5.16.24
Sales to DRAM customers ticked down 6% from the prior quarter but is still above any quarter in the prior upturn. Last quarter, HBM and indigenous China sales were behind this upturn-like DRAM spending. Guidance last quarter said that would continue into Q2. I’m concerned about this spending but less so than I was three months ago. NAND sales continue to be paltry. My records go back to the end of 2017 and the past five quarters have been the lowest for Applied Materials NAND sales for that entire time. This most recent quarter is the lowest for NAND spending going back at least six and a half years. In the prior quarter, the company said HBM demand would lead to their packaging revenue being four times larger in 2024 than it was in 2023. Their DRAM customers are accelerating their HBM investment plans and now see 2024 HBM revenue being six times higher than it was in 2023, or more than $600M. In the third fiscal quarter (May through July of 2024), the high shipments to China that they saw in Q1 and Q2 will fall off. The level of sales to DRAM customers in Q3 from Applied will be a vital data point because it will reveal how much of the surprisingly high revenue seen in the last three quarters is coming from China versus HBM-driven sales. In the last three quarters, shipments to DRAM customers in China included some “catch-up DRAM shipments.” They indicated that other DRAM sales aren’t coming in to backfill that loss of revenue in the quarters, suggesting higher investment from the big three DRAM customers has not started yet. They see DRAM fab utilizations and wafer starts continuing to improve. The allocation of DRAM wafer starts to HBM has increased from 5% to “probably something closer to 20%. That said, it’s not 100% utilized. So, you could speculate what the – if there’s some restraints, it could be in the packaging side, and we have seen orders for HBM going up.” This comment means that DRAM manufacturers are constrained in their HBM production by lack of advanced packaging capacity rather than front-end fab capacity. Applied sees NAND investment all in node migration. They see NAND growing at the same rate as overall semiconductors going forward. Their sales to China DRAM makers drops “significantly” in their third quarter, and “then it’s pretty close to zero in Q4.” We will get a clean look at DRAM investment form the big three at Applied in the rest of this year. Management characterized shipments to DRAM customers for higher wafer starts in 2025 as being smaller than what they are projecting into ICAPS and leading logic. They called out NAND as being free of forecasted wafer start increases. In summary, DRAM equipment demand is being driven by increasing capacity for manufacturing HBM. Within HBM, the bottleneck is advanced packaging. The fabs have enough capacity to make the required wafers, the full volume of that capacity can’t be processed through assembly. The next two quarters will give an important view into how much of the increase in Applied’s sales to DRAM makers seen in the last three quarters is from indigenous China and how much is for HBM production. Investment in NAND capacity continues to all be for technology transitions with no plans for wafer starts on the horizon. This is good for Lam Research but doesn’t help Applied.
-S. Hughes (cyclical long MU)