If you believe in Hobbits you can believe in Rapidus

– Semicon Japan super crowded but outlook still uncertain/muted
– Slow analysts finally capitulate on weakening 2025 WFE outlook
– Article confirms our view on chip equip lobbying for China sales
– TSMC continues dominate, China slows, Samsung/Intel weak

Semicon Japan crowded but muted

We attended Semicon Japan last week and it was super crowded, however the overall tone was muted as most companies were concerned about overall spending weakening especially at Samsung and Intel.

Semicon Japan is more like what Semicon West used to be. Actual tools and vendors on the show floor rather than ensconced in hotel rooms away from the public. Plenty of meaningful conversations about technology and tools.

Everyone wants to be linked to AI in some way even though the semiconductor equipment tools have zero to do with whether they are building an AI chip or a video game chip, just microscopic manipulation of materials.

Seems like China continues to slow as they have enough equipment in warehouses to last for years. Whatever sanctions are on the way, they are too little and too late to be effective.

Rapidus de minimis

Rapidus, the Japanese government sponsored plan to bring Japan back into the semiconductor race had a large booth with lots of conceptual drawings of the planned fab.

Rapidus looks like a giant-sized Hobbit House, with a rolling, grassy, environmentally friendly roof, obviously to try to disguise what is an otherwise an ugly giant factory.

Much as the Hobbit World is a fantasy, we think Rapidus is quite the fantasy. IBM is one of the main partners and they haven’t been a commercial producer of chips in decades. Most of the other main players are close to retirement and haven’t been deep in the industry since Japan was a power player, also decades ago.

The bigger issue we see is that both Samsung and Intel which are several generations behind TSMC are struggling not to fall too far behind, yet Rapidus is many times further behind and will somehow miraculously jump over Samsung and Intel to catch up with TSMC? Good luck with that. Sounds a lot like the 5 nodes in 4 years we heard before.

But maybe if you believe in Hobbits you can believe in Rapidus.

Big, slow, investment house analysts finally capitulate on slowing 2025 WFE

Analysts from Citibank, Deutsche Bank and Bernstein finally got the memo that semiconductor spending in 2025 will be weak at best. They are all finally cutting 2025 outlooks after reality dawned on them.

This is something we have been saying for well over a year as the majority of the industry remains weak with a weakening China. We have pointed out time and again that only the bleeding edge, and most specifically AI is strong, both in logic and memory.

In our note a month ago we said “There had been an initial, more positive view by many analysts which now appear too optimistic and will have to be trimmed to be more conservative, to the view we have long held, of a slower recovery with more lumps and bumps along the way”

We remain very concerned about all the Chinese capacity coming on-line in the middle and trailing edge of the chip market flooding capacity and driving down pricing.

China has yet to have a significant impact on memory, but that’s coming too as they come up the technology curve very quickly

Chip equip companies lobby congress to help China advance chips

We have mentioned in many of our notes that US semiconductor equipment companies spend tens of millions of dollars lobbying US lawmakers to keep their lifeline of China sales flowing.

The New York times recently affirmed our view of the very strong lobbying on the part of the three major US semiconductor equipment makers: Applied Materials, Lam and KLA.

Link to NY Times article

We find its obviously hugely hypocritical to dilute or prevent sanctions on China, based on the lobbying of equipment firms yet support the CHIPS act whose aim is to prevent China’s dominance of the semiconductor industry.

It would a very interesting study to see which members of the house and senate took money from the equipment companies to prevent sanctions on China yet supported the opposite position by voting for the CHIPS Act which does the opposite.

Obviously, politicians are almost always hypocritical and some of the equipment companies are also hypocritical by lobbying to sell more to China while holding out their hand for CHIPS Act funding. Not surprising behavior.

The Stocks

Obviously, the stocks have been a bit unstable and will likely remain so given the downgrades from the larger sell side analysts who are capitulating.

Micron is a focus that may determine some near-term sentiment. Nvidia is somewhat stuck in the mud for a while now, waiting to break free but the broader negative tone appears to be holding it back.

We may be going into a wait and see period waiting to see what the new administration does with tariffs and other potential restrictions.

In our view, it’s still very much unclear which way the new administration will go and if semiconductors will be a priority.

We also remain unclear about the incoming administration and the CHIPS Act. Even though the current administration has rushed to finalize deals before they leave town, we think that this doesn’t mean that chip companies will actually get paid. We must remember that Trump revels in stiffing contractors he owes money to and views debts as optional donations.

In addition, circumstances are changing enough that some companies may not make the milestones needed to get paid. In short, the CHIPS Act likely will not do all of what was intended, as it couldn’t all get done in the short four years of the administration that started it.

We are not motivated to buy any of the equipment stocks given the near-term negative news of WFE spend reductions now happening.

We are also not happy about the broad semiconductor industry. We remain very enthusiastic about Nvidia and all things AI. Those memory makers who have an HBM product will also see benefit as well.

We may be in a holding pattern of uncertainty until Nvidia starts to move up again when the certainty of the incoming administration starts to take shape.

With the holidays coming up, this uncertainty will likely persist for a while during what will be a slow news period

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:

AMAT has OK Qtr but Mixed Outlook Means Weaker 2025 – China & Delays & CHIPS Act?

More Headwinds – CHIPS Act Chop? – Chip Equip Re-Shore? Orders Canceled & Fab Delay

KLAC – OK Qtr/Guide – Slow Growth – 2025 Leading Edge Offset by China – Mask Mash

 

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