Semiconductor Equipment - Berenberg Bank

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Semiconductor Equipment Technology Hardware Snapshot on capex trends and vendor exposures In our view, the capex level of the industry is likely to be flattish over the next two years (5% up in 2014 and 3% up in 2015), and increase by 10% in 2016 due to 450mm migration, driven by strong foundry/logic and memory spending recovery. Semiconductor equipment vendors’ growth potential differs from one vendor to another, as they are each exposed to different fabrication processes. We believe ASML and ASMI are likely to benefit from their sales addressable market (SAM) expansion, while TEL is likely to suffer from its declining SAM. Capex to remain flattish in 2014/2015 Memory – NAND capex to return to growth and accelerate in 2014/15 NAND capex is likely to return to growth in 2013 (up 6%) and accelerate in 2014/2015 (up 15% and 20% respectively), driven by the high capital requirements of 20nm/below node, and 3D NAND. We believe NAND vendors are unlikely to increase capex significantly in the near future as they did historically in peak years (39-115% growth), as 1) the spending pattern has become more conservative since the 2012 trough period, 2) Samsung’s new NAND fab, Micron’s DRAM-NAND conversion, and Toshiba’s capacity resumption may provide new capacity in next two years, and 3) the low-/mid-end smartphone/tablet, which is likely to be the driver for the consumer devices market, requires less NAND content than high-end products. Memory – DRAM stable 5% growth in 2013/2014 DRAM capex growth is likely to be stable and grow at 5% in 2013 and 2014, enabling a limited expansion of 30nm/20nm capacity. We believe DRAM capex will not increase significantly as: 1) capacity expansion demand is low (as per our conversations with industry sources, current capacity is sufficient to support annual bit growth of about 30%); 2) mid-/low-end consumer devices require less DRAM content per box; and 3) smartphone/tablet DRAM demand is not sufficient to offset the decline in PC unit growth as the content per box is less (0.6GB versus PCs at 4.2GB). Foundry/logic players remain solid, contributing 60% of total capex Foundry/logic players are heavily exposed to the consumer electronic markets, as Samsung and Intel manufacture their own chips for their smartphones, tablets and Ultrabooks, Apple contracts the Samsung foundry and TSMC for its chip manufacturing requirements and fabless players such as Qualcomm, Mediatek and Nvidia contract foundries like TSMC, Globalfoundries and UMC for their chip manufacturing. As a result of the increasing competition within the consumer electronics market, the chip-makers/device vendors require the most advanced chips in order to differentiate their end-products. The foundry/logic players are therefore under pressure to maintain their technology leadership, and all the major players are ramping up 20nm in 2013, to be followed by 16/14nm in 2014. We thus believe foundry/logic spending will remain solid, and will contribute about 60% of semiconductor capex. Growth potential differs as market exposure differs Semiconductor equipment vendors’ growth potential differs from one to another, as each vendor is exposed to different fabrication processes. We believe the lithography, ALD, epitaxy deposition, process control and 3D packaging markets have considerable growth potential, driven by node shrinking and 3D wafer stacking demand, hence ASML, ASMI, KLA and SUSS are likely to outperform other equipment suppliers. We believe TEL will suffer from its high 10
Semiconductor Equipment Technology Hardware exposure to legacy markets such as dielectric etching. In the table below, we rank the market growth potential of the various markets, and relevant exposure of each of the key vendors. The vendors with high exposures to the growing markets are likely to outperform. Figure 5: Ranking by growth potential Lithography 18.0% Deposition - ALD 3D bonding CAGR Comment Equipment Vendor's Main market exposure (market share 2012) 2012-2017 ASML ASMI AMAT TEL SUSS KLA LAM 15.0% 14.0% Deposition - Epitaxy 7.5% Printing smaller chips requires leading edge lithography tools Demand increase as HKMG is required for 20nm and smaller node. Revenue may triple once volume adoption starts in 2016/17 Extensively used for new chip designs, such as FinFET, 3D NAND 100% (74% share) 60% (44% share) 11% (89% share) 6% (44% share) 13% (no.1 share) Process control 6.0% Demand increases as chip design gets more complex 9% (76% share) 100% (54% share) Deposition - PE CVD 5.0% Demand driven by 3D NAND Etching - Silicon 4.0% Demand driven by FinFET, 20nm 19% (47% share) 8% 8% (14% share) (9% share) 50% (59% share) Photoresist processing 1.4% Demand decrease as legacy lithography tool demand declines, hence total lithography tool shipment decreases. 34% (89% share) Deposition - PVD 0.5% Grow slower than PE CVD Etching - Dielectric 0.5% Ion Implanter Source: Gartner data, Berenberg estimates Demand shifts to silicon etching as new chip designs like FinFET, 20nm. -2.5% HKMG require less implant steps 21% (78% share) 11% (76% share) 20% (63% share) 11
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Semiconductor Equipment - Berenberg Bank

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