11.20.24
The heart of any fab is its lithography equipment. We start earnings season among the WFE companies with ASML, the world’s leading provider of lithography tools. ASML is the only company that doesn’t break out DRAM and NAND sales so what we have is their total memory revenue. This is well off the downturn low and this quarter was at almost the record level. A lot of this is sales to indigenous China where companies are overbuying to get ahead of US export sanctions. The level of new tool bookings from memory companies is below what is being installed an qualified today, suggesting that any oversupply situation may take longer to emerge than is typical for the memory cycle. Yet memory spending on photo tools in in the last two quarters has been the highest ever.
Results from the other WFE companies indicate that memory spending is not at levels high enough to cause a supply-driven downturn. The non-photo Big Four WFE companies, Applied, Lam, KLA, and Tel, are selling equipment for DRAM use below the level of the last upcycle. There was a surge of spending at the end of 2023 and in early 2024, driven by indigenous Chinese companies. Since then, DRAM spending has come down and has been steady for the last two quarters. HBM and node migrations are the drivers behind DRAM investment today as the non-AI segments remain slow, so the memory companies are cautions in their investment. I don’t believe DRAM is seeing capital expenditures at a high enough level to drive a supply downturn. The threat to the DRAM market today is the loss of AI demand and/or the continued weakness in non-AI segments.
The picture on NAND is clear. Investment in NAND capacity is all node migrations and has been at or near record low levels for six consecutive quarters. Even though NAND ASPs have doubled off the bottom the business is still not healthy. Overall, risk of a supply driven downturn in either DRAM or NAND is low right now. Lithography bookings have dropped sharply, and the PRC has moved into a period of lower investment. AI demand is the only segment keeping memory healthy right now.
– S. Hughes (cyclical long MU)