Vanguard International Semiconductor Corp.

The stable rating outlook reflects our view that Vanguard's technology competitiveness and good position to provide 8-inch foundry services for some products should continue to ensure its relatively stable performance and cash flow generation. In addition, Vanguard's higher revenue growth and improving profit margin amid a supply shortage will support its moderately higher capex over the next two years and sustain a net cash position over the period. We could lower the long-term rating on Vanguard if either of the following occur: The company has persistently weaker performance leading to a deteriorating market position due to intense competition in mature technology nodes, or if the company's failure in technology transition leads to a loss of customers and business opportunities. An

...Likely to maintain relatively strong performance in 2021 and likely through 2022 amid strong industry growth. Strong demand for Vanguard International Semiconductor Corp.'s major products in large panel display driver ICs and power management ICs, from work-from-home demand, 5G smartphone, industrial, and auto electrification, will enable the company's nearly full utilization over the next one to two years. Tight supply of 8-inch fab products will also allow Vanguard to raise its averaging selling prices, because some of its clients provide a prepayment to secure the company's capacity. We therefore forecast Vanguard's revenue to grow materially by 25% in 2021, followed by 5%-10% growth in 2022. The EBITDA margin will also likely remain relatively high at a forecasted 38%-39% in 2021 and 39%-40% in 2022, compared with 32.9% in 2020. Sustainable cash flow generation to help Vanguard maintain very low debt leverage. The company is likely to remain debt free on an adjusted basis over the next...

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