Executive Summary / Key Takeaways

• ACM Research (NASDAQ: ACMR) is strategically positioned to capitalize on robust demand in the semiconductor equipment market, particularly in China, while aggressively pursuing global expansion driven by its differentiated wet processing and advanced packaging technologies.
• The company reported strong Q1 2025 results with revenue growth of 13.2% year-over-year to $172.3 million, maintaining its full-year 2025 revenue outlook of $850 million to $950 million, implying 15% growth at the midpoint.
• ACMR's core competitive advantage lies in its proprietary technologies like SAPS, TEBO, and Tahoe for wet cleaning, and its unique horizontal plating approach for panel-level packaging, offering quantifiable benefits in yield, chemical/energy savings, and performance that differentiate it from larger rivals.
• Despite geopolitical risks, including Entity List designations for its China and Korea subsidiaries and potential new U.S. tariffs, ACMR is mitigating impact through supply chain localization and investing in U.S. production capacity at its new Oregon facility.
• The company's long-term vision targets $3 billion in revenue, split equally between China and the rest of the world, signaling significant expected market share gains outside its current primary market, supported by ongoing customer evaluations and new product ramps like Track and PECVD.

The Ascent of a Semiconductor Equipment Challenger

In the intricate world of semiconductor manufacturing, where precision and yield are paramount, ACM Research has carved out a significant niche. Founded in California in 1998, the company strategically shifted its operational center to mainland China in 2005 through its subsidiary, ACM Research Shanghai, Inc. This move positioned ACMR to serve the rapidly expanding Chinese semiconductor industry, which has become its primary market and a springboard for technological development. Today, ACMR stands as a developer, manufacturer, and seller of critical capital equipment, specializing in wet cleaning, electro-chemical plating (ECP), furnace processes, and advanced packaging tools for the global semiconductor industry.

The industry landscape is dominated by large, established players like Applied Materials (AMAT), Lam Research (LRCX), ASML Holding (ASML), and KLA Corporation (KLAC). While these giants offer broad portfolios, ACMR has focused on developing highly differentiated technologies within specific process steps, particularly wet cleaning and plating. This strategy has allowed ACMR to gain significant traction, especially in China, where it estimates its market share in both wafer cleaning and plating has reached over 25%, translating to more than 9% globally for each category. This success is a testament to the trust earned from leading customers and the strength of its product portfolio, positioning ACMR as a formidable challenger with ambitions for global market share gains.

The broader semiconductor market is currently influenced by several key trends: the surging demand for AI chips driving innovation in advanced packaging, the increasing complexity of 3D chip structures requiring advanced cleaning and deposition, and the ongoing geopolitical dynamics impacting global supply chains and trade policies. ACMR's strategy is directly aligned with these trends, focusing on developing innovative tools that address these evolving needs while building out a global operational footprint to mitigate risks and serve customers worldwide.

Technological Edge: The Foundation of ACMR's Moat

ACMR's competitive strength is deeply rooted in its proprietary technologies, which offer tangible and often quantifiable advantages over conventional methods and competitor offerings.

At the core of its wet cleaning portfolio are the Space Alternated Phase Shift (SAPS) and Timely Energized Bubble Oscillation (TEBO) technologies. SAPS utilizes megasonic energy to remove particles from wafer surfaces, while TEBO employs dynamic bubble oscillation for efficient cleaning of complex 3D structures at advanced nodes (28nm or less). These technologies are designed to improve product yield by effectively removing defects without damaging sensitive patterns, a critical capability as chip designs become more intricate.

A notable innovation is the Ultra-C Tahoe cleaning tool, targeting the middle and low-temperature SPM (Sulfuric Peroxide Mixing) market. Tahoe achieves the performance of a standalone single wafer tool while significantly reducing chemical consumption. ACMR estimates Tahoe can deliver up to a 75% reduction in sulfuric acid usage, potentially saving customers up to $500,000 per year per tool from sulfuric acid alone, alongside environmental benefits. This tool has demonstrated impressive performance, achieving an average particle count of less than 6 particles at 26nm size, meeting stringent requirements for advanced nodes. The company is also making progress in high-temperature SPM, aiming to become the second global supplier in this segment with a technical breakthrough that improves cleaning environment and tool uptime.

In the ECP and advanced packaging space, ACMR is pioneering solutions for the next generation of AI chip packaging. Its Ultra ECP ap-p panel-level plating tool, recently recognized with a 2025 3D InCites Technology Enablement Award, is designed for fan-out panel-level packaging (FOPLP). ACMR believes it is the first and only supplier to offer a rotating horizontal plating approach for large panels (supporting sizes up to 600mm x 600mm), delivering exceptional uniformity and precision across the entire panel. This technology is particularly relevant for plating steps in pillar, bump, and redistribution layer processes crucial for GPU and high-bandwidth memory (HBM) packaging.

The UltraFN vertical furnace tool is another area of differentiation. Its proprietary quartz-based design can reach temperatures up to 1250°C without distorting the wafer surface, a capability ACMR believes is not currently matched by other suppliers in a vertical platform. This is gaining traction for high-temperature annealing applications, especially for power semiconductor IGBT devices. The company's thermal and plasma-enhanced ALD furnace tools also address the increasing reliance on depositing high-quality ultra-thin films for advanced 3D structures.

Beyond these, ACMR is actively developing Track and PECVD platforms, designed with innovative architectures focused on high throughput and process flexibility. A 300WPH inline KrF beta Track tool is planned for delivery in mid-2025, and a beta PECVD tool with a unique one-chamber, three-chuck approach has already shipped for evaluation. These new products are expected to contribute to revenue starting in late 2025, with more significant contributions anticipated in 2026 and beyond.

These technological advancements provide ACMR with a competitive moat, enabling it to compete on performance and efficiency rather than solely on price. While larger competitors like AMAT and LRCX benefit from scale and broader portfolios, ACMR's specialized innovations offer targeted solutions that can improve customer yield and reduce operational costs, positioning it as a valuable partner in specific, critical process steps.

Performance Reflecting Strategic Momentum

ACMR's recent financial performance underscores the effectiveness of its strategy, particularly its strong position in the China market. For the first quarter of 2025, the company reported revenue of $172.3 million, a 13.2% increase compared to $152.2 million in the first quarter of 2024. This growth was primarily driven by higher sales of Single Wafer Cleaning, Tahoe, and Semi-Critical Cleaning equipment (up 18.4% to $129.6 million) and ECP front-end and packaging, Furnace, and Other Technologies (up 7.1% to $27.6 million). The increase reflects continued demand from mainland China-based customers expanding production capacity.

Gross profit for Q1 2025 was $82.6 million, resulting in a gross margin of 47.9%. While this was slightly lower than the 52.0% margin in Q1 2024, primarily due to product mix and a higher inventory provision, it exceeded the company's updated long-term target range of 42% to 48%. Operating expenses increased by 5.4% year-over-year to $56.8 million, reflecting increased investments in sales and marketing (up 15.3% to $16.3 million) and research and development (up 15.0% to $27.5 million) to support product pipeline expansion and global market reach. General and administrative expenses decreased by 18.2% to $12.9 million, partly due to lower stock-based compensation and credit loss provisions.

Net income attributable to ACM Research, Inc. for Q1 2025 was $20.4 million, or $0.30 per diluted share, compared to $17.4 million, or $0.26 per diluted share, in Q1 2024.

Shipments, a key operational metric reflecting total value delivered, were $157 million in Q1 2025, down from a particularly strong $245 million in Q1 2024. Management noted that Q1 2024 had unusually high customer demand and some pull-ins from Q1 2025 into Q4 2024, making for a tough comparison. They anticipate a return to year-over-year shipment growth in Q2 2025 and expect full-year 2025 shipments to exceed 2024 levels, though potentially at a slower growth rate than revenue.

As of March 31, 2025, ACMR held $498.4 million in cash, cash equivalents, restricted cash, and time deposits, up from $441.9 million at the end of 2024.

This increase was primarily driven by $67.2 million in net cash from financing activities (including proceeds from new long-term borrowings) and $5.3 million from operating activities, offset by $17.1 million used in investing activities (excluding time deposits). The company's liquidity is supported by its existing cash balances and access to bank borrowings, which management believes are sufficient to meet anticipated needs. ACMR also receives dividends from its majority-owned subsidiary ACM Shanghai, which are reinvested into the business to fuel global expansion.

Outlook and the Path to $3 Billion

Looking ahead, ACMR is maintaining its full-year 2025 revenue outlook in the range of $850 million to $950 million. This represents a significant growth trajectory, implying 15% year-over-year growth at the midpoint compared to the 2024 revenue of $782.1 million. This guidance is based on the current order book, anticipated new orders, and the expected timing of customer acceptance for evaluation tools already shipped.

The company's long-term strategic vision is even more ambitious, targeting $3 billion in annual revenue. This target is predicated on continued market share gains in Mainland China, where WFE spending is expected to remain high as the country builds out its domestic capacity. Crucially, the target also assumes substantial growth outside of China, with an equal split envisioned: approximately $1.5 billion from China and $1.5 billion from the rest of the world. This global expansion is a key strategic pillar, supported by investments like the new Oregon facility, which will provide R&D, demonstration, and initial manufacturing capabilities closer to U.S. and global customers.

New products are central to achieving this growth. Management expects meaningful acceleration in revenue contribution from the Furnace product line in 2025 and initial revenue from Track and PECVD in late 2025, with more significant contributions in 2026 and beyond. The panel-level packaging tools, particularly the Ultra ECP ap-p, are also seen as opening doors to major global customers in the rapidly growing AI chip packaging market.

Navigating a Complex Landscape: Risks and Challenges

Despite the promising outlook and technological strengths, ACMR operates in a complex and challenging environment. Geopolitical tensions, particularly between the U.S. and China, pose significant risks. The designation of ACM Shanghai and ACM Korea on the BIS Entity List restricts their ability to obtain U.S. export-controlled components and technologies. While ACMR has been localizing its supply chain and believes the impact is manageable, this requires ongoing effort and investment. New U.S. tariffs on the semiconductor industry, including a Section 232 investigation into semiconductor imports, introduce further uncertainty and could potentially impact demand or supply chains.

Operating primarily through a subsidiary in mainland China also exposes ACMR to potential intervention or influence from the Chinese central government, and changes in local regulations could impact operations or the ability to transfer funds. While ACMR does not use a VIE structure and believes it complies with current regulations, regulatory environments can change rapidly. Furthermore, compliance with the HFCA Act and potential PCAOB inspection issues for its auditor could theoretically lead to trading prohibitions or delisting in the U.S., though management believes they are currently compliant.

Operational risks include meeting the performance covenants tied to the Lingang facility land use rights, such as achieving specified annual sales or tax revenue targets by July 2027. While the administration plans to adjust terms and extend milestones, failure to meet updated requirements could result in penalties or even termination of the agreement. Loan covenants also require ACM Shanghai to meet certain financial metrics or complete a private offering, and non-compliance could lead to accelerated repayment demands.

Competition remains intense. While ACMR's technology offers differentiation, larger competitors possess greater scale, resources, and broader customer relationships. Maintaining technological leadership requires significant and continuous R&D investment. The success of new product ramps (Furnace, Track, PECVD, panel tools) is crucial for achieving growth targets and depends on successful customer evaluations and market adoption.

Conclusion

ACM Research presents a compelling investment thesis centered on its innovative technology, strong foothold in the growing China semiconductor market, and clear strategy for global expansion. The company's proprietary wet cleaning and advanced packaging tools offer demonstrable advantages that resonate with customer needs for improved yield, efficiency, and environmental sustainability, providing a solid foundation for market share gains against larger, more diversified competitors.

Recent financial performance, including robust revenue growth and healthy margins in Q1 2025, supports the positive outlook. The maintained 2025 revenue guidance signals continued growth, driven by both core products and the anticipated ramp of newer technologies. While geopolitical tensions and operational challenges present notable risks, ACMR is actively implementing mitigation strategies through localization, facility investments in key regions like the U.S., and a focus on technological differentiation. The ambitious long-term target of $3 billion in revenue underscores the significant opportunity management sees in leveraging its established strength in China to become a more substantial global player. For investors, ACMR represents an opportunity to participate in the growth of the semiconductor equipment market, particularly through its specialized technologies and strategic expansion efforts, while remaining mindful of the inherent complexities and risks associated with its operational footprint.