2.15.25
Total DRAM spending from the four large non-lithography WFE companies (Applied, Tel, Lam, KLAC) was up by more than one-third from Q3 to Q4 of calendar 2024. The level, just below $4B in total, is just below the fourth quarter of last year. Recall that Q4 of calendar 2024 was boosted by fabs in China buying equipment ahead of sanctions. If this level of DRAM spending continues in the first half of 2025, I think there is a high risk of oversupply in the second half of the year. Back in 2021, there were three peak quarters for DRAM sales. These three quarters straddled the top for DRAM ASPs. There is a lag in equipment sales because of lead times. When memory makers see pricing roll over and believe it is not temporary, they pull back on new orders. However, the orders they have already made continue to be delivered for a quarter or so, because they are already constructed and often on the customer sites being qualified. Looking back at the DRAM cycle so far, I have wondered why pricing was not strong in the second half of calendar 2024. I now think the reason was new bits from CXMT in China. I think a significant amount of the equipment purchased that made these bits started in Q3 of 2023 and ran through the first quarter of 2024. CXMT is a new company and it likely took them longer to increase tool throughput and raise their yields. Now the surge in DRAM WFE buying is coming from the Big Three DRAM makers as they invest in faster technology node transitions to try and distance themselves from the upstart in China. If we see another quarter of similar DRAM equipment sales volumes in CQ1-25, then it will be likely we are approaching the top of the cycle.
NAND has been in what I have called a nuclear winter for almost two years. WFE purchases for NAND wafer production collapsed after the end of calendar 2022 and have bounced along at historically low levels since then. But Q4 of 2024 showed signs of life. Lam, the leader in NAND equipment, saw a 30% increase in NAND tool sales. NAND tool revenue for Tel rose almost 70% sequentially. One data point is not a trend. I am quite surprised by this rise because not only have NAND prices been softening recently; they declined across the board in the fourth quarter of 2024.
ASML doesn’t break their memory sales out between DRAM and NAND. Their total lithography equipment sales were at the highest level ever recorded in quarter four. Q4 of 2023 saw a burst of sales from Chinese fabs to get ahead o sanctions, then there was a lull in Q1-24. ASML’s memory revenue then rebounded in Q2 and Q3 before rising a full 30% sequentially in Q4. Memory sales in this most recent quarter were more than 50% higher than they were in the peak of the last memory upturn. The high volume ASML’s sales to memory in Q4 were similar to the rest of the WFE industry. If we see two more quarters of WFE sales at this level, I think a downturn caused by overcapacity will emerge late in the third quarter or in the fourth quarter of 2025.
Overall for memory, investment is forecasted to increase in 2025 over 2024. The mix of that WFE investment will shift away from indigenous China and back to the traditional manufacturers. ASMLs memory bookings doubled sequentially in the most recent quarter. The company also said that memory sales will be strong in 2025. Lam, KLA, and Tel all believe DRAM equipment sales in 2025 will increase over 2024. This means that more bits will be coming out of a DRAM segment that is already on the verge of tipping into oversupply. The factor that could save DRAM in 2025 is HBM and DDR5. The high trade ratio of HBM (said to be 3-to-1 by Micron) means a significant amount of that equipment investment will be to offset loss of wafer output by converting capacity to HBM. The Big Three DRAM companies are all rushing as fast as they can into more advanced nodes, DDR5, LPDDR5, and HBM. While this reduces their exposure to the Chinese oversupply in DDR4 and LPDDR4, the risk of oversupply at the high end is increasing. The NAND market is in worse shape than the national debt, yet equipment companies are seeing higher investment, specifically Lam and Tel. Lam says demand is “starting to come back” and Tel forecasts their NAND tool sales to rise 50% in their current quarter, which would mean a 5x rise in two quarters for the company. I think the NAND market is in real trouble and more investment will only make things worse. DRAM is on an investment trend to oversupply in the back half of 2025, if the level of WFE purchases seen in the last quarter of 2024 continues into the new year.
– S. Hughes (short MU)