The ratings and Outlook have long incorporated headroom for acquisitions and more aggressive share repurchases with expectations
Fitch expects solid operating results through the cycle, driven by yield challenges associated with increased complexity. The continuation of a multi-year technology upgrade cycle by leading edge semiconductor makers will drive strong near-term results. Beyond the near-term, operating performance will remain cyclical.
Fitch expects high single to low double digit revenue growth for calendar 2014, in-line with higher semiconductor capital spending, which is projected to be up 10% for the year. Intel Corp.'s transition to 20 nanometer (nm), foundries' 3D technologies pilot programs, memory's technology upgrades and DRAM capacity additions will drive top line growth.
Fitch forecasts operating EBITDA margin to expand to the upper 30s in the near term, driven by substantial operating leverage in the business model. Fitch expects longer-term operating EBITDA margin of 30% to 40% through the cycle. Research and development will remain fixed, given ongoing collaboration with customers developing next generation technologies.
Fitch expects annual free cash flow (FCF) of
Fitch expects credit metrics will remain solid over the longer-term but range through the cycle. Fitch anticipates total leverage (total debt/operating EBITDA) and interest coverage (operating EBITDA to gross interest expense) below 2x and above 10x, respectively, but that leverage could range from 0.5x to 3x and coverage from 5x to 20x through the cycle. Fitch estimates leverage was 0.8x and coverage was 17.5x for the latest 12 months (LTM) ended
Key Ratings Drivers
The ratings on
--The company's technology leadership resulting in strong market share positions in the process control market for semiconductors and a growing mix of less volatile services revenues.
--Fitch's expectation that the company will maintain conservative financial policies; and
--Secular long-term growth trends, including increased technological complexity and shortened life cycles for semiconductor products (Moore's Law) and increased outsourcing to foundry partners.
Fitch's ratings concerns focus on:
--Substantial customer concentration with expectations for ongoing customer consolidation; and
--The highly cyclical demand patterns associated with the semiconductor equipment market.
Positive ratings actions could occur if:
--Fitch's expectations for credit protection measures remain solid with leverage below 2x, driven by technology leadership resulting in solid profitability.
--Fitch's expectations for mid-cycle annual free cash flow continue to strengthen, enabling
Negative rating actions could occur if:
--Leverage approaches and remains near 3x, likely from structurally weaker profitability or the use of debt to support stock buybacks.
--Sustained negative FCF from greater than anticipated customer concentration, meaningful share erosion or a fundamental slow-down in the transition at the leading edge; or
Fitch currently rates
--Senior unsecured debt 'BBB'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Criteria:
--'Corporate Rating Methodology' (
--'Rating Global Technology Companies Sector Credit Factors' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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