2.15.24
After I entered Applied’s revenue by customer type into my spreadsheet of WFE spending over time, I said “It’s starting already” to myself. The fourth calendar quarter of 2024 was the largest for DRAM spending going back to at least late 2017, which probably means the largest ever, given the upward trajectory of fab cost. It was a record quarter for Applied DRAM sales at $1.67B, more than $500M higher than the prior record. There is significant equipment required to make HBM, and the DRAM makers are all furiously adding capacity there to meet AI demand. The move to convert capacity to higher technologies while fabs are underutilized is also contributing some. Calendar year 2023 DRAM equipment sales for Applied were a record at $4.3B. That was a downturn year. It gives me pause as a Micron investor that there is so much DRAM WFE investment this early in the cycle. Micron hasn’t even recorded a profitable quarter yet. NAND is the opposite story. Applied, weak in NAND already, continues to see paltry spending on this memory type. It has been flat at record low levels (below half of the prior trough) for the last four quarters. The current state of the memory market sees normalizing levels of inventory and increasing fab utilization across all device types. In 2024, Applied sees leading-edge foundry/logic stronger, ICAPS slightly lower, NAND up but still <10% of WFE, and DRAM strong with HBM memory growing. The rest of my comments are from their earnings call. The continued strength they are seeing from DRAM customers is driven by the ramp of high bandwidth memory capacity. HBM was 5% of DRAM output (measured in wafer starts) in 2023 and is expected to grow at a 50% CAGR “over the coming years.” They estimate a DRAM process today has 700 steps and HBM is an additional 15 to 20 steps of processing. The company saw high sales to DRAM customers in China last quarter and in the most recent quarter, and they expect FQ2 to also be elevated for these sales, with normalization later in the year. In DRAM, the company is seeing improvements in fab utilization, in price, and in inventory levels, but there is a ways to go before DRAM makers have to start thinking about adding capacity. They see the DRAM market today as mostly node upgrades and adding HBM capacity. NAND is similar, but without the HBM kicker. Applied’s overall advanced packaging revenue today is around $1.5B annually with 2024 expected to be $500M of that. Overall, I’m surprised at the strength of DRAM equipment sales by Applied in 2023. How much of this is explained by indigenous China (which will be highly inefficient investment) and HBM growth is the key question when considering how long the DRAM market undersupply will last.
-S. Hughes (cyclical long MU)
