustomers.Operatingresultsarehighlyleveragedtorevenueandthedeltaonrevenueishighlydependent
onsalestoleadingedgeplayers.In2015,Axceliswilldo$80M+inrevenueattheleadingedge,upfrom~$15Min2014
andvirtuallyzeroforseveralyearsprior.Bytheendof2016,sharewillbehigherandtherunratewillalmostcertainlybe
higher,perhapsdramaticallyso.Inaddition,thecompanyisgenerating$80Minrevenuewithnonleadingedgefoundries,
primarilyforIoT,andasteadyandgrowing$130Matgoodmarginsfromitsaftermarketbusiness.

Background

http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 1/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

AxcelisandAppliedMaterialsaretheonlytwocompaniesthatmakeionimplanters,whichareusedintheproduction
processforallcomputerchips.Theimplantmarketis$900M/year10%,a3%nichewithinthe$30B+marketfor
semiconductorcapitalequipment.Appliedisthelargestcompanyintheindustrywith$10Bsales,whileAxcelisisoneof
thesmallestwithlessthan1/30thofApplied'ssales.Apointtonoteisthatimplantis100%ofAxcelis'business,whileonly
6%7%ofApplied's.

Intheearly2000s,implantwasathreehorseracebetweenAxcelis,AppliedMaterials,andVarian.Abouttenyearsago,
VarianmadeatechnologicalleapandbecamesodominantthatAppliedabandonedthemarketaltogetherandAxcelis
steadilylostallbutatokenmarketshare.AppliedboughtitswaybackinbyacquiringVarianin2011formorethan$4B,5x
itsnearmonopolysales,andsincethenhastreateditmoreorlessasacashcow.

Therearethreetypesofimplantershighcurrent(HC),mediumcurrent(MC),andhighenergy(HE),eachwithadifferent
purposeandwithcurrentimplantsharesof60%,25%,and15%.EventhoughApplied/Varianhasdominatedthemarket
forHC/MCtoolsforyears,Axcelishasmaintainedahighshare,wellabove50%,inHEtoolsinpartbecausethesegment
istoosmallforAppliedtobotherwith.Thisisabouttobecomeimportant.

RecentDevelopments

During20132014,Axcelisintroduceditsnew,threetoolsuiteofimplanttools,brandedPurion,basedonspotbeam
technology.Thetoolsweredevelopedoverseveralyearswithfeedbackfromindustryparticipantsandrepresentthenext
stepforwardinimplanttechnology,particularlyintermsoftheprecisionandpurityrequiredtoachievesatisfactoryyieldsin
manufacturingsub20nmlinewidths.Appliedhasrespondedbymakingimprovementstoitstenyearold,ribbonbeam
technologyinhopesofremaining'goodenough'.Goodenoughissufficientforlowstack3D,thoughperhapsnotforhigher
stacks,butbecomesincreasinglyproblematicat18nm(Samsung'scurrentfrontier)andbelow.Itisnotlostoncustomers
thatAppliedcouldhavemademanyofitscurrentimprovementsmuchearlierandhasactednowonlyduetoAxcelis'
innovation.Consequently,theyareoutspokenintheirdesiretohavetwostrongimplantcompetitorsandwillfactoritinto
futurespendingdecisions.

Thereisoftenasignificantlagbetweenintroductionandacceptanceofanewprocesstool,asonewouldexpectwhenthe
productivityofamultibillionfabisatstake.Thisisespeciallytruewhentheinnovatorisasmall,standalonecompanyina
nichesegmentdominatedbythegorillaoftheentiresemicapitalequipmentindustry.Thereisalottoprove.

AxcelisintroduceditsPurionHCimplanterin2014.Samsung,#1inmemoryandarmedwitha$20Bcapexbudget,tooka
single$4milliontoolona12monthevaluationtrialwithnomoneydown.Within4months,Samsungputthemachineinto
fullproductionandorderedmanymore.Throughthefirstninemonthsof2015,SamsunghasaccountedforhalfofAxcelis'
systemsalesand33%oftotalrevenue,upfromnexttonothing.

Whenthebiggestchipmakerintheworldembracesanewproductfromasmallplayer,otherchipmakerstakenotice.In
late2014,Hynix,#3inmemory,tookasingleHCtoolforevaluation,althoughitsprojectwaspushedbackafewquarters
followingaconstructionaccident.InJuly,2015,Micron,#2inmemory,tookasingleHCtoolforevaluationforitsIMFlash
jointventurewithIntelinLevi,Utah.Noneofthethreearecurrentcustomers.

Therehasbeennofurtherpublicannouncementonthestatusofthetrialsuntilthissomewhatobliqueexchangeduringthe
Q&AontheQ3earningscall.Itssignificanceisbeingoverlooked.

Q:"AndyoumentionedthatyouhavetwonewcustomersthatarereadytorampuponthePurionplatformnextyear,
sometime.Couldyoutalkabout[that]..".

A:"Yes,sothefirstprojectandfirstcustomer,weexpecttoseeactivityinthefirstquarter.ThatactivitywillbewithPurionH,
thehighcurrenttool.Thatcustomerisqualifiedwithallthreetools.Thiswasafabprojectthathasbeendelayedalittlebit
andsothehighenergytoolsthattheyrequireareactuallyalreadyonsite.SecondcustomerisaNANDproject,andthat
againiswithPurionHandthat'stargetedforthesecondquarter."

ThatisascloseasonecancometonamingHynixandMicronwithoutactuallyspeakingtheirnames.

ImplicationsforAxcelisofshiftingcapexprioritiesinthememorymarket

http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 2/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Atcurrentmarketshare,Axcelisbooks$34millioninrevenueon$100millionofNANDimplantcapexcomparedto$19
millionon$100millionofDRAMimplantcapexsimplyduetothemixoftools.That's75%morerevenuefromequippinga
NANDfabwithimplantersthanaDRAMfab.ThereasonisthatNANDproductionrequires3xtheinvestmentinHE
implantersper100KwaferstartsasDRAMandAxcelis'PurionHEtoolistheindustrystandard.Onlyonefabintheworldis
massproducing3DNANDasofQ42015,sotheimplicationsaren'tyetevidentinthereportednumbers,buttheywillbe
soon.

Inroundnumbers,itcosts$140milliontoequipafabwithsufficientimplantersfor100Kwspm(waferstartspermonth)of
NAND$90millionforHC/MCtoolsand$50millionforHE.

ACLS'CurrentNANDImplantShare

NANDBudget % $ Overall$Share

HC/MC $90 15% $13

HE $50 70% $35

$140 $48 34%

Source:AxceliswebsiteandIR.

Inroundnumbers,itcosts$190milliontoequipafabwithsufficientimplantersfor100KwspmofDRAM$175millionfor
HC/MCtoolsandonly$15millionforHE.

ACLS'CurrentDRAMImplantShare

DRAMBudget % $ Overall$Share

HC/MC $175 15% $26

HE $15 70% $11

$190 $37 19%

Inroundnumbers,Axcelis'shareofimplantrevenueincreasesby30%indollarswhencapexshiftstoNANDfromDRAM
forequalwaferstarts,despitea25%lowerimplantbudget.SothenewsthatSamsungandMicronarecuttingtheirDRAM
budgetsneedstobeplacedincontext.Furtherperrecentannouncements,SamsungandMicronalongwithHynixare
intensifyingnotreducingtheirinvestmentinDRAMcapacityat20nmandbelow.ThisisthesweetspotforAxcelis'HC
tool.

Nowconsidertwopoints.

1.MicronandIntelhaveneverpurchasedHEimplantersfromAxcelis.HEtoolsareanafterthoughtwithDRAM,Micron's
primaryproducttodate,andarenotrequiredatalltoproduceIntel'slogicchips.Thatwillchangein2016asMicronequips
theIMFlashJVtoproduce3DNAND.WhenIntelbeginstoequipits$5billion3DNANDfabinDalian,China,itwilluse

http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 3/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Axcelis'HEtools,too.Thereisnocrediblealternative.Axcelis'shareofHEtoolsisalready70%andwillincreaseas
Micronswitchesover.

2.Implantrequirementsforhigherlinewidthsarenotrigorous,someofthetoolsinusetodayare15yearsold.At18nm
andbelow,however,implantrequirementsbecomeevermorerigorousintermsofboththeprecisionneededtoachieve
acceptableyieldsandtheabilitytominimizematerialscontamination.Purionisdesignedforsub20nm.Applied'sribbon
beamtechnologywasnot.NotethatwhenthethreelargestmemorymakerstookanAxcelistoolforevaluation,theytook
theHC.Theydon'tneedtoevaluatetheHE,Axcelisalreadyownsthatniche.

WithSamsungalreadyavolumebuyer,HynixpoisedtobecomeoneinQ1,andMUinQ2,Axcelis'shareofHC/MCtools
willrise.IexpectAxcelistoachieveatleast50%shareofimplantersforsub20nmDRAMwithintwoyears.Putanother
way,IcannotseeAppliedwithitsdatedtechnologywinningmorethan50%ofthosesales.

Ascapexforimplantintensifiesattheleadingedgebeginningin2016,Axcelis'shareofthosedollarswillrisesubstantially.

ACLS'Prospective3DNANDImplantShare

NANDBudget % $ Overall$Share

HC/MC $90 30% $27

HE $50 85% $43

$140 $70 50%

ACLS'Prospectivesub20nmDRAMImplantShare

DRAMBudget % $ Overall$Share

HC/MC $175 50% $87

HE $15 85% $13

$190 $100 53%

Axcelishasdoubleditsshareoftheimplantmarketinthelasttwoyearsfroma'barelyregisters'9%in2013toa'becoming
respectable'17%20%thisyear.Itsgoalandexpectationistodoublemarketshareagaininthenexttwoyears,which
soundsaudaciousbutisnot.Theshiftinspendingto3DNANDandsub20nmDRAMwillbeahugetailwind.35%share
oftheoverallimplantmarketin2017isachievableandimpliesoverallrevenueabove$450M.

OperatingModel

Incrementalgrossmargin(GM)isabove40%andwillpulloverallGMtherefromthemid30sassalesincreaseandthe
supplychainnormalizes.ThecompanywascaughtoffguardbySamsung'slarge,rapiduptakeinearly2015andincurred
extracostsinsourcingcomponentsandexpeditingshipments.Theirfocusnowisondrivingdownproductioncostsby
adoptingleanmanufacturingpracticesandoptimizingitssupplychain.

http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 4/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Operatingmarginishighlyleveragedtorevenue.Operatingexpenseshavebeenwrungoutdown10%overthelastthree
yearswhilerevenueisup40%.Goingforward,thecompanyexpectsonlyasmalldeltatoexpenses,essentiallysales
commissions.Asaresult,incrementalGMdropsnearlyintacttoEBIT.ThiscutsbothwaysaswesawwithQ4guidance,
buttheconsequentdropinthestocksimplyhascreatedabetterentrypriceforanyonewithaninvestmenthorizonlonger
thansixmonths.

A35%marketsharein2017impliesearningsof70/share(untaxedduetotheNOLs)andyearendcashof$1.50/share.

MarginofSafety

Axcelishas$80Mincashandanother$120Minworkingcapital,equaltogetherto2/3ofthemarketcap.Thereisno
conventionaldebtifyouregardaleasecommitmentontheirHQascapitalizedrenttobepaidfromoperatingcashflow,as
Ido.Infairness,itwasthesale/leasebackofthefacility,completedinQ12015,thatcontributed$50Mofthecurrentcash.

Thebalancesheetisremarkablewhenoneconsidersthecompanyspentover$150MonR&Dfrom20112014in
developingPurionandincurred$50Minoperatinglossesinthoseyears.Nowoperatingexpensesaredownandtightly
controlled,capexisonly$1$2M,andmanagementexpectsnoworsethanbreakevencashflowandearningsthroughout
thecurrentsemicapexsoftness,whichisatremendousimprovementoverpriorexperience.Whenrevenuegrowth
resumes,freecashwillnearlymirrorEBITwithonlyamodestnegativedeltainsupportofworkingcapital.

Otheritemsofinterest

1.TheCEOandthreeEVPspurchasedsharesintheopenmarketinNovemberwhenthestockdroppedfollowingtheQ3
earningsreleasethatloweredQ4guidance.Itisthefirstmeaningfulinsiderbuyinginyears.TheCEOinvested$100K,
20%ofherbasesalary.

2.FromtheAxcelis11/4/15earningscall:"We'vegotmultiplecustomersinthepipelineintonextyeareveniftheyearisa
littlesofterthan2015was.Andaswemovetowardsthesecondpartofnextyear,wedoexpectthememorysidetopickup
again.Andwedobelievethereisafairlybigandprolongedmemorybuildonthehorizon."

FromMicron'scommentsattheUBSconferenceon11/17/15:"..therunwayinfrontofthetransitionfromplanarto3D
NAND,thereisalongrunway,maybeasmuchasadecade.Youwillseeplanarto3D,youseethenew3Dwafersadded
andthenincreasinglywhatyou'llseeisconversionof3Dto3Dgeneration2togeneration3.."

FromIntel'spressreleaseon11/19/15:"..memorybusiness[is]expectedtobe[a]growthengineforthecompany."Intel
hasannounceditwillinvestupto$5.5BtoconvertitsfabinDalian,Chinato3DNAND(whichcanthenbeshiftedto3D
XPoint),ofwhich$1.5Bisbudgetedfor2016.

3.Inlate2012inconjunctionwiththesaleofitsdrystripbusinesstoLamResearch,AxcelisandLamagreedtowork
togethertoensurecompatibilitybetweenAxcelis'implanttoolsandLam'setchtools.Thereisinstitutionalhistoryand
culturalcomfortbetweenthetwocompanies.Thismaybecomepertinent.

LamismergingwithKLATencortoforma$20Bmarketcap,semicapitalequipmentgiantthatwillequalAppliedMaterials
insize.Themergerpresentszeroproductoverlap,extendsLam'sfootprintwithintheindustry,andbetterpositionsittohelp
customersdealwithcomplexproblemsbyofferingamoreendtoendsolution.However,Lam/KLAwillnotbeApplied's
equalinatleastonerespectitwillhavenopositioninionimplantandtoquoteAxcelis'CEOfromtherecentcall,"Memory
processflowsofalltypesarecapitalintensive[for]ionimplantation".

Lam/KLAisalogicalacquirerofAxcelis.Itwouldbecomethetechnologyleaderinimplant,havezeroproductoverlap,
furtherextenditsendtoendofferinginadvancedfabs,andmostlikelybeabletoliftitsimplantmarketshareto50%or
moreonthestrengthofitsdistributionandbrand.Isuspectitishowthisstorywillend.

4.Axcelishaspolleditsinstitutionalholdersaboutareversestocksplitandreceivedaverypositiveresponse.Therewould
beseveralbenefitsincreasethepoolofpotentialinvestorstoincludeinstitutionsthatdon'tscreenfor/cannotinvestin
stockstradingbelow$5,increaseowners'buyingpowerbymakingthesharesmarginable,saveamodestamounton
administrativeexpensesassharesofalargenumberofsmallholderswhoremainfromthespinofffromEatonare
redeemedforcash,andremovethestigmaofbeinga'penny'stock.Lookforboardapprovalnolaterthantheannual
meetinginmidMay.
http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 5/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Intheory,splitsarenoneventssincetheunderlyingfundamentalsofthecompanyareunchanged.Inpractice,thereisa
realbenefitifthepoolofprospectivebuyersisenlarged.

NotethatthehighsharecountdatestothespinofffromEatonandisnotduetosellingequitytocoveroperatinglosses,as
isthecasewithmany$2stockswithtoomanyshares.Mostcompaniesthatreversesplitarefinanciallytroubledandtheir
stockscontinuetodopoorlypostsplit.Thesmallersubsetthataregrowing,haveastrongbalance,andaoneoff
explanationfortheirhighsharecountusuallydoverywellpostsplit.

SummingUp

SemicapexspendingisinalullandAxcelisisfeelingtheslowdowninQ4asitslargestcustomer,Samsung,pullsback.
However,twoofthetopthreememorychipcompaniesarepoisedtobecomevolumebuyersinQ1andQ2andbothwillbe
newcustomers.AxcelisisassuredofgainingmarketshareascapexshiftstoNANDfromDRAMandasitsHCtools
continuetotakeshareinleadingedgeDRAM,whichremainsinshortsupply.Thecompanyisnotseeingorderpushouts
asoflateQ4,IoTdemandremainsstrong,andthereisanimperativetobring3DNANDtomarketin2016.Intellurksasa
wildcardwithitsplantoinvestheavilyin3DNANDinChina,asdoestheChinesegovernmentitself.Revenuegrowthwill
drivedramaticimprovementinEBIT,thebulkofwhichwillbefreecash.Thespendingpausemaylastintothefirsthalfof
2016butisbarelygermanetoAxcelis'prospectsbeyondthenextseveralmonths.Iexpectthestocktotradeabove$5in
2016andabove$8in2017.

Comments(15)

DanStringer,Contributor
GreatextrapolationontheirmarketsIamLongACLSaswell.Iamguessingthatyoufeelthewarning
aboutQ1isreallyashorttermblipwiththepotentialInteljplantetc.comingonboardlater.Themargin
explanationisalsoveryhelpful.

05Jan2016,12:59PM

ThomasMegson,Contributor
Authorsreply DidyoumeanQ4?Theyhaven'tsaidawordaboutQ1thatI'maware.
Regardless,I'minterestedinlongtermgains,sohavea12+monthhorizonandamnotmuch
concernedwithcurrentquarterresultsaslongastheyareinline.

ThisyearIexpecta14reversesplit,whichtranslatestoa$10stockpriceon30Msharesat
today'sprice.Onthose30Mshares,theyshouldexitQ4in12monthswithanepsrunrateof
$2/share,untaxed,$3$4/shareincash,andnodebtoutsideofthecapitalizedlease.In2017,
epsshouldapproach$3/shareuntaxed,with$5$6incash,whichshouldpushthestocktothe
upper$30s,orabout$9equivalentonthecurrentsharecount.LRCXmaybuythembefore
thisplaysout,butthat'smytarget.

05Jan2016,09:04PM

betico

http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 6/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Reversesplit,why?There'snoneedforone.

08Jan2016,04:41PM

ThomasMegson,Contributor
Authorsreply Thereisnoneedinthesensethatthereisnodangerofbeingdelistedbut
theywouldliketomakethemselvesmoreattractive/accessibletoinstitutionalinvestors,many
ofwhom(outsideofindextype,smallcapfunds)rarelytouchstockspricedbelow$5.

Thestockisincrediblycheapaftertheroutthisweek.EnterpriseValueisbelow$1.70/shareas
oftoday'sclosebutthestockwon'tshowuponmoneymanagers'buyscreensbecausenearly
allwithmorethanatokenamountofassetsundermanagementhaveahardcutoffinthe$4
$6range.Icantellyoufromexperiencethatclientsstartcallingwhentheyseeyou'veputthem
intoa$2stock.

08Jan2016,05:25PM

BrendanRose,Contributor
Fantasticstuffonatoughcompanytogetahandleon.(Remindsme,glossariesshouldbestandardin
10Ks.RecentlyNPTNwasthe5thor6thopticalcomponentsOEMwhose10KIscanned,butthefirstto
startthethingoffwithasectiondefiningafewdozenterms,ahugehelp.)

Anyhow,itstrikesmethatthechipequipmentindustryisunusuallydiligentaboutthisconsolidation
thing.Insomanyotherplacesyouseeamarketthissize,$1b,with67hangerson,onlifesupport,with
noplausiblepathtoeconomicprofitability,ruiningeverythingforthetop12guys,sothattheentire
industrycanbarelybreakeven.(NPTN'sopticalcomponentsspaceislikethatnotonecompanywith
positiveretainedearnings!)

Inchipstheydon'tmessaroundthough.Theincumbentsarerobustlyprofitable.Thewannabeseither
dieorgetsnatchedup.

Afewyearsagothiswasn'tobviousbutwenowknowACLSisn'tgonnadie.They'realsoprobablynot
gonnado20%+cashflowmargins(notthatyourequirethat)likeAMATandLCRX.Nowchancethey
candriveoverheadthatlowwithsuchlimitedscaleandscope.

Fair?

AnysensethatACLS'sstrategyissomethinglike:fixerup,nab3050%share,getprofitable,andthen
sellout?

ACLSmustbemorevaluableinLam'shandsthannot.

06Jan2016,03:17PM

ThomasMegson,Contributor
http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 7/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Authorsreply Youraiseacoupleofgoodpoints.IonimplantISatwofirmoligopolythereis
nopricecompetitiontospeakof.Appliedwon'tcutpricesfortworeasonsitwouldsacrificefar
moremarginonitscurrentlydominantsharethanitcouldeverhopetoregainand,second,it
hasbiggerfishtofry.Appliedis#3inetch,whichplaysacriticalroleintheproductionof3D
NANDandisafarlargermarketthanimplant.ItisfocusingitsR&Dandattentiononthat
market.A5%sharegaininetchforAppliedwouldrepresentabout4xthedollarslostfroma
10%sharelossinimplanttoAxcelis.Ineffect,theyhavebeenmilkingimplanttofundetchand
thatisalmostcertaintocontinue.

TogetahandleoncashflowmarginsonehastounderstandthatAxcelishasahockeystick
operatingmodel.Thatis,operatingexpensesfrom2013forwardhavebeenandshould
continuetobeflatat$20M$22M/qtr.ThisiswhyIstatedupfrontthattheinvestmentcase
restsonrevenuegrowth.Incrementalgrossmarginonimplantersisinthemid40sandvirtually
allofitdropsto(orevaporatesfrom,inthecaseofQ4)EBIT.

Ithinkthecompanyhasagoodshotat$450M$500Minrevenuein201735%overallshareof
$900M$1Binimplantsystemsalesand$140inaftermarketrevenue(parts,spares),whichis
onlya10%bumpfromthecurrentlevel.Thatis$160M+ofincrementalrevenuevs.2015at
45%GMaddedto2015EBITof$19Mhockeystick!

IfAxcelisdoesachieve$450Minsalesin2017,freecashflowmarginshouldhitthe20%you
mention.That'sFreeCash:EBITDAinterest,taxes,andcapex,althoughAxceliswillpayno
taxesforsometime.2017freecash/currentEVcouldpush40%!That'sacrazyvaluation!

Bytheway,Icomeupwith14%15%freecashmarginforAMATandLRCXfortrailing12,
althoughLRCXdidgetto20%initslatestquarter.

Toansweryourfinalquestion,itdoesn'tseemlikelythatACLSwillremainindependentwhen
thetwogorillas,AMATandLRCX,willbebattlingtosupplyendtoendsolutionsformultibillion
fabsandLRCXlacksanyimplantcapability.Inaddition,ACLS'CEOandCFOhavebeenwith
thecompanysinceitwasownedbyEatoninthe1990sandhavebeenthroughthewringer
twicethetechbubbleandsingledigitmarketsharepost2008.Bothwillturn60in2017,are
pullingoffaremarkableturnaround,andsurelyareeagertogooutontop.

06Jan2016,11:33PM

ThomasMegson,Contributor
Authorsreply Quicknote.TheincreaseinQ4guidanceissuedtodayisalmostsurelyHynixofficially
acceptingtheirevaluationtoolaheadofmoredeliveriesinQ1.

12Jan2016,09:43AM

DanStringer,Contributor

http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 8/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Musthavehappenedneartheendofthequarterastheywaiteduntilpostquartertoannounce
it.GoodNewsthoughandproofoftheconcepttheyareataninflectionPoint.Congratsonthe
frontpageaswell!

12Jan2016,11:11AM

BrendanRose,Contributor
Whenwasthatevaluationtoolpreviouslyexpectedtoship?JustsometimeinQ1?Also,do
companiestypicallyonlytake1evaltool?Orlike1today,anothernextmonth,anotheramonth
afterthat?I'mtryingtogetafeelforwhatcanbeinferredaboutQ1fromtheaccelerated
timelinehere.

12Jan2016,04:35PM

ThomasMegson,Contributor
Authorsreply Theshortanswerisalittlecanbeinferred,butnotalotandnotwithfull
confidence.It'slikelytoday'sannouncementrepresentsHynix'evaltool.TheCFOhasstatedit
wouldgetbookedinQ4orQ1.It'sapositivebecauseHynixisexpectedtotakedeliveryof
volumeshipmentsinQ1andthisshouldclearthedecks.However,itdoesn'ttellusanything
aboutthesizeoftheexpecteddeliveries.

Itisanotherexampleofmanagementdoingwhattheysaytheywilldo,somethingIvaluehighly
insmallcompanies(andlargeones,too).

Samsung,Hynix,andMicronalltookasingleHCtoolfora12monthtrial.Iwouldhopeoneis
allAxcelisallows.WhenAxceliseventuallybooksanevaltoolasrevenue,ittreatsitassaleofa
loanerandeatssomeofthegrossmargincomparedtoanewmachine.Thatiswhyguidance
forrevenuewasraisedthismorningbutforGM%wasnot.IncrementalGM%onnew
implantersremainsroughly45%.

12Jan2016,06:16PM

Stanward99
Interestingarticlebutwhyisitsocheap?

12Jan2016,10:28AM

BrendanRose,Contributor
Letmetakeastab:

Thesmallerthecompanythemoresuperficialtheanalysis,i.e.thefewerbitsofevidenceget
priced.

Whatgetsemphasizedisthenumbersrevenue,margins,returnsoncapital,growth,etc.
http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 9/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Whatgetsneglectedis,forexample,themeaningandimplicationsofACLS,seeminglyoutof
theblue,winningbigcompetitivedealswithSamsung,theworld'spreeminentmemorymaker.
Orevenmoresuperficialattractivebitsofinfolikethatthere'sonlyoneotherplayerinthe
industry.

WhenIfirstlookedatACLSIgaggedbecausethenumbersstink.Well,therecentonesdon't,
butI(appropriatelyIthink)putlotsofweightonwhat'shappenedintheprior3,5,and10
years.I'mskepticalofturnaroundstories.

Anyonewitharigorousstatisticalinvestinggradingsystemistoo.Forexampleit'sbecoming
wellknownthan"quality"companieshaveoutperformedinthelongrun.Andthewayto
measurequalityinawaythatpredictsthehighestexcessreturnsistolookattheleveland
consistencyofX(margins)foratleasttheprior35years,soasnottogetfooledbyheadfakes.

SoIdon'tthinkthevaluationisthatperplexing.They'rebeingforcedtoproveitbecausethere's
notthatmanypeopleawareofthedeeperreasonstoexpectthisturnaroundtopersist.

12Jan2016,11:10AM

ThomasMegson,Contributor
Authorsreply Thisisthefirstyeartheyhavebeenprofitableinawhile.Samsung's
endorsementofthePurionimplantersliftedrevenueto$75M/quarterin2015from
$50M/quarterin20121014.Theylostmoneyattheoperatinglineinthosethreeearlieryears,
thoughprogressivelylessasgrossmarginimprovedandexpensecontrolskickedin.
$75M/quartermakesthemprofitablebutonlyto1214cents/shareuntaxed.Theyneedtobook
revenuefromotherbig,newcustomers,whichlookssuretohappeninQ1(Hynix)andQ2
(Micron),andhaveSamsungresumebuyingwhichlikelyhappensinthesecondhalf.A25%
shareofimplantsystemsalesin2016,whichIthinkisaconservativetargetforreasons
explainedinthearticle,willliftrevenueto$95M/quarterandtripleepsto40cents/share
untaxed.That'sthepowerofthehockeystickoperatingmodel.Itwon'thappeninQ1,and
probablynotinQ2dependingonthetimingofMU'suptake,butthesecondhalfwillbestrong,
barringamacromeltdown,withmomentumbuildingtoward$110$120quartersin2017.

Asecondaryreasonforthelowvaluationislackofsponsorship.Anumberofsellsideanalysts
followthecompanybutnonearelikelytorecommendthestockbecausetheirinstitutional
clientswon'ttouch$2stocks.That'swhyIthinkareversestocksplitwouldhelpvaluation.In
addition,thefiveanalystswhocontributeestimatestotheReutersdatabaseareforecasting
decliningrevenuein2016.That'sjustnotgoingtohappenshortofamajorrecession.

12Jan2016,11:34AM

WilliamKoldus,CFA,CAIA,Contributor

http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 10/11
1/12/2016 Axcelis:Undervalued,UnderFollowedBeneficiaryOfTheTransitionTo3DNANDAndSub20nmDRAMAxcelisTechnologies,Inc.(NASDAQ:ACL

Thomas:

Youhavepeakedmyinterest.IamgoingtoresearchACLSfurther.Thankyouforthearticle.

12Jan2016,02:50PM

ThomasMegson,Contributor
Authorsreply You'rewelcome.Ithinkyouwilllikewhatyoufind.

12Jan2016,03:13PM

http://seekingalpha.com/article/3791086axcelisundervaluedunderfollowedbeneficiaryofthetransitionto3dnandandsubminus20nmdram 11/11