5.6.25
The large step up in equipment sales to DRAM customers seen last quarter – an increase of almost 70% - was followed by another 10% sequential increase this quarter. This is the second consecutive quarter of record WFE sales to DRAM customers for the company. Prior to the most recent two periods, the highest quarter of DRAM equipment sales from Tel was the fourth quarter of calendar 2021. That period was the previous cyclical peak for DRAM. Investment in leading edge, to support “HBM etc.” was “a significant contributor” to the higher DRAM sales. NAND also added a second data point to the rise in WFE seen last quarter. In the case of NAND, spending rose 56% from the prior quarter, to $414M. Recall, that follows the previous quarter, which saw WFE sales to NAND customers more than triple sequentially. Tel’s sales of NAND equipment have thus increased by 5x in the last two quarters. These increases in sales are from investment in both leading edge nodes and demand for mature nodes. I don’t know what to make of the second half of that comment. This level of NAND spending at Tel has not been seen in two years, in the last quarter before the beginning of the nuclear winter in NAND investment. A thawing is underway.
Sales to China this quarter dropped by more than a quarter. They were 34.3% of total sales, down from 42.7% in the prior period. This is the lowest fraction of sales into the PRC for Tel in at least two years. Management forecasted this would happen two quarters ago. It has been later in coming than they thought it would. For the full fiscal year just completed. DRAM equipment sales grew by 59% on the back of HBM demand. The company continues to expect total industry WFE sales to be flat year-over-year, at around $110B. A lull is expected in both automotive and power semiconductor investment, and investment by emerging Chinese manufacturers. The quarter just completed was the end of Tel’s fiscal 2025. They are estimating sales to DRAM customers to decline sharply in the next six months compared to the prior six. To be exact, they see a decline of 44% half-over-half. They see a rebound after this, with a 40% sequential rise in the period six months from now to a year out. Still, their view of DRAM spending in the two quarters that begin six months from now is lower than in the last six months. NAND, on the other hand, they expect a massive recovery, in percentage terms anyway. They see spending in the period six to twelve months from now on NAND equipment to be more than 50% higher than it was in the last six months. This is, you will recall, off of an anemically low base.
The company again said they see 2026 WFE growth to be in the double digits. They foresee continued and significant demand for AI servers and an acceleration in 2nm mass production. In a first for the equipment companies this cycle, Tel called out higher semiconductor demand from higher on-device AI in PCs and smartphones. I think this is fanciful.
This paragraph is commentary on the management call with analysts. Sales into China are declining from the mid-40% range prior to the mid-30% range going forward. Management believes PC and smartphone demand will increase this year, reversing the declining trend in demand from those segments that has happened since COVID. Some color on the decline in DRAM sales forecasted in the next six months for Tel. They believe, on a calendar year basis for 2025, that DRAM will slightly outperform the overall WFE market. Within that segment, DRAM WFE sales into China will decline, offset by rising DRAM equipment demand outside of China. Their DRAM WFE sales, excluding China, will increase 10% to 20% in calendar 2025. HBM demand has driven a 3x increase in bonding equipment sales. This is up from their forecast of a doubling in bonder sales over that period of time. The company has been increasing their market share in NAND equipment, which is part of the reason for their rising revenue there. The overall NAND equipment market is also recovering. Further, they said the China NAND equipment market isn’t growing, so overall increase in market size is from leading-edge demand. Overall, NAND spending is brownfield, not greenfield.
– Smooth H. (short MU)