Hidden Gems - Second Edition
Uncovering two under-the-radar small-mid caps hidden gems
Welcome to the second edition of Hidden Gems! 🧑🚀
In these Hidden Gems series, we explore small- and mid-cap companies often overlooked by investors. Each featured company, in my view, possesses a unique edge—be it exceptional business quality, underrated quantitative fundamentals, or outstanding growth potential backed by strong technical setups.
If you missed the first part, feel free to take a look:📎 Hidden Gems - First Edition.
In that post, I uncovered two small-cap Italian companies in the high-end luxury market and one U.S.-based growth SaaS company addressing complex financial needs for some of the world’s largest corporations.
For this second edition, we’ll spotlight two hidden gems. First, we travel to the Netherlands to explore a company in the intricate yet crucial semiconductor equipment industry—and no, it’s not the company that likely comes to mind to everyone. Next, we head to the chilly yet beautiful landscapes of Norway to uncover a young 500m small-cap specializing in niche technology solutions with excellent fundamentals.
Let’s dive in!
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ASM International: The Pioneering 'Advanced Semiconductor Materials' Company without the ‘L’
Not to be confused with its best-known younger sibling ASML (Lithography), ASM International, is a €25B mid-cap semiconductor equipment company founded in the Netherlands in 1968 by Arthur del Prado, at the very start of the semiconductor industry.
A Bit of History
Source: ASM Website, Company’s History
In the early 1970s, the company ventured into the furnace deposition market, producing advanced systems in the Netherlands. Over the decades, the company expanded globally, founding ASMPT in Hong Kong for semiconductor assembly, ASM America for epitaxy, a key technology for advanced semiconductors, and ASM Japan for plasma chemical vapor deposition.
One of ASM’s most intriguing chapters unfolded in the mid-1980s when it partnered with Philips to create ASML—a name that would later become synonymous with lithography technology. However, ASM’s focus shifted, and in 1988, it sold its stake in ASML, choosing instead to sharpen its expertise in deposition technologies.
Since the 1990s, ASM has focused on deposition technologies, pioneering Atomic Layer Deposition (ALD) with breakthroughs like the Pulsar ALD tool in 2007 for high-volume manufacturing. Recent growth includes a strong push into epitaxy, marked by the 2022 acquisition of LPE for silicon carbide (SiC) equipment, catering to the electric vehicle market.
By establishing centers of excellence close to its customers while centralizing manufacturing in Singapore, ASM has created a global structure supporting innovation.
Core Technologies
Atomic Layer Deposition: The Crown Jewel
At the forefront of ASM’s portfolio is Atomic Layer Deposition (ALD), which contributes over 50% of its revenue and holds a dominant 55% global market share.
ALD is a highly precise process that deposits ultra-thin films of material one atomic layer at a time. This meticulous control allows chipmakers to build structures at the nanometer scale.
Why ALD Matters?
Miniaturization: As the semiconductor industry moves toward smaller nodes (<=3nm), traditional deposition techniques struggle to maintain uniformity. ALD excels by delivering highly uniform, defect-free films even on the most intricate 3D architectures like gate-all-around (GAA) transistors. The industry’s transition to GAA transistors beginning in 2024 is expected to grow to >40% by 2027 👇
Source: ASM’s Investor Day 2023, slide 29 3D Architectures (more on this technology 👉 here): With the industry’s shift to 3D NAND, DRAM scaling, and GAA designs, ALD enables the creation of structures that were once thought impossible. Its ability to deposit material layer-by-layer ensures reliability and performance.
Selective Deposition: One of ASM’s key innovations is Selective ALD, which allows deposition only on targeted areas, eliminating unnecessary material use. This not only reduces waste but also simplifies the manufacturing process and enhances efficiency—traits that are becoming increasingly critical as sustainability gains importance in the semiconductor industry.
Epitaxy: Another Core Pillar of Innovation
While ALD gains much of the spotlight, ASM’s epitaxy technology is also key. This technique involves depositing crystalline layers on a substrate to form the building blocks for semiconductors. ASM has rapidly expanded its presence in this domain, positioning epitaxy as another major growth driver:
GAA Transistors: Epitaxy is indispensable for GAA transistor manufacturing, where it ensures the precision layering required for next-gen chips. ASM’s expertise in this area aligns with the industry’s move toward smaller nodes and enhanced power efficiency.
Silicon Carbide (SiC): With the rise of electric vehicles (EVs) and renewable energy systems, demand for SiC wafers is surging. ASM’s SiC epitaxy technology is well-positioned to capitalize on this shift, offering higher yields and scalability.
Advanced Platforms: The company’s 800mm epitaxy systems are cutting-edge technology, as they enable high-volume manufacturing for both logic and memory applications.
🗝 Key Growth Drivers
ASM’s growth is intertwined with several transformative semiconductor trends:
Logic and Memory Scaling: As 3D NAND and DRAM scaling continues, ALD and epitaxy solutions are becoming essential for these increasingly intricate designs. The ALD market is projected to grow at a double-digit CAGR through 2027, reaching a total size of $4–$5B.
Source: ASM Q3 2024 results Presentation, slide 24 Additionally, the industry’s pivot toward GAA transistors is another tailwind, providing further ground for expansion 👇
Source: ASM Q3 2024 results Presentation, slide 26 Advanced Packaging: The demand for through-silicon vias (TSVs) — to create 3D packages and integrated circuits—, hybrid bonding, and backside power distribution networks is growing as chips become more complex. ASM is well positioned to capitalize on this trend, providing the necessary tools for these next-gen designs.
Epitaxy Growth: ASM’s entry into SiC epitaxy provides access to high-growth markets like EVs and renewable energy, diversifying its revenue streams. The company’s increasing market share in this domain is promising. The SiC epi leading-edge market is expected to grow at 10-15% CAGR through 2027, reaching a total size of $2.3-2.9B.
Source: ASM Q3 2024 results Presentation, slide 25
Challenges and Risks
Geopolitical Uncertainty: With 20% of its revenue tied to China, ASM faces risks from export restrictions and rising local competition.
Market Cyclicality: The semiconductor industry’s inherent volatility adds unpredictability, particularly in memory segments where recovery timing remains uncertain.
Competitive Pressures: Heavyweights like Tokyo Electron and Lam Research are intensifying their focus on ALD and epitaxy, posing a long-term threat — although ASM still has the lead.
🧠 Long-Term Potential
Despite these challenges, ASM potential is hard to ignore. Its ALD dominance, investments in advanced packaging, expanding footprint in high-growth markets like SiC epitaxy, and its strategic alignment with semiconductor megatrends make it a compelling choice for long-term investors looking for overlooked gems in the semi industry.
Recently, many semiconductor stocks, especially in the equipment sector, have been beaten down, creating attractive opportunities for investors willing to navigate the industry's cyclical yet secular growth trends
Last but not least, I’ll leave an interesting weekly chart on ASM vs the Qs (QQQ ETF) over the last 5 years — feel free to take a look at it over the last 10 years, it’s even better 👀
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Norbit ASA: A Niche Innovator Betting on Excellence
Norbit ASA is a $500M small-cap niche technology company headquartered in Norway, founded in 1995, with a proven track record of innovation, profitability, and growth. Since its IPO in June 2019 in the Norway Exchange stock market, the company has delivered a +38% CAGR for shareholders or +405% returns in 5 years, backed by its focus on three core segments—Oceans, Connectivity, and Product Innovation & Realization (PIR).
… and it just feels like its getting started. Let’s dive in more!
Strong Financial Fundamentals
Norbit’s financial health is reinforced by its ability to reinvest in its business while delivering returns to shareholders through dividends and capital appreciation.
Earnings Growth: EPS CAGR of 35.6% (2017–2024).
Profitability: EBITDA margins of 26% and Return on Capital Employed (ROCE) of 29%.
Balance Sheet: Low leverage (Net Debt/EBITDA at around 0.5) provides room for acquisitions and investments.
Core Business Segments
Oceans Segment (39% of revenue) with EBITDA Margin of 35%.
Key Products: Sonars, environmental monitoring systems, and underwater sensors for offshore energy, fishing, aquaculture, and environmental mapping.
Their flagship Winghead sonar is regarded as the best in its category globally.
Outlook: Management expects strong demand for their underwater technology as they gain global recognition, and the E.U. push further towards renewable offshore energy solutions and environmentally friendly policies.
🧐 Fun fact
In the Olympics Games 2024 arranged in Paris, the French government used the river Seine as both one of the arenas, and the base for the full Olympic Games. As they needed to have security underwater, the French Security Services trusted Norbit ASA to deploy underwater surveillance in the Seine during the Olympics using their flagship sonars.
Source: Norbit ASA Q2 2024 Earnings Presentation, Page 9
Connectivity Segment (35% of revenue) with EBITDA Margin of 34%
Key Products: On-board units (OBUs) for tolling and tachographs, as well as fleet management software.
Growth Driver: Surge in IoT devices and regulatory changes in the EU requiring vehicle data monitoring is driving adoption.
Outlook: Subscription services within connectivity growing in the high-20% YoY, supporting higher-margin recurring revenue.
PIR (26% of revenue) with EBITDA Margin of 13%
Key Services: Contract manufacturing and R&D solutions for hardware and software.
Outlook: Management is targeting higher-margin projects to improve profitability.
🗝 Key Growth and Strategic Drivers
Acquisitions
Norbit has acquired 7 companies since 2021, spending >250m NOK to strengthen its product portfolio and vertical integration.
A few examples are Seahorse Geomatics (distribution foothold in North America) and iData (smart data segment).
Niche Focus
Norbit has become really good at addressing specific, hard-to-solve problems for its customers. This focus strengthen long-term relationships with customers and creates defensible market positions.
A good example is the recent 160m NOK contract with a European blue-chip customer proves its ability to identify and solve emerging client challenges.
Sustainability and Technological Leadership
Leveraging Norway’s strengths in ocean engineering, Norbit develops cutting-edge technologies in environmental monitoring, connectivity, and advanced sonar systems.
Long-term Growth Targets
Organic revenue target of 2.75B NOK by 2027 (exc. future acquisitions), growing at a +16% CAGR until 2027.
Maintain high Returns on Capital Employed of 30% and expand its presence in more lucrative niches.
Challenges and Risks
Cyclical Demand: Lower visibility in sonar orders and weaker OBU demand in H1 2024 bring out the variability in the order book and can create temporary slowdowns.
Geopolitical Risks: With its European focus, global supply chain issues and regional instability could pose challenges.
Execution Risk: M&A-driven growth requires careful integration of acquired companies and it increases the risk of affecting the company’s operating margins.
🧠 Final Thoughts
Norbit’s fundamentals, balanced portfolio and innovation-driven strategy make it a rare gem in the tech space. Its portfolio ensures resilience with high-margin businesses like Oceans and recurring revenue streams from Connectivity, with strong growth in connectivity offsetting weaker sonar sales in recent quarters.
As someone who appreciates companies that punch above their weight, Norbit stands out as a problem-solver in niche markets. Its growth targets—2.75B NOK organic revenue by 2027—are realistic, given its track record.
For investors seeking a small-cap company with proven growth, a forward-looking management team, financial discipline, and a habit of staying ahead of industry trends, Norbit is a great opportunity.
That’s all! I hope you enjoyed this new series of my hidden gems. We will keep looking for more 💎, so stay tuned as the third edition is coming in a few weeks 😉
ASM and ASML got me for a bit but interesting read!