AMAT – Flattish QTR Flattish Guide – Improving 2024 – Memory and Logic up, ICAPs Down

– AMAT slightly better than expected, flat & guides flat but > expected
– Expects better 2024- Systems flat, service up, display down
– China risk remains high at 45%- $200M Sculpta expected in 2024
– HBM 5% of industry but not a lot of tool sales- but high growth

Still bumping along with flattish levels of business but outlook improving

AMAT reported revenues of $6.71B and EPS of $2.13 versus expectations of $6.48B and EPS of $1.91 but revenues were flat quarter over quarter and year over year. Guidance is for $6.5B +- $400M in revenues and $1.97 +- $0.18 in EPS which again is more or less flat guidance.

While AMAT positioned itself on the call as outgrowing the market in every way, the reality is flat, flat and more flat. Although there is clearly a better outlook in the industry it has not manifested itself in orders or revenues nor expected revenues.

China at 45% remains a large risk & exposure

Management believes China business will shrink over the year as a percentage of overall business. We assume that sooner or later China is running out of places to put the mountains of equipment they are buying.

The question at hand is will the eventual declines in China business be offset by increases in other markets such as memory or foundry/logic outside of China. If China slows faster than the other markets grow we will see a slower recovery.

ICAPS will be weaker in 2024

With China eventually slowing, it should come as no surprise that ICAPS (trailing edge technology) is expected to be down for 2024 as most of China’s business is more trailing edge / ICAPs business.

In our view we will eventually see a virtual Tsunami of trailing edge capacity come on line that we have dubbed the China Chipocalypse. When it will hit is unclear but it will happen. Slowing ICAPs and China business may be a leading indicator that they are chock full of equipment and may not need much more as they have built up a huge buffer of US equipment already.

This also suggests that any restrictions by the US on equipment bound for China is way too late as they already have all the equipment they need.

HBM is 5% of memory market but growing at 50% annually

Management noted on the call that HBM (high bandwidth memory) is about 5% of the memory market and growing at about a 50% rate which implies it should get to about 7.5% by end of year.

More importantly management also admitted that HBMs growth will not really translate into similar equipment growth rates as the vast majority of HBM capacity is just repurposed existing equipment and not new equipment for HBM only.

We think this is one of the biggest misunderstandings of both ignorant analysts and investors. HBM is great as it helps out the weak memory industry but it does not generate new equipment sales.

The best that HBM does for the equipment industry is soak up the excess capacity and excess equipment already existing in the field so that we will get back to better utilization sooner rather than waiting forever for growth in the standard DRAM and NAND markets.

We have repeated this many times but investors seem to ignore the reality as they are caught up in the blinding lights of the AI semiconductor frenzy. HBM is nice but its not the savior that many view it as in the semiconductor memory industry- its relatively small and doesn’t generate new equipment sales.

SCULPTA expected to be $200M in 2024

SCULPTA, the sidewall etch, NOT patterning, technology that was released through much distortion of being a double patterning ASML killer, is expected to do about $200M in revenue in 2024, which is a relative rounding error and obviously millions of miles away from having any impact on ASML’s business.

These are likely the first tools that customers will be trying out to see if it actually works as advertised. If we go back to the exaggerated hype of last year that had most analysts drinking the kool aid versus our dubious view…we clearly were right and the hype was wrong.

The Stocks

AMAT’s stock was up huge in the after market as the semiconductor frenzy continues. We would view this as a profit taking opportunity if the stock opens up anywhere near the after market pricing.

We heard a lot of flat, flat, flat and more flat but we never heard a definitive time frame for real improvements only anecdotal points of improvement that were already well baked into the stock.

Although AMAT talks a big game of out growing their peers, the real reality is that ASML has blown past AMAT to become the biggest equipment company in the world and certainly a better investment in our view.

This is not to suggest that AMAT isn’t a great company, its just that reality and hard numbers tell a different story than all the overly positive words and the frenzy of anything associated with AI that has driven the stock back into overvalued territory.

AI is certainly the greatest thing we have seen in the tech world in quite some time and perhaps the biggest thing ever but the huge impact will be on a limited number of semiconductor companies and especially Nvidia which we absolutely love (and own a lot of).

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.

Also Read:

KLAC- OK Quarter & flat guide- Hopefully 2025 recovery- Big China % & Backlog

LRCX- In line Q4 & flat guide- No recovery yet- China still 40%- Lags Litho

ASML – Strong order start on long road to 2025 recovery – 24 flat vs 23 – EUV shines

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