8.8.24
From Tokyo Electron’s results one thing is clear; NAND investment remains historically low. In this quarter, TEL saw the lowest sales to NAND customer ever, more than 30% below the previous bottom. Sales to DRAM customers were similar to the level two quarters ago and down somewhat sequentially. The current spending on WFE from TEL by DRAM customers is still 2x above the trough that occurred in the second half of 2022 and first half of 2023. The pressing question about DRAM spending in recent quarters – one that I can’t answer from the information provided – is how much of the surge in DRAM spending seen in the last four quarters is from Chinese customers and how much is for new AI/HBM/DDR5 capacity? We may get some of the answer next quarter from TEL. In this quarter’s commentary they said the company expects investment in China from emerging chip manufacturers there to be lower in CY25 than CY24 as “investment activity has run its course.” It is not clear if this comment applied to DRAM makers, but it likely does. For all of CY24, TEL expects total WFE spending to be just over $100B from “strong investment” in AI servers and steady recovery in fab utilization rates for PC/smartphone chips. This is up slightly from around $100B last quarter. They are saying demand for memory from the PC and smartphone segments will steadily recover. Strong demand is expected to continue for HBM and DDR5 DRAM, for AI applications. The company made the same commentary as others in the space; that AI servers and PC/smartphones with AI will drive double digit CY25 growth in WFE. Tokyo Electron is the only company among the WFE vendors that publicly provides their forecasts for spending by market. They see DRAM spending in the second half of CY24 to be similar to the first half, then first half of CY25 will average about 30% more DRAM WFE sales. In NAND, the second half of CY24 will be similarly anemic to the level of 1H24. Then, in the first half of CY25, NAND spending will jump to more than twice the levels being spent now. This is still more than 50% below the last upturn. The company’s view of when NAND investment will recover seems to have pushed out from what they believed last quarter. Their view on future DRAM investment is similar to what they saw three months back. In summary, DRAM WFE is being driven by AI and China investment. I hope we will learn more about how this is split with TEL’s Q3 results in November. NAND makers, even with the rise in ASPs seen in the last three quarters, are not investing in capacity, nor are they planning to return to the levels of the last upturn.
-S. Hughes (cyclical long MU)