AEM share price swims or sinks with Intel lawsuit?

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Crisis? What crisis? Following the Intel fiasco, AEM share price shrugged off all talks of impending crisis by staging a magnificent comeback after the announcement of a set of stellar 1HFY2020 financial results. But before AEM investors get carried away, dark clouds loom ahead that may derail AEM share price.

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On 28 July 2020, it was reported that a group of US investors had filed a lawsuit against Intel for “failing to disclose material adverse facts about the company’s business”. The lawsuit alleged Intel for failing to disclose to shareholders that Intel had identified the defect mode in the 7-nm chip, resulting in the yield degradation. One member is concerned enough to write in and sought my views on whether the Intel lawsuit could affect AEM share price.

Evidently, the Intel lawsuit spooked the hell out of major shareholders. Aberdeen, UBS and largest shareholder, James Toh all pared down their stakes within the span of two weeks. Subsequently, UBS increased its stake to return as substantial shareholder on 6 August 2020, presumably due to the realization that the sell-offs were knee-jerk reactions. Nevertheless, the sell-downs by the big boys had temporarily halted the bull run of AEM share price.

In my opinion, the Intel lawsuit may have adverse publicity for the US chipmaker and could lead to more volatility ahead for Intel share price. But there is no trending evidence to suggest that Intel share price and AEM share price are correlated. So my view is that the Intel lawsuit would have limited damage to AEM share price. Having said that, what would be the impact of the Intel 7-nm production delay on AEM share price? In this article, I will share my insights on key catalysts for AEM share price in the coming months.

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. I am vested in this counter (holding 10,000 AEM shares at $3.35), so my views on AEM share price may be biased.

AEM share price based on one-trick pony?

One of the smartest moves made by AEM management is the joint R&D effort with Intel. The collaboration led to the Singaporean company filing a US patent on the company’s blockbuster product – High Density Modular Test (HDMT) in 2016. It should be this patent that saved AEM share price from the recent Intel fallout. Why is this so?

Look, the discovery of the deficiency in the 7-nm manufacturing process would likely force Intel to outsource the chip production to another company. Many AEM investors are worried whether the testing may be outsourced as well. And rightly so. In my opinion, due to the patent and contractual obligations, the outsourced chips should still be tested with HDMT. It would not make sense to me that after spending millions in the R&D to develop the HDMT machine, Intel would outsource the testing procedures to third parties.

In fact, the management announced an upward revenue guidance to be in the range between $460 million to $480 million. The latest revenue guidance suggested that the Intel fallout had been contained, presumably due to the latest acquisition.

But make no mistake, the partnership with Intel can be a double-edged sword. While the patent would give AEM the leading edge to ward off competitions from other test handler companies, it also [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.]

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Updated: August 11, 2020 — 4:55 pm

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