Although we're raising our fair value estimate on this wide-moat firm to account for stronger expectations, we recommend investors stay on the sidelines for now.
once again provided an impressive outlook, along with solid quarterly results, ultimately sending shares to multiyear highs in after-hours trading. While display orders remained strong, the major surprise this quarter was foundry orders from the likes of Taiwan Semiconductor Manufacturing and Samsung. We note these orders are in support of the 10-nanometer process, though the magnitude exceeded our expectations. We believe the firm is poised to continue benefitting from the three key demand drivers (3D NAND, 10-nm, OLED displays), and are slightly increasing our fair value estimate to $25 to account for the stronger expectations for fiscal 2016. However, with shares trading at a premium for this wide-moat entity, we recommend prospective investors wait for a wider margin of safety.
Abhinav Davuluri is a senior equity analyst for Morningstar.
Fiscal third-quarter revenue rose 15% sequentially, to $2.8 billion, as equipment sold to semiconductor manufacturers was up 13%. Foundry orders nearly tripled from the prior quarter, indicating the confidence major foundries have in the upcoming 10-nanometer process that will support the chips that go into future Apple iPhone and Samsung Galaxy devices. Display revenue came in at $313 million, doubling year over year, a benefactor of the transition to OLED. Both gross and operating margins were up sequentially on a richer product mix, to 42% and 21%, respectively.
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