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Semiconductor Equipment Technology Hardware Toshiba and Micron are ramping up capacity slower than before, Samsung switched its NAND line 14 to LSI and has been converting its NAND production capacity in Austin, Texas since Q2 2012 to LSI (logic), and SK Hynix readjusted Fab M12’s capacity to produce both DRAM and NAND instead of being a dedicated NAND fab. Figure 10: NAND demand/supply Mns of 1GB Eqv 2010 2011 2012 2013E 2014E Demand/Supply NAND demand 11,295 20,195 32,131 45,872 62,992 Growth 65.7% 78.8% 59.1% 42.8% 37.3% NAND supply 11,247 20,004 31,946 44,318 62,966 Growth 72.5% 77.9% 62.1% 38.7% 42.1% ASP ($) 1.86 1.24 0.74 0.62 0.48 Sufficiency 99.6% 99.1% 100.9% 96.7% 100.0% By Application Tablets 4.5% 8.5% 7.3% 5.3% 6.1% PC 0.2% 0.2% 0.6% 1.3% 2.0% Server 0.1% 0.1% 0.1% 0.1% 0.1% Feature phone & sm 20.2% 22.3% 22.2% 21.5% 19.2% SSD 6.7% 12.8% 19.4% 29.2% 35.0% Data Card 46.5% 38.5% 32.9% 26.2% 23.6% Other 21.8% 17.6% 17.4% 16.4% 14.0% Source: Gartner data, Berenberg estimates We expect NAND bit shipments to grow at a modest level (40-50%) over the next three years (see Figure 10 above), mainly driven by demand for Solid State Drive (SSD) and, to a lesser extent, smartphones and tablets. The main portion of bit growth (40%) will come from node shrinking (more chips can be made from the same wafer as chip size shrinks); therefore, wafer capacity addition is likely to grow at a very low level. Figure 11: NAND content/box (GB Eqv) 2010 2011 2012 2013E 2014E 2015E 2016E Tablet 27.2 25.4 15.7 11.6 14.8 17.7 21.5 Growth 100% -7% -38% -26% 28% 19% 22% Smartphone & Feature phones 1.4 2.5 3.9 5.1 6.3 8.8 12.6 Growth 70% 73% 61% 30% 23% 39% 43% Solid State Drives (SSD) 77.3 98.8 148.6 170.4 190.9 223.1 265.0 Growth 35% 28% 50% 15% 12% 17% 19% Data Cards 1.1 1.4 1.8 2.0 2.5 1.7 1.9 Growth 27% 34% 22% 15% 22% -32% 13% Source: Gartner data, Berenberg estimates We believe NAND vendors are unlikely to invest heavily in capacity additions in the near future because: 1) Samsung’s new mega NAND fab and Micron’s DRAM to NAND conversion will add new capacity in the next two years; 2) we estimate that the growth of smartphones and tablets will be driven by mid-/low-end products with low NAND content per box. 14
Semiconductor Equipment Technology Hardware Figure 12: NAND shrinkage roadmap NAND H1 2010 H2 2010 H1 2011 H2 2011 H1 2012 H2 2012 2013E 2014E 2015E Samsung Toshiba/SanDisk Micron(Elpida) -3xnm/4xnm -3xnm/4xnm -27nm -24nm -21nm SK Hynix -3xnm/4xnm -26nm -20nm -19nm started 2012 end, - 21nm/19nm -16nm start in H2 -25nm -20nm started in 2012 H1, -50% capacity on -19nm started in 2012 end, -19nm as main capacity -1Y(18nm-15nm) start in 2013 -16nm start in 2013 end -16nm expansion -21/19/16nm -Start 3D NAND -16nm expansion -16nm start in 2013 end, -20nm/16nm -mainly ship 20nm, - start 16nm in Q3 -1znm (12-14nm), -1Y nm/1xnm -3D NAND. Source: Gartner data, Berenberg estimates Most vendors are currently building NAND at 19nm/20nm node, and are planning to start 16nm node at the end of the year (see Figure 12 above). We believe 16nm will mature in 2014, and vendors will enter 1Znm (12nm-14nm) and 3D NAND in 2014/2015. Figure 13: NAND capex/revenue versus bit growth trend 250% NAND 200% 150% 100% 50% 0% -50% -100% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Gartner data NAND capex/rev Bit growth Historically, NAND bit growth was highly correlated to NAND capex/sales, as shown in Figure 13. We believe the capex/revenue ratio is likely to be around 30- 40% for the next few years, as the NAND bit shipment growth rate is slowing down to 40-50% from its historical level of 80-200%. We estimate NAND capex will grow by 20% in 2014/2015 after 6% growth in 2013; reflecting the high amount of capital investment required to ramp up production of 1Y/1Znm in 2014/2015 and prepare for 3D NAND. Memory – DRAM spending pattern structurally changed Historically, DRAM capex has shown a bigger fluctuation versus total semiconductor capex during different spending cycles (2000, 2005-2007, 2008- 2009) (see Figure 14). From the 1980s to 2007, the growth of the DRAM market was linked to the success of the PC and gaming industries. The capex peak in 2000 was driven by strong PC demand following the Pentium 4 launch and increased DRAM content per PC. The 2004 peak was driven by the increased adoption of dual-cores, 64-bit processors and PS3 demand. From 2007 to 2011, the rise of smartphones and tablets drove DRAM market growth, although this was offset by the weak performance of the PC market. 15
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