Rudolph Technologies Inc. (NSADAQ: RTEC) Better Times Ahead for This Semiconductor Player

Rudolph Technologies Inc. (NSADAQ: RTEC) Better Times Ahead for This Semiconductor Player

Rudolph Technologies Inc. (NASDAQ: RTEC) is a leading provider of process characterization equipment and software for wafer fabs and advanced packaging facilities. It markets and sells products to logic memory, data storage and application-specific integrated circuit device manufacturers.

RTEC recently reported its full year 2012 results. The company said that its revenues amounted to $218.5 million, an increase of 17 percent year-over-year. Front-end customers accounted for 62 percent of the revenues and back-end customers contributed the remaining 38 percent. In terms of geographic breakdown, international sales constitute 70 percent of the revenues, while domestic sales accounted for 30 percent. ACCO achieved record level results despite softness in both front-end and back-end capital equipment spending throughout the second half of 2012.

Gross margins have remained stable at 53 percent. Meanwhile, operating expenses increased mainly driven by higher compensation costs, commissions and project costs. Despite the increase in expenses, the company reported a net income of $43.9 million, or diluted per share of $1.34. This translates to an increase of 75 percent compared to the same period last year. Over the last 5 years, the company has exhibited impressive year-on-year results. Its average five year earnings growth is at 40 percent, higher than the industry growth rates of around 12 percent.

Well-Positioned in High-Growth Advanced Packaging Market

Management believes that the company is well-positioned to capture the significant tailwinds in the advanced packaging market. During the year, it made notable acquisitions namely NanoPhotonics and Azores Corporation. Moving forward, the mergers will enable Rudolph Technologies to increase its market share in this niche. For instance, the NanoPhotonics acquisition brought new technologies to the company’s product portfolio. This opens new markets for the company in wafer inspection; specifically wafer manufacturing and mask blank inspection markets. Meanwhile, the Azores acquisition allowed the company to penetrate the back-end lithography market with a breakthrough solution for the advanced packaging market.

For the next five years, analysts forecast earnings of the company to grow by 10 percent a year. This looks like a conservative estimate given its recent developments. There is growing demand among back-end manufacturers in adopting yield enhancement strategies long used in the front-end process. Thus, Rudolph Technologies has been successful at selling its Yield Management Software to major outsourced semiconductor assembly and test companies.

At present, the stock trades at 8 times earnings. This is lower than its historical average price earnings ratio of around 11 times. It also trades lower than most of its peers. Camtek LTD. (NASDAQ: CAMT) is valued at 35 times earnings and KLA-Tenor Corporation (NASDAQ: KLAC) trades at 14 times earnings with 2.90 percent dividend yield.

The discount to peers is attributed to the lack of investor exposure. The current situation seems temporary as the advanced packaging market is gaining traction in the semiconductor industry. This will lead to record profitability of Rudolph Technologies over the coming years.