10.30.24
In their analyst call, they led with technology development investments supporting AI and HBM and an “improving supply demand environment are positioning memory makers’ return to growth for the wafer fab equipment industry in 2025.” Said another way, WFE purchase from memory companies continue to be muted. KLA’s sales to DRAM customers increased 35% sequentially, to $438M in the quarter. This is the lower-middle of the range of spending seen over the last five years. NAND WFE investment across the industry has been historically low since early 2022 and that continued at KLA this quarter. System sales to NAND customers were $77M in the quarter. Five of KLA’s last six quarters have seen NAND customer system purchases below $100M. Before this period, there had not been a quarter with less than $100M in NAND sales from KLA since the emergence of NAND as a significant memory type.
The company’s forecast for the WFE market is now for a modest increase; from the mid-$90B range in 2024 to the high-$90B range. Their view on total WFE for 2025 is unchanged from last quarter. They expect 2025 to be a year of WFE sales growth with increases in memory coming mostly from DRAM. Their December quarter forecast is for memory to be 24% of total and for DRAM to be 76% of memory. NAND investment is very low right now. As far as they would go in forecasting the NAND market was to say that fab utilization rates are getting better, NAND maker financials are improving, and inventory levels are getting better. They believe there will be “some investment” next year. This translates to mean they see the nuclear winter in the NAND market continuing. In DRAM, they have seen utilization rates improve and some incremental investment in HBM for next year (2025). They expect to see a “decent step-up in DRAM investment next year.”
In summary, KLA’s results and commentary on memory didn’t add anything new for Micron investors. DRAM demand continues to be driven by the AI segment with all other segments experiencing various degrees of weakness and inventory digestion. The NAND market is experiencing better pricing for manufacturers but not good enough to spur WFE investment. If AI demand persists, the other segments will continue to lose bits, helping to bring them into balance. If this happens, the memory upturn will be longer than normal. However, if AI demand reverses, there is nowhere else for these memory bits to go, and prices will collapse. The memory manufacturers are being appropriately cautious with new investment. They are not buying WFE in volumes that will tip the industry into oversupply. The risk is from the demand side, an unusual state for this point in the cycle.
– S. Hughes (cyclical long MU)