Semiconductor Equipment - Berenberg Bank

Semiconductor Equipment
Technology Hardware
Shrinkage brings growth, but not for everyone
● We believe that the semiconductor equipment industry has entered a
recovery cycle from beginning of 2013, after declining by 16% in 2012
due to weak memory spending. ASML, Applied Materials (AMAT),
Tokyo Electron (TEL), ASM International (ASMI) and KLA Tencor
Corp (KLA) are seeing or guiding for order recovery compared with
the 2012 trough level. We expect this order recovery trend to continue
as 1) foundry/logic orders are likely to remain strong, driven by a
28nm capacity expansion and a 20nm/16nm FinFET ramp-up, and 2)
memory orders are expected to pick up from the 2012 level after a
better supply/demand balance since the start of 2013, driven by the
ramp-up of NAND 20nm and smaller nodes, DRAM 30nm and
smaller nodes and 3D NAND.
● Key debates: 1) Will the semiconductor cycles be as cyclical in the
future as previously? 2) Where are we in the cycle now? 3) What will
the impact be of Apple switching/buying into its foundry partners?
1) We believe the semiconductor cycle will remain cyclical, but less
volatile compared with historically, as a) memory capex, which
caused fluctuations previously, is likely to be less volatile as
memory-makers have become more conservative in their
spending, b) logic/foundry capex is likely to remain strong, as
competition intensifies in the consumer devices market.
2) As the industry entered an order recovery cycle at the beginning
of 2013, we expect that we will exit the recovery phase by end-
2013/early 2014, and enter a more muted growth period, as a)
Intel and Samsung’s capex is likely to be spent in H2, which will
drive order growth in 2013 H2, b) foundry/logic capex is likely to
remain at the current level over the next three years until 2016
(TSMC indicated that its 2014 capex will be similar to that in
2013), c) memory capex has recovered since mid-2013. We believe
that memory capex growth in the next three years will not drive
any significant total capex growth, as it will only account for 29%
of total capex, versus 33-57% of total capex in the peak years.
3) We believe that Apple’s foundry switch is likely to provide small
positive upside for some equipment vendors, depending on their
exposure to the various foundry/logic players. The foundry order
switch is likely to create new capacity addition demand, which
could give a short-term boost to overall capex.
● The growth potential of different equipment vendors differs, as they
are each exposed to different fabrication processes. We rank the
vendors’ growth potential (between 2012 to 2017) as follows:
1) ASML – 100% exposure to the lithography market, which is
growing at a CAGR of 18%, driven by demand for ever smaller
chips;
2) ASMI – 60% exposure to the atomic layer deposition (ALD)
market, which is growing at a CAGR of 15%;
3) KLA – 100% exposure to process control market (growing at a
CAGR of 6%), although AMAT may gain market share from it;
4) SUSS – 30% exposure to the micro-electro-mechanical systems
(MEMS) market, which is growing at a CAGR of 12%;
5) LAM – 50% exposure to the silicon etching market (growing at
CAGR 4%);
6) AMAT – a diversified portfolio, but with 61% market exposure to
growth markets and 39% to legacy markets; benefiting from the
capex growth trend;
7) TEL – 60% exposure to legacy markets.
ASML Holding
Hold (initiation)
Current price Price target
EUR67.68 EUR73.00
19/07/2013 Amsterdam Close
ASM International
Buy (initiation)
Current price Price target
EUR27.49 EUR31.00
19/07/2013 Amsterdam Close
Suess Microtec
Buy (initiation)
Current price
EUR7.65
Price target
EUR9.40
19/07/2013 XETRA Close
Applied Materials
Hold (initiation)
Current price
USD16.56
Price target
USD14.40
18/07/2013 New York Close
Tokyo Electron
Sell (initiation)
Current price
JPY4,790
Price target
JPY4,331
19/07/2013 Tokyo Close
Rating system: Absolute
22 July 2013
Tammy Qiu
Analyst
+44 20 3465 2673
tammy.qiu@berenberg.com
Jean Beaubois
Specialist Sales
+44 20 3207 7835
jean.beaubois@berenberg.com
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