ATMI reported third-quarter results that were slightly below our expectations due to near-term softness in manufacturing activity in the chip industry. We are maintaining our fair value estimate and moat rating.

For the quarter, revenue was $100.2 million, down 2% sequentially and down from sales of $109 million in the year-ago quarter. A near-term slowdown in semiconductor industry manufacturing activity affected demand for ATMI’s products, as foundry customers in particular see lower business levels as a result of excess chip inventories in the electronics supply chain and some uncertainty in the economy.

As a result, sales in ATMI’s microelectronics segment declined 2% from the second quarter to $87.8 million. Nonetheless, the emerging life sciences business achieved record revenue of $12.3 million, up 3% sequentially, as demand for the firm’s consumables technology for pharmaceuticals manufacturing continued to rise. The gross margin came in at 46.1%, down from 47.7% because of lower business levels and product mix. Operating income was $11.0 million.

While management does not provide revenue outlooks, it indicated that chip industry manufacturing activity will fall further in the fourth quarter, which is in line with quarterly earnings commentary provided in recent days by other firms tied to the semiconductor industry. However, management noted that it expects the life sciences business to continue to grow, with sales forecast to be approximately $15 million next quarter. ATMI again reiterated its expectation that the life sciences segment will grow in the 20%-30% range annually in the longer term.

The cyclical slowdown in chip industry manufacturing activity is temporary in nature, and we should expect to eventually see a recovery in the coming quarters. This, combined with the emergence of the life sciences opportunity, should allow ATMI to resume its growth trajectory at some point in 2014.