2020 was an eventful and positive year for the semiconductor sector, and 2021 looks like a promising one too. The operations of several businesses have undergone drastic changes and a reliance on technology has increased significantly worldwide thanks to the COVID-19 pandemic. Semiconductor companies are flourishing because their products are key components in innovative technologies that are helping individuals and businesses stay operational during the current, unprecedented public health crisis.

Remote working, virtual learning and entertainment, and e-commerce have propelled the adoption of cloud computing and increased the demand for semiconductors. 5G connectivity, digital gaming, nanoelectronics, and increased adoption of autonomous vehicles are some of the other big demand sources for the semiconductor industry. Consequently, the chipmakers have been expanding their facilities to meet the surging demand. We believe the  entire digital ecosystem, including wafer fabrication and semiconductor equipment manufacturers, is poised to witness significant growth this year and beyond.

Experts project that global wafer fabrication will expand to $61.9 billion by 2023. The global semiconductor manufacturing equipment market is expected to grow to $101.6 billion by 2027.

So, here are three companies in this space that we think are strategically positioned to reap major benefits from the sector boom: KLA Corporation (KLAC), FormFactor, Inc. (FORM), and Veeco Instruments Inc. (VECO).

KLA Corporation (KLAC)

KLAC is a capital goods company that is involved in the design, manufacture, and marketing of yield management solutions and process controls for the semiconductor and allied nanoelectronics industries. The company also provides chip and wafer manufacturing products that include defect inspection and review systems.

In September, KLAC announced the launch of new inspection tools for semiconductors, which include  its Kronos™ 1190 wafer-level packaging inspection system, its ICOS™ F160XP die sorting and inspection system and its next generation of the ICOS™ T3/T7 Series of packaged integrated circuit (IC) component inspection and metrology.

During the first quarter, ended September 30, 2020, KLAC’s revenue climbed 8.9% year-over-year to $1.5 billion, driven by its  Semiconductor Process Control segment. Its EPS for the quarter was $2.69 versus  $2.16 posted in the same period last year.

The consensus revenue estimate for the quarter ended December 31, 2020 is $1.6 billion, representing a  5.8% year-over-year increase. Its EPS is expected to grow 19.9% to $3.19. The company expects revenue for the second quarter to be in the range of $1.5 billion to $1.6 billion.

KLAC ended Friday’s trading session at $280.07, climbing 63.1% over the past year. During the past six months, the stock gained 435%.

KLAC strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. KLAC has a B for Momentum Grade, Quality Grade, and Industry Grade. Of the 96 stocks in the Semiconductor & Wireless Chip industry, it is ranked #40.

In addition to the POWR Ratings grades I have just highlighted, you can see KLAC’s ratings for Growth, Value, Stability, and Sentiment here.

FormFactor, Inc. (FORM)

FORM is involved in the production, manufacture and sales of analytical probes, probe stations, metrology systems, and thermal subsystems. The company markets  probe cards for the testing of various semiconductor devices. FORM also provides probing stations for semiconductor design engineers.

FORM has partnered with T.I.P.S. Messtechnik GmbH (T.I.P.S.), a leading supplier of specialized high voltage, high current probe cards, as a part of its MeasureOne partnership to market test and measurement solutions for high power devices. MeasureOne is a commitment between FORM and a select group of partners to  deliver performance-validated, integrated solutions to address customers’ test and measurement applications.

FORM’s revenue for the third quarter ended September 30, 2020 climbed 26.6% year-over-year to $178 million. Its, EPS for the quarter climbed to $0.29 from $0.26 posted in the same period last year. Its free cash flow at the end of the quarter climbed to $37.2 million.

The Street estimates FORM’s revenue for the quarter ended December 31, 2020 to be $184 million, representing a 3% increase year-over-year. Meanwhile, its EPS is likely to increase at the rate of 20% per annum over the next five years. FORM expects  revenue for the quarter to be in the range of $178 million to $190 million.

FORM has gained 56.3% in the past year to close Friday’s trading session at $40.87. The stock has climbed 35.3% during the past six months.

FORM’s strong fundamentals are reflected in its POWR Ratings. It has a B for Momentum Grade, Growth Grade, and Quality Grade. It is ranked #45 in the Semiconductor & Wireless Chip industry.

In total, we rate FORM on 8 different levels. Beyond what we stated above we  have also graded FORM for Value, Stability, Sentiment, and Industry. Get all the FORM ratings here.

Veeco Instruments Inc. (VECO)

VECO is involved in the development, manufacture, and sales of semiconductor and thin film process equipment to manufacture electronic devices worldwide. The company also offers ion beam deposition and etch systems, laser annealing systems, and metal organic chemical vapor deposition systems.

VECO recently announced that Transphorm, Inc. a gallium nitride (GaN) products supplier has selected the company’s Propel™ HVM MOCVD System for high-volume production of GaN-based RF (DoD and Commercial/5G) and power electronics Epiwafers.

During the third quarter ended September 30, 2020, VECO’s revenue increased 2.8% year-over-year to $112.1 million. Its EPS for the quarter was $0.01 compared to a loss per share of 0.25 posted in the prior-year period.

Analysts expect VECO’s revenue for the quarter ended December 31, 2020 to grow 14.1% year-over-year to $129.1 million. Meanwhile, its EPS for the quarter is likely to expand at the rate of 91% per annum over the next five years. The company expects revenue for the fourth quarter to be in the range of $120 million to $135 million.

VECO ended Friday’s session at $18.46, climbing 35.8% over the past year. During the past six months, the stock gained 39.7%.

It is no surprise that VECO has an overall rating of B which equates to Buy in our POWR Ratings system. VECO has a Growth Grade of A, Value Grade of B and Momentum Grade of B. In the 96-stock Semiconductor & Wireless Chip industry, it is ranked #43. And this industry is rated B.

Click here to see the additional POWR Ratings for VECO (Stability, Sentiment, and Quality).

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KLAC shares were trading at $288.70 per share on Monday afternoon, up $8.63 (+3.08%). Year-to-date, KLAC has gained 11.51%, versus a 0.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Namrata Sen Chanda

Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...

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