7.31.25
After two quarters of sales in a new, higher regime, the company’s DRAM equipment sales dropped by nearly half. Following two quarters with WFE revenue from DRAM customers averaging ~$1.2B, that figure this quarter was $693M. This is not downturn levels of spending. In the last downturn, DRAM equipment sales from TEL were half what they were this quarter. The company did forecast that DRAM sales in the second and third calendar quarters of 2025 would be about half the level of the two quarters prior. That is what has happened so far. NAND equipment sales also declined, though not as much. Rather, last quarter at $414M may have been an outlier. This quarter saw $267M of NAND sales, almost the same as two quarters ago, when $266M worth were sold. The nuclear winter quarters were almost all ~$100M and below. I think the lumpiness in both DRAM and NAND is timing, but am more concerned about DRAM, given the magnitude of the drop.
Total sales were down 16% from the plateau of the last two quarters. Revenue from customers in China was down some, but less than the average. Same for Taiwan, which is mostly TSMC with some Micron. The biggest drops in percentage terms were seen in South Korea and Southeast Asia Other. Those are the locations of the majority of the world’s memory fabs. Surprisingly, Japan was up. Micron has a large fab in Japan. For the rest of the calendar year, Tel’s outlook on their sales is unchanged. That is to say, the equipment market hasn’t weakened in the last three months.
This quarter was the first in Tel’s fiscal year 2026. The company revised down their forecast for the whole of FY-26, taking it down by 4%. This new level of sales for the full fiscal year will be slightly down from their FY-25 total. It will be almost balanced between the first and second half of the year, with slightly more sales in the second half. Management gave several reasons for this change down in their view of the current fiscal year. Some leading edge logic customers (that would be Intel) revised down their capex plan. Emerging Chinese manufacturers are scaling back their legacy investments. NAND investment plans are changing based on consideration of supply/demand balance. HBM investments are being revised down because of technology and yield improvements. There is a lot there. The comment on Chinese manufacturers probably means both memory and logic. Legacy markets have all been suffering because of Chinese overcapacity. I have to believe some of this is YMTC and CXMT reducing some of their plans. I hope it is more them shifting to what they consider leading edge, which is still two or more years behind the leaders. We have seen softness in NAND for about the last nine months, so the producers in this space are pulling back on future investment plans to reduce supply and hopefully support pricing. The biggest news here is what Tel said about HBM. The Big Three DRAM makers have reduced their HBM investment because their yield ramps on new technology have happened faster than planned. I do wonder if some of this is concern about oversupplying the market, especially given how much capacity has been added to HBM in the last two-and-a-half years. The company also said some of the reduction was a delay in the transition from DDR4 to DDR5. This is a slowing in node migration rate, which has the effect of reducing the rate if DRAM bit supply increase.
Tel is the only equipment company that provides forecasts by semiconductor type, besides the small amount of information KLA provides. The company does so for the full fiscal year, split by logic, DRAM, and NAND. This release included data by half by product segment for all of the company’s FY-26. It also included their prior forecast, from nine months ago, for comparison. We learned a lot about the down-revision in FY-26 revenue from this information. In DRAM, they actually took up the total sales in the April-October 2025 period by a few percent. The following six months, from October 2025 through March of 2026, are down a few percent. Assuming the revenue in each half are split evenly between each quarter, the next three quarters of DRAM sales will rise, 7% in the current quarter, then 21% on average in the next two quarters. Said another way, spending in the next three quarters will not be as high as it was in late 2024 and early 2025, but it will still be 2.5x the levels where it bottomed out last cycle, and significantly above what was spent in the first part of this upturn. NAND is where the big revision down happened in memory. The current six months, April through September, actually went up about 7%. It was the following six months, the period from October of 2025 through March of 2026 where the NAND equipment spending came down sharply. The new forecast has the current quarter being the largest for NAND spending at Tel in three years, then the level drops to where it has averaged between Q4-24 and Q2-25. This is still WFE spending on NAND equipment that is well above the depths of the nuclear winter seen from the middle of 2023 to nearly the end of 2024. My belief is the leading NAND companies are spending on node migrations to widen the process technology gap with YMTC, lowering their costs so they can better compete.
This paragraph is commentary on the management call with analysts. The decline in DRAM spending seen this quarter happened in part because of the intense spending levels from these customers in the prior quarter. If the most recent two quarters are added together, they average nearly $1B per quarter in DRAM spending. Prior to the fourth quarter of calendar 2024, Tel has only had one quarter with DRAM spending of over $1B. That was the fourth quarter of 2021, at the peak of the last upturn. Their overall view of total WFE sales to all segments from Tel in their fiscal year 2026 (ending in March of 2026) has been taken down. They now see that year with a negative 5% growth rate year-over-year. This change from their prior forecast is because of strength in the yen and pull-in of some logic investments from FY-26 into FY-25. They have also seen delays in tool deliveries from NAND customers. They believe the total size of China’s WFE market in calendar year 2025 will be approximately $45B. They think 2026 will have a similar level of spending.
– S. Hughes (short MU)