3.3.24
The fourth calendar quarter of 2023 for WFE companies, considered as a whole, is surprising and concerning for investors in DRAM companies. All four of the WFE companies I follow (excluding Tokyo Electron, the only one of the big five I don’t analyze) had a record for DRAM sales in the fourth quarter. ASML doesn’t break their memory sales out between DRAM and NAND but their total memory sales were a company record. Assuming their mix looks like that of their peers (heavy on DRAM and light on NAND,) their DRAM sales must have been a record. Total DRAM WFE for Applied + Lam + KLA was $3.2B. The previous record was $2.15B. That was in Q1 of 2022, the peak of the last cycle. We are about six months from the bottom of the DRAM cycle. NAND is still flat for new investment. WFE sales in NAND have shown zero sign of recovery. But DRAM looks like we are deep into the upturn. Yet, Samsung and Micron have yet to record a DRAM profit in this cycle, let alone the levels of positive cash flow needed to justify adding capacity. Hynix just reported a DRAM profit, but this was only because of their (now expired) monopoly in High Bandwidth Memory. How are the DRAM makers purchasing record amounts of new equipment with downturn-level WFE capex budgets, low profitability, and lingering new debt? I’ll start with the least likely of the possibilities I can see. That is, the memory makers are being misleading in their public statements about investment, spending more on WFE than they have forecasted. I doubt this is the case given they want to avoid shareholder lawsuits. One way the higher DRAM spending would fit into the lower capex budgets announced by memory customers is a mix that is heavily skewed to DRAM. We can see from low NAND sales at all WFE makers (except ASML, which doesn’t break out NAND vs. DRAM) that this is true. The other two reasons I see, both of which multiple of the WFE companies have cited for their strong DRAM sales, are higher sales to China and higher investment in High Bandwidth Memory. I will be closely watching this trend as 2024 unfolds, both in the comments and filings from the WFE and the memory companies.
-S. Hughes (cyclical long MU)