ASML
The one company that doesn’t break out their revenue from customers between DRAM and NAND is the one I most wish would. ASML lumps all memory sales together into one category. Spending in that category has risen in the last four consecutive quarters, from €935M to €1,362M. Memory customer purchases have mostly been a steady climb for almost two years, with one massive quarter (Q3-21) that was almost 2x the prior period. I think spending and pre-payments on EUV tools from DRAM makers are confounding these trends, because the tools are extremely expensive and the prepayment is unusually large, compared to the rest of ASML tools. I think memory vendors are also loathe to give up lithography tool slots as they are the hardest to get among WFE companies. I hope to see memory customer spending start to trend down next quarter. While the total sales number rose, memory revenue as a percent of ASML’s total shrunk sequentially. In the investor call, the executives said memory customers are not reducing lithography orders, because they are strategic tools. Their current backlog is 23% for memory customer and 77% for logic customers. This compares to 29% sales to memory in the third quarter. The company acknowledged that memory shipments planned for 2023 have given “a bit.” Management didn’t provide a forecast for overall WFE revenue in 2023 but did say company revenue would be up year-over-year.
Applied Materials
DRAM revenue was up some sequentially but has trended down the last three quarters, after peaking in the fourth quarter of 2021. NAND sales were highest in Q1 of 2021 and have been trending mostly flat for the six quarters since. Applied is the least exposed of the four WFE companies I follow to NAND, so they are the weakest indicator of CapEx in that segment. DRAM as a percent of total was up sequentially from 15% to 16%. NAND was down from 19% to 13%. The company said they expect memory spending to be down year over year in 2023 but didn’t quantify this forecast. They also didn’t put a revenue range on overall WFE in 2023, saying only they expect it to decline. The company didn’t give any commentary on demand details in the memory segment, just the broad comment that it will be weaker in 2023 than 2022. Last quarter they said memory customers have already started reducing demand, by canceling some orders and rescheduling others. One should assume the pace of this has accelerated in the last three months.
KLA
The company is forecasting the overall WFE market to decline 20% in 2023 compared to 2022 on macro concerns and because of recent public statements from memory makers that they will reduce capital expenditures in the coming year by 50%, as well as restrictions on exports to China. KLA in this quarter had a sharp drop in tool sales to DRAM makers, from $618M last quarter to $355M. Q1 and Q2 of this year were the highest DRAM sales going back at least two-and-a-half years. NAND in the third quarter was the highest on record. KLA’s sales to DRAM customers seem disconnected from what is happening in those markets. This could be the nature of their tools, as they are inspection and not wafer processing. As with the companies above, KLA provided little detail on what is happening in memory demand, beyond that PC and consumer are weak and memory makers are cutting their CapEx now and for 2023.
Lam Research
Sales to DRAM customers dropped sharply two quarters ago and stayed down in the most recent quarter. This matches the DRAM market, where demand collapsed in the last six months. LAM sells much more NAND equipment and sales there have been higher in the last six months compared the previous six. Lam made the strongest statement on the overall WFE market, saying they are seeing a “rapid deterioration in demand fundamentals, led by memory.” Their comments indicate the company doesn’t believe memory will recover until 2024. Memory bit shipments will be below end demand for the next few quarters as memory users clear out inventory.
Summary
Memory commentary was sparse from all four companies. It is now widely understood that memory is in a severe downturn so there is no more speculating to do. It is too early in the cycle to start predicting when it will end. Only KLA was willing to give a forecast for the overall WFE market in 2023. I think the other three management teams have tired of taking down their forecast each quarter. We’ve learned more about the memory market from Hynix, Micron, and Samsung in this quarter than from any of the WFE companies. The combined DRAM WFE for Lam, Applied, and KLA is down in the last two quarter after climbing steadily for the previous year. NAND sales had dropped for four quarters in a row before jumping in the last two. In hindsight, I should have looked at the high WFE sales to DRAM customers in most of 2021 with more concern. With memory in dramatic contraction, our prognostication has turned to how many down quarters we will see in WFE and how steep the drop will be. We know what Micron and Hynix are going to do but Samsung has been tight-lipped about their plans. If Samsung continues to say little about their memory CapEx, the WFE company revenues by segment will be our best read on what they are doing.
– S. Hughes (long MU)