- Largest customer  makes major move.  UMS' largest customer AMAT, which  contributes  close  to  90%  of  the  group's  revenue,  has  made  a major move  by  acquiring its rival,  TEL.  Gartners  ranks  AMAT and TEL No.1  and  No.3  respectively  in  the  semiconductor  manufacturing equipment  industry  in  terms  of  worldwide  market  share   last  year.  The combined entity could potentially boast a market share of 25.5%, twice as much as  that held by  AMAT's second largest competitor,  ASML. The deal is expected to wrap up in the middle  or second half of 2014, subject to regulatory approvals.

- Boosting  demand  for  UMS'  components.  The  deal  will  enlarge AMAT's  customer  base,  drive  product  innovation  and  give  rise  to  cost saving opportunities, thus helping it  to achieve its ambitious profit growth target.  This  is  likely  to  benefit  UMS  in  view  of  the  duo's  co-relation  in terms  of  financial  performance.  We  expect  this  to  boost  demand  for UMS' components as: i) overall demand for AMAT products will naturally increase,  and  ii)  UMS  has  cost  advantage  over  Japanese  component suppliers.

- Endura likely to stay relevant. One concern is whether UMS' assembly of  AMAT's  Endura  system  would  be  disrupted  in  view  of  the  potential overlapping  in AMAT and TEL's product lines. We  view  this  as  unlikely since  TEL's  CEO  Tetsuro  Higashi  has  said  that  there  is  limited overlapping  in  both  companies'  products.  Secondly,  while  both companies have their respective wafer  deposition  products  -  eg TEL's Triase+  vs AMAT's  Endura  system  -  a key competency of AMAT  is  its wafer handling platform, which is also UMS' sole  product line. As such, it is  likely  that  UMS'  wafer  handling  platform  will  be  refined  and  kept  in AMAT's future product innovations.

Source: OSK