DEEP RESEARCH · TES (KRX:095610)

TES (KRX:095610): Key Player at the 3D NAND Technology Inflection Point

Sole-domestic ACL PECVD hardmask supplier meets Korea's imminent semiconductor CAPEX super-cycle

Date: 2025-09-15 · Front-end equipment deep-dive · Naver Blog (Korean original)

0. Bottom line first

1. Company & Strategy Profile

This section dissects TES's business structure, revenue model and governance — the foundation needed before diving into technology and market position.

1.1. Business Structure: Core Operations

Official fact: TES is a specialist supplier of thin-film deposition and etching equipment used in the most technology-intensive front-end semiconductor steps. The business is built on two product families.

Interpretation: TES runs a B2B model selling highly customised, high-value capital equipment directly to fabs. Long sales cycles and tight technical co-development with customers are the rule; after-sales parts and service (CS) generate recurring revenue.

1.2. Revenue Mix: Concentrated Capability

Revenue is highly concentrated by segment, application and geography — simultaneously highlighting TES's core capability and its risk profile.

• By segment: In 2024 deposition equipment accounted for 82% of process-related revenue. The Equipment vs. Non-equipment split was 74.3% / 25.7% in 2023 and 77.0% / 23.0% in 1Q24.
• By application: NAND accounts for 60–70% of revenue annually — a direct reflection of TES's unrivalled leadership in 3D-NAND ACL PECVD.
• By geography: Domestic share rose from 80% (2023) to 85% (1Q24), reflecting the depth of the Samsung/SK hynix relationship and concentration risk in equal measure.

Table 1. TES Revenue Mix

Interpretation: The mix shows deep specialisation in a single technology (PECVD), market (NAND) and customer set (Korean memory champions). Valuing TES is, effectively, the same as analysing the 3D-NAND roadmap and CAPEX plans of its anchor customers.

1.3. Governance & Management

• Founder-led: Largest shareholder is founder Chairman Joo Soong-il (19.91%, 29.31% incl. related parties). Chairman Joo previously spent ~30 years across Samsung Electronics' semiconductor division and SK hynix, rising to Executive VP of Production — top-tier domain expertise that strengthens customer relationships as an intangible asset.
• Capital return posture: Consistent treasury-share buybacks; treasury stock ratio reached 11.3% as of end-Sep 2022, signalling management's commitment to shareholder returns.

2. Technological Moat & Competitive Differentiation

This is the heart of the report: dissecting TES's technology, why it matters to the industry, and where it sits competitively. TES's economic moat stems from playing an indispensable role in solving the hardest problems in next-generation memory manufacturing.

2.1. PECVD Hardmask Engine: Centre of the Moat

Official fact: As 3D NAND producers stack cells from 176 → 236 → 321 → 400+ layers, they must etch extraordinarily deep, narrow and near-vertical channels — the HARC (High-Aspect-Ratio Contact) challenge. Tiny defects like tilting, bowing or twisting of the channel hole can kill yields.

Conventional photoresist masks cannot survive these long, aggressive etches; a far harder sacrificial film — the Amorphous Carbon Layer (ACL) — is essential. ACL etches much more slowly than the underlying stack (high selectivity), acting as the perfect stencil for forming deep, clean channels.

Official fact: TES pioneered and leads the ACL PECVD market. It developed Korea's first 300mm ACL PECVD tool in 2007, was designated a "World-Class Product" by the Korean MOTIE in 2010, and remains the only domestic mass-producer of this critical tool — competing directly with Applied Materials.

Interpretation: The 3D-NAND roadmap is a direct, predictable demand driver for TES. Moving from 236 → 321 layers isn't just incremental CAPEX — higher aspect ratios demand thicker, better ACL, so both the per-wafer dollar content and unit count of TES tools rise together. An "intrinsic growth formula".

2.2. Portfolio Expansion: GPE & Dry Clean

• Gas Phase Etcher (GPE): TES's second-pillar product. Unlike plasma etch, GPE uses gases like HF to selectively remove native oxide without damaging silicon — low physical stress, precise control, increasingly important at advanced nodes where surface damage kills device performance.
• Beyond memory: TES extended GPE into the foundry market and passed a major customer's qualification in 2021 — the first strategic step in reducing dependence on volatile memory cycles.

2.3. Horizon 2: Diversification Roadmap

Interpretation: This pipeline is deliberate risk diversification and, more importantly, an attempt to leverage TES's core PECVD know-how into high-value adjacent markets historically owned by foreign vendors. TES is evolving from a memory-cycle component supplier into a solutions partner across the wider semiconductor ecosystem — and if it works, the equity-story re-rating could be material.

2.4. Competitive Landscape

• Global peers: Applied Materials, Lam Research (US) and Tokyo Electron (Japan) dwarf TES in scale and portfolio breadth. Applied Materials is the direct global competitor in ACL hardmask.
• Domestic peers: The Korean deposition "Big 4" — Wonik IPS, Jusung Engineering, Eugene Tech, TES. Wonik IPS leads generic CVD, but TES has dominant share and unique expertise in the high-value 3D-NAND ACL hardmask niche.

Bottom line: TES's moat is built not on scale but on mission-critical technology deeply embedded in customers' most advanced roadmaps. Being the sole domestic mass-producer of ACL PECVD creates high entry barriers and meaningful switching costs for customers.

3. Market Backdrop & Growth Trajectory

This section evaluates the macro industry context driving TES's growth and shows how its differentiated technology meets a massive market opportunity.

3.1. Equipment Super-Cycle

• Recovery & growth: Global semi-equipment market sized at ~US$124–144B in 2025, projected to exceed US$200B by 2030. CAGR 7.5–8.7%.
• Deposition: CVD market US$18B (2025) → US$24B (2030), CAGR 5.95%. The wider thin-film deposition market is forecast to grow at CAGR 13.33% through 2029.
• Core drivers: AI, 5G, IoT, autonomous vehicles — all of which demand more and more advanced chips, producing structural equipment demand.

3.2. 3D NAND: Indispensable Growth Engine

• Explosive market growth: 3D NAND is forecast at CAGR 15–20%+ over the next decade — well above the broader semiconductor market.
• Demand: AI-driven datacentre storage, enterprise SSD expansion, ever-higher capacity in smartphones and devices.
• Inflection: The transition from "conversion CAPEX" to "new-capacity CAPEX" is the inflection in TES's earnings. The market is currently in the conversion phase; large new fab investment is imminent.

3.3. Customer CAPEX Cycle: Multi-Hundred-Trillion-Won Pipeline

Double Tailwind: Cyclical memory recovery PLUS a government-supported, structural multi-year domestic CAPEX super-cycle — a rare combination working in TES's favour.

3.4. K-Chips Act Catalyst

• Government support: The K-Chips Act (Tax Restriction Special Act amendment) provides aggressive tax credits for semiconductor facility investment and R&D.
• CAPEX activation: Facility-investment tax credit up to 25% for large companies and 35% for SMEs. Directly lowers the cost of Samsung/SK hynix's multi-hundred-trillion CAPEX, raising the probability that plans are executed in full.
• Materials/parts/equipment ecosystem: By accelerating domestic CAPEX it directly expands order opportunities for tool vendors like TES. R&D-heavy firm benefits also help TES commercialise Low-k and BSD.

4. Financial Health & Performance

This section quantitatively evaluates TES's profitability, performance and balance sheet to verify it has the financial capacity to capitalise on the market opportunity.

4.1. Historical Performance: Cyclicality & Evidence of Recovery

• 1Q25 earnings surprise: Revenue KRW 84.5B, OP KRW 16.3B — sharply above consensus (KRW 12.9B). Driven by new SK hynix M16 orders and NAND conversion CAPEX.
• Cyclical trough: FY23 revenue KRW 146.9B, OP –KRW 5.8B versus FY22 OP KRW 55.7B (standalone) — proof of high sensitivity to memory CAPEX.
• Operating leverage: Margins compress sharply on fixed costs during downturns and expand quickly on revenue in upturns. 1Q25 OP margin of ~19.3% is the proof point.

4.2. Balance Sheet & Cash Flow

• Financial stability: Liquidity (current/quick) and leverage (debt/equity) ratios kept at healthy levels. Conservative financial policy.
• OCF: Tracks the earnings cycle, but the core business consistently generates cash.
• ICF: Sustained R&D and capacity investment.
• FCF: Dividends and treasury buybacks for shareholders; no recent CB/BW issuance — operations can be sustained from internal cash without external funding.

4.3. Forward Outlook

• FY24 consensus: Revenue ~KRW 237.3B, OP ~KRW 38.4B (standalone) — return to profit.
• FY25+: Full-scale NAND CAPEX restart drives accelerated growth; given customer CAPEX schedules, revenue and earnings have exponential upside potential.
• Valuation: Current PER/PBR may not yet fully price in the imminent super-cycle earnings power or the risk-reduction from new-product diversification.

Table 2. Quarterly Financial Summary

Note: Periods outside 1Q25 are estimates based on annual research forecasts. Cash-flow data not available in source materials.

5. Synthesis & Strategic View

The final section integrates the analysis above into an overall strategic assessment of TES — balancing investment thesis, key catalysts, and key risks.

5.1. SWOT Analysis

Table 3. TES SWOT Matrix

5.2. Investment Thesis & Key Catalysts

5.3. Risk Assessment & Mitigation

• Customer concentration risk: Overwhelming dependence on Samsung/SK hynix; changes in their strategy or market position would hit TES directly.
  Mitigation: Maintain deep technical integration and long-term partnerships; diversification into non-memory and overseas markets is the most important strategic lever.
• Market cyclicality risk: Severe memory volatility is unavoidable; downturns will materially impact revenue and margins.
  Mitigation: Grow the recurring parts & service mix, push into the less-volatile foundry market, and maintain a strong balance sheet to weather downturns.
• Technology risk: Today's lead does not guarantee tomorrow's — Applied Materials or others could develop superior deposition tech, or customers might adopt alternative process flows that reduce hardmask dependence.
  Mitigation: Sustained R&D to retain technology leadership and tight collaboration with customers on their forward roadmap.

Conclusion