8.15.24
Applied’s DRAM sales declined 25% sequentially. NAND increased by a full third but remains at the same nuclear winter level of investment that it has been for the last five quarters. Guidance is for total revenue to be up about 2% in their fourth fiscal quarter. They believe their market share has increased by 1000 basis points in the last decade. They see the conversion from 6F2 to 4F2 DRAM will increase the cost of 100,000 wafer starts per month by 10%, to around $6.5B. The subsequent conversion to 3D DRAM will raise that by an additional 15% per unit of DRAM wafer starts. The number of bits per wafer increases also, of course. That’s the whole point of node migration. Nonetheless, these percentages are useful for modeling capital intensity. Applied forecasts they will generate $600M in HBM packaging revenue in calendar 2024, which is almost six times the level of 2023. That is high growth but off of a low base. From the prepared remarks, “we are seeing particularly strong pull related to AI and data center computing. Specifically, our DRAM system shipments remained strong even as DRAM sales in China declined as anticipated. Recall three months ago I said this period would be a critical data point on where DRAM investment is in this cycle, once China purchasing was taken out. Well, those China purchases of WFE were 25-35% of the total DRAM sales in calendar Q4 of 2023 and Q1 of 2024. Still, at almost $1.2B in calendar Q2, DRAM spending now is at the peak of the last upturn. This is not a clean comparison as a significant percentage of what is being spent today is on advanced packaging for HBM. There is also ever-increasing capital intensity as well as the long-term upward trajectory of total memory revenue. The point is, it will not be obvious when memory investment has reached the level of oversupply. CapEx is among the most useful data points, but it is not singular. Adoption of high-bandwidth memory and other forms of advanced packaging continues to grow.” In their investor presentation, they led their semiconductor systems slide with bullet points on memory growth, DRAM revenue up 50% year-over-year and NAND up 10%. I think this is a combination of wanting to highlight memory is recovering and the slower recovery in foundry and legacy. Semi systems in total will be up 3.6% sequentially in the current quarter. In the reported quarter, almost none of the DRAM sales were to China, so the DRAM systems revenue in the reported period is almost a clean look at investment from the big three plus Nanya. In the current quarter (to be reported in November,) they will see a small amount of DRAM to China but “nothing like we’ve had in the prior three quarters.” China DRAM in calendar Q3 and calendar Q4 will be “at nominal levels.” Fab utilizations in DRAM have improved. They said there is “a lot of energy around the AI markets” several times, referring to HBM DRAM. Outside of HBM, Applied believes the DRAM industry will put new capacity in place in calendar 2025. There has been more allocation to HBM capacity out of the total DRAM pool. DRAM investment has been higher than NAND. NAND investment “remains fairly low.” Fab utilizations for both DRAM and NAND are in normal ranges. In summary, NAND is at no risk of overinvestment in capacity. The picture on DRAM is obfuscated by WFE revenue going to advanced packaging to make HBM. If demand for AI memory continues as it is being forecasted within the industry, DRAM oversupply isn’t a meaningful risk until at least early calendar 2025.
-S. Hughes (cyclical long MU)