11.14.24
Applied’s WFE revenue from DRAM customers was flat quarter-over-quarter. After seeing a surge in their fiscal Q4-23 and fiscal Q1-24 from China (ahead of export restrictions,) DRAM sales have settled to a level about halfway between the bottom in 2023 and the China bump. The current level of DRAM equipment sales is cautious upturn. The DRAM equipment they are selling is mostly node migration and tools for advanced packaging for HBM. NAND continues to be frozen. Applied’s system sales for NAND have been bottomed for seven quarters now.
The company generated more than $700M of HBM packaging revenue in FY24. They believe they are the leader in TSV technology. China declined to 30% of total revenue, in line with their expectations. DRAM system sales declined 10% year-over-year (fiscal year) and NAND system sales were flat year-over-year (also fiscal year.) Elevated purchases from China in the fourth quarter of FY23 was cited as the reason for this. I read this to say that, without China, DRAM system sales would have been flat from FY23 to FY24. They see customer adding DRAM wafer start capacity in total. This is surprising as everything outside of HBM is weak. Overall, they see 10% of total DRAM wafers are allocated to HBM production. HBM memory demand is growing at a 30% rate, which seems low to me. Applied believes the DRAM market “continue[s] to be fairly strong.”
The long term mix of foundry-logic to memory is two-thirds to one-third. Their FQ1 guide models a continuing strong DRAM [equipment] market. They are not making a call on 2025 though, which tells me their DRAM customers continue to be cautious. NAND is not adding wafers because technology transitions provide enough bits. They see “a little bit of an uptick in the NAND [market] in our outlook for Q1.” This is the most positive comment I have heard regarding NAND in two years. In their Q1 guidance, they are not serving much DRAM or NAND in China. It seems the PRC has filled what they need for memory WFE and are pausing further investment. For Micron investors, this quarter says the memory industry is in a holding pattern. They are not convinced NAND is healthy and are making minimal investment there. In DRAM, capital expenditures are well off the bottom, fueled by AI memory in the form of faster node transitions and advanced packaging, to meet HBM demand. Still, I don’t think there is going to be a clear “overinvestment” signal from Applied. Just every quarter of elevated DRAM investment raises the risk of oversupply.
– S. Hughes (cyclical long MU)