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Industry Description
The Zacks Electronics - Manufacturing Machinery industry comprises companies that provide a range of solutions to address the needs of wafer processing facilities, as well as device packaging and test facilities, and semiconductor manufacturing processes. The solutions offered by the industry participants include thin-film processing systems, photonics, process-control tools (that perform macro defect inspections and metrology), metal-organic chemical vapor deposition, advanced packaging lithography, wet etch and clean, laser annealing and 3D wafer inspection systems. A few industry participants also offer micro-contamination control products and advanced material-handling solutions. Contamination-free transportation, storage and delivery of materials have gained immense significance in recent times.
3 Trends Shaping the Future of the Electronics Industry
Miniaturization Enhances Prospects: Industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. The demand for advanced packaging, which enables the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions, increasing complexity in transistor design and the rapid adoption of new device architectures, such as FinFET, 3D NAND and GAA, along with the increasing utilization of new manufacturing materials to increase transistor and bit density, are driving the demand for solutions provided by the industry players. Moreover, the emergence of techniques like wafer-level packaging is driving the need for a high-purity manufacturing environment free of contaminants. The rising demand for clean processing, as well as wafer carrier cleaning and conditioning tools, is a key catalyst for industry participants.
Complex Process Driving Demand: The requirement for faster, more powerful, compact and energy-efficient semiconductors is expected to increase rapidly with emerging applications including artificial intelligence (AI), high-performance and cloud computing, smartphones, wearable technology, self-driving vehicles, the Internet of Things (IoT), gaming and virtual reality, and smart healthcare. Semiconductor manufacturers like Intel, Samsung and Taiwan Semiconductors are primarily looking to maximize manufacturing yields at lower costs. This is making semiconductor manufacturing processes more complex and driving the demand for solutions offered by industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. The increasing deployment of 5G and the growing demand for edge computing are other key catalysts.
NAND, DRAM and SSD Demand Strong: The improving demand for NAND and DRAM is a positive for the industry participants. Strong SSD demand, driven by data center and cloud spending, is another key catalyst. DRAM is expected to benefit from strong demand in the data center, enterprise and cloud segments. Strong demand for chips and higher spending on semiconductor capital equipment are aiding the industry participants.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics - Manufacturing Machinery industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #90, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Given the bullish industry outlook, there are a number of stocks worth watching. However, before we present the stocks you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Electronics - Manufacturing Machinery industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 over the past year.
The industry has declined 41.3% over this period against the S&P 500’s return of 11.2% and the broader sector’s appreciation of 10.4%.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Electronics - Manufacturing Machinery companies, we see that the industry is trading at 9.38X compared with the S&P 500’s 17.56X. It is below the sector’s trailing 12-month EV/EBITDA of 17.79X.
Over the last five years, the industry has traded as high as 19.15X and as low as 13.98X, with the median being 17.84X, as the charts below show.
3 Electronics Stocks to Watch Right Now
Entegris: This Zacks Rank #3 (Hold) company is a leading supplier of critical advanced materials and process solutions for the semiconductor and other high-technology industries. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Through the Materials Solutions segment, ENTG offers chemical vapor and atomic layer deposition materials, chemical mechanical planarization (CMP) slurries and pads, ion implantation specialty gases, formulated etch and clean materials, and other specialty materials. The Advanced Purity Solutions segment offers filtration, purification and contamination-control solutions.
Entegris is benefiting from strong demand for CMP slurries and pads as well as micro contamination control solutions. Expanding manufacturing footprint with new facilities in Colorado and Kaohsiung, Taiwan, is noteworthy. However, a challenging macroeconomic environment and uncertainty over the U.S. trade policy are concerns for ENTG.
The Zacks Consensus Estimate for Entegris’ 2025 earnings has been steady at $2.92 per share over the past 30 days. Shares have dropped 12.2% year to date.
Kulicke and Soffa Industries: This Zacks Rank #3 company designs, develops, manufactures and sells capital equipment and consumables and provides services used to assemble semiconductor and electronic devices, such as integrated circuits, power discretes, light-emitting diodes, advanced displays and sensors.
Kulicke and Soffa’s focus on Vertical Wire, Power Semiconductor, Advanced Dispense and Thermo-Compression is expected to drive top-line growth in the near term. KLIC has been benefiting from improved demand for ball, wedge and TCB solutions. However, uncertainty over tariffs and trade policy is a headwind for KLIC.
The Zacks Consensus Estimate for KLIC’s fiscal 2025 earnings has remained unchanged at 9 cents per share over the past 30 days. Shares have declined 21.6% year to date.
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This article originally published on Zacks Investment Research (zacks.com).
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