8.25.24
As it always does, earnings season for semiconductor WFE companies started with ASML. After analyzing their results, I was concerned as memory investment reached an all-time high. However, bookings declined and are at similar levels to those of the last downturn. Results from the other four equipment companies have left me feeling better about the next two quarters, at least. The situation in NAND is simple. Investment in this memory type continues to be in a nuclear winter. Despite prices rising sharply over the last three quarters, there has been no thawing of investment in equipment. The memory fab owners have seen enough from this business and prices need to rise a lot more, even from here, to get them off the sidelines. DRAM is not nearly so clear. We learned this quarter that much of the rise in DRAM WFE spending in late 2023 and the first quarter or so of 2024 was from indigenous China. That spending is now rolling off, giving a clearer picture of underlying DRAM investment. However, that spending is obfuscated by the rise in investment in HBM capacity, which falls in the area of “advanced packaging,” between fab and assembly. My conclusion is the rest of 2024, excepting a collapse in AI memory demand, will continue to be undersupplied. There are not new bits being added to non-AI DRAM capacity to make up for what is being shifted to HBM. I am also confident that the calendar year 2025 will be when the next downturn hits in DRAM. What is far from clear to me is when in 2025 that will happen. On the other hand, it is highly unlikely NAND will see oversupply until at least the second half of 2025, judging from the unwillingness of memory IDMs to add any more capacity there. Memory fabs are at normal utilization levels now and investment in DRAM has turned upward. The story for investment is the same as it is for pricing. If AI demand holds in the range of the strength being forecasted, it will be at least the first part of 2025 before the DRAM market is at risk of oversupply.
- S. Hughes (cyclical long MU)