ASML
Unlike the other WFE companies, the company doesn’t break out sales between DRAM and NAND. Total sales into memory have been increasing for three quarters in a row, from €935M to €1210M. This is more than 2x higher than the bottom of the last memory downturn when total sales to memory averaged less than €500M per quarter for three quarters. When asked if orders were slowing or being canceled from memory customers, as Hynix and Micron have both announced capex reductions, the CEO said that they are not giving up their tool delivery slots. This leaves open the possibility that they are pushing deliveries out in time but not canceling them. Lithography equipment is so constrained that other customers will gladly take an earlier delivery slot if a memory customer were to make it available. I suspect there is a meaningful amount of that churn happening within their tool delivery schedule. Whether or not that is true will become apparent in the next few quarters, if we see memory revenue decline. ASML stated they are seeing slowing in consumer end market demand, specifically PCs and Mobile.
Applied Materials
Among the four WFE companies I follow (Tokyo Electron is the omission,) Applied has the most exposure to DRAM and is therefore the best indicator of DRAM capital expenditures trends. Since peaking in Q4 of 2021 at $1.142B, sales to DRAM customers by the company were $710M in Q2 of 2022. This is still well off the low of the last cycle when sales were down to $422M. I don’t expect that level to be reached again because the overall market gets bigger every year, so the peaks and valleys are higher each cycle. Applied’s management made some comments on memory customers during their call. They said overall memory spending on WFE will be lower in 2023 than in 2022. They are seeing more tool cancellations than additions in memory, as well as a lot of rescheduling. This says to me that memory customers are reducing their overall demand in the near term by cancelling some tool deliveries and pushing others out later in time.
KLA
KLA is the only one of the four WFE companies examined here that continues to grow sales to DRAM customers. Those sales have nearly doubled in the last three quarters, from $321M to $618M. This is a quarterly record in DRAM revenue, going back two-and-a-half years to when KLA started breaking out DRAM and NAND revenue. NAND customer revenue has also increased, though not as steeply as DRAM. On interpretation of the higher DRAM sales is that DRAM customers are slowing their rate of technology migrations but want to increase yields faster, thus they are investing more in process control. Their September quarter guidance was for a large step down in DRAM customer revenue. So it could also be that DRAM customers were delayed in reducing process control equipment deliveries relative to wafer-making tools. There was no commentary in the analyst call on memory customer beyond the comment that September will see a shift away from DRAM. They said overall demand from customers remains strong with no reduction seen.
Lam Research
Lam has the lowest exposure to DRAM customers, the opposite of Applied. They saw a steep drop this quarter in DRAM sales, from $716M to $421M, which follows three quarters of strength. NAND sales continue to be strong as they have been for the last seven quarters. No reduction in demand from customers in 2022 has been seen. Management wasn’t specific about what type of customers, so this could mean higher foundry/logic demand is making up for some memory weakness.
Summary
All of the WFE companies are seeing slowing in consumer end markets, specifically PCs and mobile. They were all probed by analysts regarding slowing in demand from memory customers. While they were soft in their commentary, my read is that memory customers have been cancelling some tool deliveries, but the more common change is they are pushing out delivery slot dates. All the WFE makers have excess demand from foundry/logic, so those customers readily move up in the queue when memory moves back. It is promising for DRAM that Applied reported a large drop in equipment sales to DRAM makers as they are the closest to a pure DRAM demand signal that we have. Concerning is that ASML’s memory sales have risen for three quarters, though they don’t break them out between DRAM and NAND, so this could be rising because of NAND. All four companies lowered their total WFE sales for 2022 from around $100B to something in the low to mid $90B range. For Micron shareholders, this was a good but not great round of reports. We want to see steep declines in sales to DRAM customers across the board.
-S. Hughes (long MU)