The Zhitong Finance App learned that the stock price of semiconductor equipment manufacturer Fanlin Group (LRCX.US) fell by about 10%. Although the company's latest quarterly results exceeded market expectations and were affected by a shortage of supply chain components, its performance guidance for the next quarter failed to meet investors' previous high expectations. Wall Street analysts believe that supply bottlenecks are limiting Fanlin Group's ability to turn strong order demand into revenue, but the company's growth prospects in 2027 and beyond remain optimistic as the global wafer manufacturing equipment (WFE) market continues to expand.
Fanlin Group announced revenue for the first quarter of fiscal year 2027 (ending September 2026) of US$8.219 billion, up 54.4% year on year and 22.3% month-on-month, higher than market expectations of about US$8.142 billion. Adjusted earnings per share were $2.20, which was $0.02 above market expectations. Non-GAAP gross margin for the quarter was approximately 52.4%, and operating margin reached 40.2%.
However, the focus of the market is not on the announced results, but on the company's outlook for the quarter ending December 2026.
Fanlin Group expects revenue for the second quarter of fiscal year 2027 to be 8.6 billion US dollars, fluctuating up and down to 400 million US dollars. Although it is slightly higher than the agreed market expectations of about 8.54 billion US dollars, it is lower than the previous more optimistic forecasts of some investment banks. The company expects adjusted earnings per share of $2.18 to $2.48, with a median of $2.33, which is generally in line with market expectations of $2.32.
Goldman Sachs pointed out in a research report released on October 21 that the overall performance and guidelines of the Fanlin Group were in line with the market's unanimous expectations, but since investors generally expected the company to raise its forecasts further, this financial report still disappointed the market. Goldman Sachs previously expected the company's revenue for the December quarter to reach 8.87 billion US dollars, while Morgan Stanley's forecast was even higher, reaching 9 billion US dollars.
Supply chain issues have become a key factor limiting short-term performance growth.
Morgan Stanley pointed out that the semiconductor equipment industry has recently begun to experience an obvious shortage of components. In particular, the supply of printed circuit boards (PCBs) is insufficient, which affects the assembly of key equipment components such as mass flow controllers (MFC). In addition, due to delays in cleanroom construction, some DRAM customers postponed equipment orders originally scheduled to be delivered in the December quarter to the March 2027 quarter.
Fanlin Group management also acknowledged that without recent supply chain constraints, the revenue guidance for the December quarter could have been slightly higher.
Needham lowered Fanlin Group's target price by $100 to $290 as a result, believing that limited supply of various components is affecting the company's short-term delivery capacity.
Morgan Stanley, on the other hand, lowered its target price from $385 to $339, maintaining an “overweight” rating. The bank believes that Fanlin Group's failure to meet high market expectations may prompt investors to re-examine the growth pace of the entire semiconductor equipment industry. Previously, the market mainly focused on whether equipment manufacturers could continue to grow beyond expectations, but now investors may begin to pay more attention to potential constraints such as supply chains, capacity expansion, and customer factory construction progress.
However, Morgan Stanley emphasized that short-term supply bottlenecks do not mean that industry demand is weakening. In contrast, the wafer manufacturing equipment market has grown from about 125 billion US dollars to about 200 billion US dollars in just four quarters. This rapid expansion itself has put tremendous pressure on the supply chain.
The bank believes that supply chain restrictions may delay the release of some equipment demand from 2027, thereby preventing the industry from expanding too rapidly and helping to extend the current semiconductor equipment investment cycle until 2028. At the same time, equipment manufacturers are increasing inventories to deal with component shortages, which may also bring new growth opportunities for upstream equipment component suppliers.
Despite short-term delivery restrictions, Fanlin Group's judgment on the medium- to long-term needs of the industry remains positive. The company raised its forecast for the global wafer manufacturing equipment market in 2026 to about 155 billion US dollars, and initially expects the market size to exceed 200 billion US dollars in 2027, which means a year-on-year increase of about 30%. Among them, DRAM investment is expected to be the main growth driver, followed by investment in advanced foundry and logic chips, and demand for NAND flash memory devices will continue to grow.
Goldman Sachs pointed out that it is expected that 10 new large-scale fabs will be put into operation in 2027, which will further support demand for semiconductor equipment. At the same time, the popularity of surround gate transistors (GAA), backside power supply technology, and advanced DRAM manufacturing processes is increasing the complexity of chip manufacturing and creating more market opportunities for Fanlin Group's deposition and etching equipment.
Goldman Sachs maintains Fanlin Group's “buy” rating and a target price of $380. The bank believes that Fanlin Group has a strong competitive advantage in advanced logic chips, DRAM technology upgrades, and NAND equipment transformation, and is expected to grow faster than the industry average in the next few years.
Furthermore, Fanlin Group expects revenue growth of more than 30% from its customer support business in 2026, and is still expected to grow by more than 15% in 2027. As AI drives the expansion of memory chip production capacity, the demand for intelligent equipment management and automated maintenance services continues to increase.
Morgan Stanley, on the other hand, anticipates that Fanlin Group's natural annual revenue in 2027 will be approximately US$39.8 billion, and will further grow to US$47.6 billion in 2028. Although the bank slightly lowered its recent profit forecast, its judgment on 2028 growth prospects remained largely unchanged.
RBC analysts also maintain a “outperforming market” rating, believing that the company has high visibility into 2027 order demand, and that system equipment revenue is expected to outperform the overall wafer manufacturing equipment market for the second year in a row.
Wells Fargo analysts also said that the pressure on Fanlin Group's stock price is mainly due to investors having high expectations that the performance has greatly exceeded expectations and guidance increases. Although supply chain issues will be the focus of market attention in the near future, the bank is still optimistic about Fanlin Group's ability to outperform the wafer manufacturing equipment industry in 2027 and continues to recommend purchases.