Sign up & unlock articles! AEM share price suffered an explosive meltdown on 24 July 2020 following news of Intel’s announcement of delay in production of 7nm-based CPU for about 6 months. The bombshell revelation caused AEM share price to drop by as much as 7% the next trading day. Is this the beginning of the end for AEM share price or should investors buy on the dip?
To be fair to Intel, the 2Q financial result was actually quite decent as revenue increased by a staggering 20% year-on-year to reach USD19.7 billion. This performance exceeded most analysts’ predictions. On the basis of Intel’s stellar results, I expect AEM’s upcoming 1HFY2020 financial result to be robust as well, thereby turbo-charging AEM share price.
Question now is: will AEM share price explode in second wave with a potential contract win with Qualcomm or spiral out of control with Intel? Speculations about a contract win with Qualcomm is not baseless following the acquisition of DB Design Group Inc on 22 July 2020. In the press release, AEM revealed “DB Design is a world-renowned supplier of automation fixtures, device kits, and other test-related products. It has over 30 years of experience in delivering turnkey solutions for virtually all major semiconductor test and handling systems”.
The latest acquisition seems to indicate that AEM may be well aware of the delay of 7nm-based CPU and could be mitigating the impact by expanding the customer base through acquisition of DB Design. As the purported test chip equipment for Intel, it would not make sense to me that the management of AEM is clueless about the delay till 23 July 2020.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. As of 11 May 2020, I am vested in this counter (holding 10,000 AEM shares at $3.35).
AEM share price stung by Intel
Prior to Intel’s bombshell announcement, AEM share price had been bullish due to the acquisition of DB Design. The bullish form of AEM share price also coincided with the period in which AEM is going to publish its 1H financial result, which many analysts predicted to be good.
AEM is acquiring DB Design for USD3.3 million through combination of payment of cash of approximately USD2.7 million and issuance of shares in AEM worth USD600,000. As at 31 December 2019, cash and cash equivalents stood at $107.7 million. So the cost of the acquisition is small change for AEM.
Make no mistake, AEM’s expansion came at a time when the entire world is engulfed in tremendous uncertainties due to the COVID-19 pandemic. Most companies are looking at downsizing or laying off employees but AEM bucks the trend by going on an acquisition spree. The latest acquisition of DB Design followed the completion of the acquisition of Mu-TEST in March 2020.
COVID-19 pandemic has forced people all over the world to work from home. The slew of second and third wave of infections also mean that the work from home arrangement is set to continue for the foreseeable future until a vaccine is found. Against this backdrop, AEM share price stormed to high heavens as demand for semiconductor chips will be high in this period.
Despite the favourable macro condition, AEM share price hits [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]Sign up & unlock articles!
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