With a turnover of 31.2 million euros in 2021 and 120 employees, Riber is clearly an SME, however in principle with a strong global position in its segment, i.e., according to management, 47% of the market share of EJM machines in value in 2020 EJM, for Epitaxy by Molecular Beam. (Photo credits: Adobe Stock -)
Chips have invaded everything that seems to be – they’re not just in our computers and smartphones, as they control these diverse and varied machines that have long made our lives so much easier, it must be said. Without them, that is, without microcontrollers, no talking elevators, no self-service scooters and bicycles in the middle of the streets, no assisted driving, no Tesla for everyone, no drone deliveries and so on.
All is well, but as everyone knows, the demand for chips has become such that manufacturing is struggling to keep up. This has become particularly evident for automakers who, virtually all (except perhaps Ferrari), had to revise their production plans in 2021 due to a lack of sufficient electronics, and are still producing in fits and starts, requiring other suppliers, that they work in just-in-time “stop & go” painful a priori. But needless to say, at the other end of the value chain, things are going pretty well for the beautiful “plants” industry.
Everything is going very well in the seed sector …
It is therefore no coincidence that the operating margin (operating profit: revenues minus all operating expenses, related to revenues) of our European champions STMicroelectronics and Infineon Technologies increased by approximately + 50% in 2021 for a 20% bribe, if that of the Dutch ASML, an essential supplier of manufacturing machinery, increases from 23 to 30% or more, and if that of another essential supplier in the sector, the Taiwanese founder TSMC, who produces for third parties, has happily generated a profitability of more than 40% for two years.
Which, by the way, is interesting to observe: if TSMC alone produces, it does so well that it is far more profitable than most of its large customers. Who have deliberately chosen to be “fabless” probably not to stupidly immobilize capital in an industrial tool, and to focus on the true creation of value: intellectual property. Like what….
… or almost: a person who can get angry with Taiwan?
TSMC occupies an important place in global semiconductor manufacturing capabilities, all of its factories are located in Taiwan and, adding those of smaller competing smelters, we see that much of that global capacity is concentrated on this island. An island that risks returning, like Hong Kong, one day or another to the bosom of the motherland, which can be worrying, especially when you like geopolitical disaster scenarios. But the worst is never certain, and this legitimate concern in the face of what strongly resembles systemic risk has the immense merit of shuffling the cards a bit: TSMC has development projects off the island, in Japan ( with Sony) and in Germany, and the European Union has launched a vast program (a 42 billion euro envelope to invest, that’s nothing) to double our production capacities by 2030, and therefore be less dependent on these chips than they have become increasingly strategic.
Which, it is suspected, also opens up interesting prospects for local players in the sector, from the largest to the smallest. One of the smallest is Riber (ALRIB; € 1.80) in Bezons, which makes epitaxy machines, which are used to make semiconductor materials, and is therefore at the top of the value chain, which is nothing.
Riber: small, but big in the EJM
With a turnover of 31.2 million euros in 2021 and 120 employees, Riber is clearly an SME, however in principle with a strong global position in its segment, i.e., according to management, 47% of the market share of EJM machines in value in 2020 EJM, for Molecular Beam Epitaxy, or MBE (for Molecular Beam Epitaxy) in good English, has been Riber’s business since its origins: a) epitaxy consists in the growth of crystals of a given material in an ultra-hot, ultra-hollow chamber, and then create very thin and very homogeneous layers on a substrate, which is very practical for fabricating the semiconductor materials on which the chips are etched, b) create these thin films most of the time with the so-called physical (or chemical) vapors (or gases)) deposition processes, but if you want to refine, the EJM uses several molecular guns at the same time and allows you to make alloys, thus obtaining new semiconductor compound actors of all kinds.
This can be of interest to research laboratories, constantly looking for new materials: 750 Riber machines are in operation in the world, of which 630 in universities, etc., or 324 academic customers in 38 countries, of which prestigious institutions such as Fraunhofer . This may also be of interest to manufacturers, in particular those who use so-called “compound” semiconductors, for chips capable of supporting the very high frequencies of the radio spectrum, which are used in particular in WiFi, 4G and 5G antennas and in satellite antennas for telecommunications and for laser diodes, which have multiple applications in optronics: from optical transmission in telecommunications networks, to medical devices, including industrial machinery, sensors, etc .: Riber claims 44 customers in this universe, including Raytheon, IQE and Teledyne Technologies.
The company also sells evaporators, derivatives of its molecular ray guns (or effusion cells, if I understand correctly) for the production of ultra-thin films of organic material, i.e. carbon, which are used in particular for the manufacture of OLED, the basic brick of flat screens and photovoltaic cells. These evaporators can suit all types of materials and fit all types of production lines.
Last but not least, Riber derives a large part of its revenues, or 44% of its 2021 turnover, from the accessories and services business generated by this installed base of 750 machines: components for EJM machines, spare parts and spare parts, repairs, supervision software process (Crystal XE), training, etc….
Profitability: best in 2021
According to management, the company manufactures most of the equipment it sells in-house, including processing capabilities and 1,000 square meters of clean rooms. Also according to the management, the competition is relatively tough, with, among other things, an aggressive American rival on prices, which may seem surprising in a small a priori fairly oligopolistic market, but it is (there are not only smart oligopolies) . This is for research machines which are priced in the million euros, while production machines are sold two or three times as expensive per unit. Riber is also often willing to make an effort on its prices, as the machines have a long lifespan (they have a 10-year warranty) and thus generate a very long income in parts and services.
All this perhaps explaining why Riber generated one of the most mediocre operating margins, around 2.5%, in 2019 and 2020. The health crisis has not helped in the last year, with a turnover of more than -10%.
But everything seems to be improving given the 2021 results just published: if the activity has increased by only + 3%, with 8 plants delivered against 10 in 2020, that is a machine turnover down by -4%, partly due to the refusal of export licenses to some countries, Riber has nevertheless increased its gross margin by +6 points (: turnover less purchases, or even aggregate cost of sales). Thanks to i) a very favorable mix effect, ie proportionally more sales of production machines with better margins, and ii) an increase in the share of services (+ 15%) on revenues. Riber has consequently also increased the operating margin, or +1.9 points, and a level of 4.2% more pleasant to watch, even if it still seems little for this wonderful semiconductor sector.
Outlook: orders, a new product and some major projects
Riber apparently started the year well with 6 orders in the first quarter of 2022 (including 5 for research) and a well-filled commercial pipeline a priori, most notably with the new MBE 8000 machine launched in 2021, which is twice as many. production of the previous generation taking up less space. This should more than make up for the fact that the company can no longer work in Russia, where it sold a large production machine in 2021.
And the company has several serious projects underway, developed both with its own engineers / researchers (40% of staff) and in partnership, particularly for a fully automated software-based machine, as well as Rosie, the first deposition machine. epitaxial on silicon on a 300 mm wafer, partly funded by the French recovery plan, and an alliance with the CNRS in the field of quantum computing, an undoubtedly fashionable topic.
Or maybe more R&D costs and a little more investment like in 2021, which shouldn’t be a problem anyway: Riber ended the year with a pretty solid balance sheet, i.e. a net debt ratio (financial debt – cash) / Equity of only 8%.
All this can justify the stock’s good relative performance since January 1, or + 0% when the CAC Small index lost -10%. A good record is worth something.