SEMICON West- Jubilant huge crowds- HBM & AI everywhere – CHIPS Act & IMEC

– We just finished the most happy SEMICON West in a long time
– IMEC stole the show- HBM has more impact than size dictates
– Has Samsung lost its memory mojo? Is SK the new leader?
– AI brings new tech issues with it – TSMC is still industry King

Report from SEMICON West

The crowds at Semicon West were both big and Jubilant…. more so than we have seen in a long time (and we have been attending a long time, over 3 decades). It was a complete turn around from the 2-3 year downturn we have been in. Despite the fact that the majority of the memory industry has still not fully recovered and foundry logic is most healthy only at the bleeding edge, the euphoria generated by AI and HBM has swamped the entire industry. The icing on the AI/HBM cake is the buzz generated by the CHIPS Act and the fact that the average Joe on the street has now probably heard about chips (or semiconductors ) by now. If not due to all the news about CHIPS act money then by the minute by minute stock market buzz about NVDA.

Most of our non tech friends have no clue what NVDA does and a small minority know they make chips that have something to do with AI.

But any publicity is good publicity.

The best part of Semicon was not at Semicon

Monday afternoon, prior to the Tuesday start of Semicon, IMEC, the European semiconductor R&D consortium does a series of presentation of a number of speakers talking about various technology isues and advancements in the industry.

This years discussion was especially good talking about CMOS 2.0 and the many changes the industry is currently undergoing at the same time.

AI & HBM implementation drive many different issues and technology in the industry, more so than prior singular technology transitions.

There has been a lot of discussion but still not enough about the power requirements of AI devices. The latest Nvidia device runs 700 watts which means at 0.7 volts it uses 1000 amps of electricity, easily enough to weld thick steel or start the largest diesel engine let alone what the power demands will do to electric vehicles that require AI chips for autonomous driving. How do we package, test & supply power to these electrical beasts? What does it do to data centers and the grid?

AI and HBM are also about networking and moving data as fast as possible (as in Large Language Models). He who can move the most data, in, out and about, wins the race. This requires new connectivity, fast connectivity, parallel connectivity etc;.

Packaging will play an increasing role in both power and connectivity that dives AI and HBM. In our view, packaging (the back end of the semiconductor industry) has grown to equal importance (almost) to the front end (wafer fabrication)

My last point about IMEC is that it painfully points out that the US is woefully behind in R&D consortia that are driven by cooperation for the greater good of the industry. In the US we no longer have a single, nationwide, R&D organization. We have a number of companies out for their own benefit in competition with one another. While speakers at Semicon talked about “together” we need to do it for real if we are serious about re-shoring and re-capturing prior US greatness in semiconductors.

Has Samsung lost its MoJo to SK Hynix?

Samsung has long been the undisputed leader in semiconductor memory, with all others far behind.

It is interesting to note that SK Hynix has clearly taken the lead in the small but obviously super critical HBM segment. This should be both an embarrassment as well as wake up call for Samsung. It is further suggested that Micron may be number two in HBM after SK which should make alarm bells go off inside Samsung.

While some may dismiss this as a non issue as HBM is only about 5% (and growing quickly) of the industry it is by far the most profitable with the highest margins while pricing has still not fully recovered in the greater part of the memory industry.

We would expect both heads to roll inside Samsung as well as spending to ramp to fix this embarrassment.

Meanwhile, Samsung is not lighting the world on fire with its lackluster foundry offerings and hollow bravado. TSMC remains the far and away undisputed King of all foundry evidenced by its recent financial numbers. Obviously driven in large part by its enablement of Nvidia for which it deserves to be richly rewarded.

If anything, this makes us feel like Samsung has also fallen further behind TSMC in foundry as well….so Samsung is 0 for 2 in semicodnuctors.

CHIPS Act excitement

We heard a very rousing Keynote address coming from the under secretary of the CHIPS Act which sounded an awful lot like an advertisement than a list of actual accomplishments. The CHIPS Act is clearly a motivator and influencer but as we have previously mentioned writing checks is the easiest part, training people, getting fabs to work, developing technology is a lot harder.

We do think that the CHIPS Act can be the catalyst or spark that re-ignites the US semiconductor industry.

China is still the 800 pound gorilla of WFE spend in the industry

China is still outspending virtually everyone one else in the industry and many times that of the US spend. If the big equipment companies lost the 40% plus of their revenues that is China they would be sucking major wind. So they better keep spending the tens of millions of dollars on K Street lobbyists to keep the shipments up to enable China, and move operations and jobs to Asia.

We do think that China as an overall percentage of spend will start to decrease but primarily because other countries will start to increase their spend as we slowly make our way out of the downturn.

No major product announcements at Semicon

Tokyo Electron did finally publicly release their Ion Beam sidewall etch Epion product, which has been in the market already along with AMAT’s competing Sculpta product. Both products have taken some POR (process of record) positions at customers. We understand that the TEL product may have some cost advantages.

Semicon West Shrinkage

Actual semiconductor tools have long ago left the show floor. Major equipment makers have also exited stage left and have even reduced their off floor, in nearby hotel, presence. This has reduced the actual show to a lot of small booths of bit players selling bits and pieces like O rings and rubber gloves. Foreign representation seems to be on the rise with Korea, Germany & now Malaysia pavilions.

SEMI did announce a new SEMICON “Heartland” to take place in Indiana, announced with a guest appearance by the governor of Indiana. A second Semicon West is scheduled in October in Arizona, likely to pay homage to that states rising importance in the semiconductor industry as home to the newest fabs in the US by Intel & TSMC.

The Stocks

… have been on fire for a long streak now, reaching PE ratios not seen in forever. Whether earnings can ever catch up to rising valuations will remain to be seen. Everybody is asking is it time to take profit on NVDA? We would expect occasional downdrafts of profit taking but the overall mood and momentum is so positive its hard to imagine the positive tone changing much as business continues to improve.

There are a long of supporting and secondary plays on both AI & HBM that are yet to be discovered by the general public and probably a bunch of small caps that will see the trickle down effects of a tide that is rising exceptionally high. This will likely further support the ongoing tidal wave of valuation…..

About Semiconductor Advisors LLC

Semiconductor Advisors is an RIA (a Registered Investment Advisor),
specializing in technology companies with particular emphasis on semiconductor and semiconductor equipment companies.
We have been covering the space longer and been involved with more transactions than any other financial professional in the space. We provide research, consulting and advisory services on strategic and financial matters to both industry participants as well as investors. We offer expert, intelligent, balanced research and advice. Our opinions are very direct and honest and offer an unbiased view as compared to other sources.

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