2.5.25
DRAM customers are investing to support AI and HBM demand. This investment, and an improving supply-demand environment, will lead to more DRAM WFE investment in 2025. The company is forecasting the WFE market to grow mid-single-digits percentage in 2025 from the high $90B level of calendar 2024. This expansion will come from leading edge foundry/logic and memory to support AI and premium mobile demand. WFE sales in China will be lower as the elevated levels of investment from the last couple of years are absorbed. China is still their largest sales region, accounting for 36% of total sales in Q2-25. The company’s March quarter guidance is for revenue of $3.0B. This is down $100M sequentially and up 27% from the same quarter a year ago. Memory customers will account for 27% of semiconductor process control systems with DRAM comprising 75% of this and NAND the remaining 25%.
Sales to memory customers in fiscal Q1 of 2025 were $618M. This is the highest level seen in the last year. The prior three quarters averaged $471M to this segment. The second through fourth calendar quarters of 2023 were much higher, averaging $766M. This is unusual because that period was solidly in the middle of the memory downturn. The reason for this is Chinese memory producers. KLA doesn’t break out segment sales by country, but total purchases from China match this rise. More telling is the surge in memory sales in the fourth calendar quarter of 2023. This happened as YMTC and CXMT pulled in tool purchases to get ahead of new export restrictions which went into effect with the start of calendar 2024. It is these equipment sales to China’s emerging indigenous memory producers that have stifled the DRAM and NAND upturn in 2024. Returning to the current quarter, equipment sales to DRAM customers rose 28% sequentially, to the highest level in the last year. This is the return of investment by the Big Three DRAM companies as they ramp capacity for advanced nodes to produce DDR5 and HBM. NAND equipment sales were also higher than they have been in the last year but remain well below what was baseline investment prior to this downturn.
These are comments pertinent to memory from the analyst call. On sales into China, much of the sales in 2023 and 2024 was for greenfield projects, not reacting to supply and demand dynamics. This comment supports my conclusion above about higher Chinese investment in 2023. Management said traditional customers were pulling back meaningfully during 2023 and 2024 and Chinese customers filled the void. China sales in 2024 were in the low-40s percent of total. As all that capacity is absorbed, they expect their sales into China to drop to around 30% in 2025. In NAND, most of the activity they are seeing is fab utilization rates increasing. They don’t anticipate a lot of growth in sales in NAND on an absolute basis. In the near future, they expect foundry to be stronger than DRAM. One analyst commented that “most are expecting the China part of DRAM to be down pretty significantly.” The company expects to see “a decent step-up in DRAM investment next year.” They said exactly the same quote about DRAM in the call last quarter.
The most useful comments for Micron investors were on China. There was a high level of equipment spending from YMTC and CXMT in 2022 and 2023, leading to supply growth in 2023 and 2024 that caused extra supply in both memory markets. I believe that is the factor which has muted the strength of this upturn in DRAM and NAND. Were it not for AI demand, the upturn would have been just a blip. Now those Chinese companies have slowed their WFE purchases as they optimize the output of the fab tools they already have. KLA does not see much recovery in NAND on the horizon. They are only seeing improved fab utilizations, not new equipment purchases. DRAM is somewhat better. Management has said for the last two quarters they see a “decent step-up” in DRAM equipment purchases in 2025 relative to 2024. This means the DRAM makers are not going all in for DRAM capacity in 2025, which gives credence to comments from Micron and Hynix that their significantly higher capital expenditures in 2025 contain a lot of spending on new facilities.
–S. Hughes (no MU position)