According to Counterpoint Research, in the first quarter of 2024, the revenue of the world's top five semiconductor equipment manufacturers fell by 9% year-on-year, mainly due to reduced or delayed customer investment in state-of-the-art process production lines. However, fortunately, due to the very strong demand for DRAM in the global market, coupled with the strong demand for semiconductor equipment in the Chinese mainland market, the decline in revenue caused by the sluggish investment in advanced process production lines has largely offset.
Let's take a look at the specific data given by CounterpointResearch.
ASML and Tokyo Electron (TEL) saw revenue declines of 21% and 14%, respectively, compared to 2023, while Applied Materials (AMAT), Lam Research and KLA posted low-single-digit declines. Compared to the prior quarter, revenue for ASML was down 26 percent, KLA was down 5 percent, Applied Materials and Lam Research were flat sequentially, and Tokyo Electron was up 18 percent, driven by strong demand for DRAM and NAND.
In the first quarter of 2024, the revenue of these five semiconductor equipment manufacturers from Chinese mainland increased by 116% year-on-year.
In the first quarter of 2024, memory manufacturing equipment revenue from these five vendors increased by 33% year-over-year, while revenue from foundries decreased by 29% year-on-year.
A very important reason for the general decline in the revenue of these five major manufacturers is that the wafer foundries represented by TSMC and Samsung have reduced their investment in advanced process production lines below 5nm, and these production lines require various advanced equipment.
Taking Samsung as an example, in order to catch up with TSMC, the company has been investing heavily in the construction of advanced process production lines, but the sluggish market conditions in the past year, as well as the company's failure to boost the yield rate of advanced processes, have delayed the construction progress of some advanced production lines.
Taking the new factory in the United States as an example, in May 2022, Samsung announced a new wafer factory in Taylor, Texas, with an investment of $17 billion, and later, as it entered the equipment procurement stage, the investment rose to $25 billion, and at present, Samsung has increased the investment to $44 billion.
Such a large-scale investment needs to be adjusted in the face of a market downturn. According to ETnews, Samsung recently postponed the purchase of equipment for a new wafer fab in Taylor City, and will not make a final decision until the third quarter.
In Taylor City, Samsung will build two fabs, one for the development of 4nm~2nm process technology, and the other for the development and production of 3D high-bandwidth memory and 2.5D packaging products.
Notably, the U.S. Department of Commerce announced that it has signed a preliminary Memorandum of Terms (PMT) with Samsung that will provide about $6.4 billion in direct grants under the CHIPS Act. However, Samsung did not receive loans and guarantees under the CHIPS Act, while Intel and TSMC received loans of $11 billion and $5.5 billion, respectively.
01
Memory and the Chinese mainland market are hopeful
Let's take a look at the specific revenues of these major semiconductor equipment manufacturers.
In the first quarter, Applied Materials achieved revenue of $6.71 billion, down 0.2% sequentially and flat year-on-year, with gross margin of 47.9% and net profit of $2.02 billion. Revenue from Chinese mainland accounted for 45%, and the proportion of Chinese mainland is expected to drop to the regular level of about 30% for the whole year. Looking forward to the global semiconductor equipment market in 2024~2025, the company believes that HBM and GAA-FET are the core driving forces of the semiconductor equipment market in the future.
ASML achieved revenue of 5.29 billion euros, down 22% year-on-year, down 27% quarter-on-quarter, gross margin of 51.0%, and in the first quarter, new orders amounted to 3.6 billion euros, down 61% quarter-on-quarter, of which EUV signed new orders of 660 million euros, down 88.2% quarter-on-quarter. By product, EUV, ArFi, KrF, ArF Dry, and i-line equipment accounted for 46%, 39%, 8%, 3%, and 1% of the revenue, respectively. The company believes that AI-related demand will continue to grow, DDR5 and HBM will drive memory demand growth, logic chip customers are still digesting new capacity, Chinese mainland maintains strong growth, ASML said it can continue to maintain the equipment installed by Chinese customers.
Lam research achieved revenue of $3.79 billion, down 1.96% year-on-year, up 0.94% quarter-on-quarter, and gross margin of 48.7%. By region, Chinese mainland accounted for 42% of total revenue, South Korea accounted for 24%, Japan accounted for 9%, Taiwan accounted for 9%, the United States accounted for 6%, Southeast Asia accounted for 5%, Europe accounted for 5%, and the proportion of Chinese mainland continued to increase. The proportion of wafer foundries has increased driven by shipments from Chinese customers, while the proportion of DRAM has declined compared with the previous quarter. Lam believes that DRAM demand will maintain a strong growth momentum, driven by HBM's investment and continued investment from Chinese customers.
TEL achieved revenue of 1,830.5 billion yen, down 17.7% year-on-year, and operating net profit of 456.2 billion yen, exceeding the company's previous guidance of 445 billion yen. The company's first-quarter revenue increased 18% quarter-on-quarter, operating profit increased 9.6% quarter-on-quarter, and Chinese mainland revenue accounted for a record 47.4%.
Judging from the revenue of the above four manufacturers, memory and the Chinese mainland market are the growth part of their revenue, and the increase is very large.
Let's take a look at the memory market and capital expenditures.
From the perspective of the market size of semiconductor devices, the cycle fluctuations of the memory chip market are more violent, and the market share of memory chips is highly concentrated.
Data from TrendForce shows that the average price of DRAM fell by 31.4% in the third quarter of 2022, expanded to 34.4% in the fourth quarter, narrowed to 13%-18% in the first quarter of 2023, and continued to narrow in the second and third quarters, with 10%-15% and 0-5%, respectively. In the first quarter of 2024, the price of DRAM contracts rose by 20%, and the price of NAND Flash contracts increased by 23%-28%, and it is expected that the quarterly increase in DRAM contract prices can reach 13%-18% in the second quarter of this year, and the quarterly increase in NAND Flash contract prices will reach about 15%-20%.
Looking forward to the full year of 2024, AI demand will drive the growth of advanced process capital expenditure in the second half of the year, and Lam raised the global semiconductor front-end equipment revenue forecast for 2024 from US$850~90 billion to US$900~95 billion. Among them, DDR5 and HBM demand will remain strong, and NAND Flash demand is expected to recover in the second half of the year.
In short, memory chip-related capital expenditures will continue to grow throughout 2024.
02
The attractiveness of the Chinese market
Let's take a look at the reasons why the Chinese mainland market is strongly attractive to semiconductor equipment manufacturers.
The continuous improvement of China's local chip production capacity is fundamental.
On June 17, the National Bureau of Statistics released data that in May, the mainland's economy continued to pick up and improve, and its operation was generally stable. The data shows that the field of industry and information technology has contributed new momentum to the smooth operation of the national economy and the rise of major indicators.
The added value of the equipment manufacturing industry increased by 7.5 percent, and the added value of the high-tech manufacturing industry increased by 10.0 percent, which was 1.9 and 4.4 percentage points faster than that of all industries above designated size, respectively. The output of integrated circuits increased by 17.3% year-on-year.
In the first half of the year, the capacity utilization rate of major wafer fabs in Chinese mainland has increased significantly, and many manufacturers have been at full capacity, Morgan Stanley (Da Mo) said that the capacity utilization rate of Hua Hong semiconductor wafer fab has reached 100%.
SMIC mentioned that the capacity utilization rate in the first quarter was 80.8%, an increase of 4% quarter-on-quarter, and customers' willingness to stock up increased, with a total of 1.79 million 8-inch equivalent wafers shipped, an increase of 7% quarter-on-quarter. The company revealed that in the second quarter, the international consumer product market partially recovered, such as low-energy Bluetooth, MCU and other products began to replenish orders, thanks to the 2024 sports year, TV, set-top box related products sales increased, significantly higher than last year.
According to TechInsights, semiconductor production capacity in Chinese mainland will increase by 40% in the next five years.
According to TechInsights, Chinese mainland's total wafer production capacity is expected to increase from 310 million square inches in 2018 to 631 million square inches in 2024 and 875 million square inches in 2029, with output value increasing from $11 billion in 2018 to nearly $30 billion in 2023. At present, capacity expansion is mainly concentrated in 12-inch fabs, and 6-inch and 8-inch fabs account for only a small part.
With such a strong production capacity, the demand for wafer fab capacity and related equipment is also huge. Many local fabs in China are ramping up capital expenditures to buy more chip manufacturing and packaging and testing equipment.
Since entering 2024, Chinese mainland's mature process expansion has maintained a strong momentum, SMIC said that its capital expenditure in 2024 is the same as in 2023, Huahong has entered a period of high capital expenditure in order to promote the commissioning of Wuxi Second Plant, guiding about US$2.5 billion in 2024, a year-on-year increase of 176%, compared with GF and VIS and other wafer foundries whose capital expenditure plans are more conservative, with a year-on-year decrease of 60.8% and 46.1% in 2024, respectively.
In the first quarter of 2024, under the strong demand for mature process equipment in Chinese mainland, overseas semiconductor equipment companies and Chinese local semiconductor equipment companies accounted for a high of 47% of the world's revenue in China, compared with 23% in the first quarter of 2023.
Let's take a look at the bidding for semiconductor equipment by China's local fabs in the first quarter of this year.
Especially in March, the bidding for semiconductor equipment increased significantly month-on-month.
According to the data of Caizhao.com, in March 2024, there will be a total of 127 tenders for wafer production lines in the statistical sample, mainly for production lines such as Hua Hong Semiconductor, Jita Semiconductor, and SMIC. The bidding equipment mainly includes measurement, etching and CVD equipment. From January to March, a total of 166 wafer production lines in the statistical sample were tendered, among which Hua Hong Semiconductor, Jita Semiconductor, and Yandong Technology ranked among the top three. On the whole, the equipment bidding is dominated by measurement, etching, and CVD equipment.
Overview of wafer production line bidding from January to March 2024 (unit: item), source: GF Securities Development Research Center
In March 2024, Jita Semiconductor invited bids for 15 projects, mainly including PVD, testing machines, furnaces, and CVD equipment. From January to March 2024, Jita Semiconductor invited a total of 22 tenders, mainly including infrastructure projects, PVD and testing machine equipment.
In March 2024, Hua Hong Semiconductor invited bids for 100 projects, mainly including measurement, etching and cleaning equipment. From January to March 2024, Hua Hong Semiconductor will bid for a total of 104 bids, mainly including measurement, etching and cleaning equipment.
In March 2024, Yandong Technology tendered 3 projects, mainly including etching and diffusion equipment. From January to March 2024, Yandong Technology will bid for a total of 19 projects, mainly including testing, gluing and development, thinning and lithography equipment.
In March 2024, SMIC tendered for eight infrastructure projects. From January to March 2024, SMIC tendered a total of 12 infrastructure projects.
In terms of winning bids, according to the data of Caizhao.com, in March 2024, a total of 108 wafer production lines in the statistical sample won the bid, with gas-liquid systems, testing, degumming, and measurement equipment being the majority, and the overall winning rate of domestic equipment was about 86%, of which the proportion of domestic bid-winning equipment for gas-liquid systems, testing, degluing, gluing and developing, and annealing equipment was significant. From January to March 2024, a total of 542 wafer production lines in the statistical sample won the bid, with gas-liquid system, diffusion, and probe station equipment being the majority, and the overall winning rate of domestic equipment was about 35%, of which the proportion of domestic bids for glue removal, gas-liquid system, and testing equipment was relatively high.
03
epilogue
At a time when the global semiconductor equipment market is weak, the strong demand in the Chinese mainland market has increased the performance of major equipment manufacturers. At the same time, there are also some discordant voices, which have a negative impact on both supply and demand.
On June 19, at the regular press conference of the Chinese Foreign Ministry, a reporter asked if China has any comment on the fact that a senior U.S. official will visit Japan and the Netherlands to demand that Japan and the Netherlands impose new restrictions on China's semiconductor industry, including limiting China's ability to manufacture high-end memory chips needed to manufacture artificial intelligence chips?
Foreign Ministry spokesman Lin Jian said that China firmly opposes the US engaging in bloc confrontation, which even spreads to the economic, trade, and scientific and technological fields, and coerces other countries to suppress China's semiconductor industry. The essence of the U.S. approach is to maintain its hegemony, deprive China of its right to legitimate development, monopolize the high-end of the value chain, and artificially disrupt the stability of the global industrial chain.
The above mentioned is to restrict Japanese and Dutch semiconductor equipment manufacturers from selling related equipment to Chinese mainland wafer factories, but from the actual situation, the business of relevant manufacturers in Chinese mainland is booming.
Taking Japan as an example, from January to March this year, exports to China accounted for more than 50% of Japan's semiconductor equipment exports for three consecutive quarters. From January to March, exports of related equipment to China reached 521.2 billion yen, an increase of 82% year-on-year, and the value reached the highest level since 2007 for which comparable data are available.
As of April 2024, imports of semiconductor equipment have been around $4 billion, consistently higher than the same period last year, according to data from China's General Administration of Customs.
Kazuma Kishikawa of Japan's Daiwa Research Institute pointed out that Chinese wafer fabs that are unable to introduce advanced process equipment are turning to the production of mature process chips, which has led to an increase in Japan's semiconductor equipment exports.
The rising tide lifts all boats, and the huge demand for semiconductor equipment is also driving China's local related equipment manufacturers to accelerate their development. In the first quarter of 2024, the revenue of China's local semiconductor equipment manufacturers increased by 39% year-on-year. In terms of front-end equipment, manufacturers represented by NAURA have made breakthroughs in etching, thin film deposition, cleaning and furnace equipment, and in terms of back-end equipment, Changchuan Technology and Huafeng Measurement and Control continue to advance into the field of high-end SoC testing machines.