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    VLSIinsiders' Cloudside Chat — January 06, 2021

      Jan 6, 2021

    2021 is here and this week Andrea Lati, Dan Hutcheson, John West, and Risto Puhakka kick off the year with the latest things they’ve heard since the industry holiday shut-down started the week before Christmas. This includes how the momentum from last year’s response to COVID is continuing into the first half of 2021 with the order visibility that’s being seen from both semiconductor equipment and critical subsystem suppliers and more:

    • What happened with Applied Materials and Kokusai 
    • China’s CapEx with how and who they are getting equipment from
    • How the US Governments policies are hurting America’s technology leadership in semiconductors

    About VLSIinsiders: Every week our analysts have a cloudside* chat to discuss current events and key issues of concern, while sharing what they’ve heard over the past week from the semiconductor industry insiders.

    * cloudside chat: A fireside chat without the fire and is across the clouds of the internet

    Other VLSIinsiders

    Transcript

    VLSIinsiders' Cloudside Chat — January 06, 2021

    DAN HUTCHESON: Welcome to this week's VLSIinsiders. This is Dan Hutcheson.

    ANDREA LATI: This is Andrea Lati.

    RISTO PUHAKKA: This is Risto Puhakka.

    JOHN WEST: This is John West.

    DAN HUTCHESON: Okay, well 2021 arrived. And we've all been off for a couple weeks. I know we've been working, but the whole industry has been kind of quiet for the last couple of weeks. But there's always this inside stuff going on, what are you guys hearing in general? Risto, why don't you chat about what you've heard?

    RISTO PUHAKKA: Well, basically, you know, it's just that the basic start it looks like we're heading out to New Year, you know. As we left the last year, business looks to be very strong of just you know. It's still a little bit fuzzy, you know, how things are moving along because we're in a quiet period. People can’t really talk officially, but it’s just to some of the emails, conversations looks that things are moving along very well, you know, and the various parts of them. And, you know, there are some obvious impacts coming from the trade restrictions from US against China there. You know, seems to be some trend lines indicating that, especially the Japanese equipment suppliers, are gaining a little bit upper hand in China and it's probably driven by all the policy actions over the last year.

    DAN HUTCHESON: So, in other words, the US government's policy action is causing the US equipment industry to lose market share.

    RISTO PUHAKKA: That's probably going to be the conclusion once we tally up the numbers in March.

    DAN HUTCHESON: Yeah. And then this year, it'll be worse because those restrictions didn't come through towards the end of the year. Right?

    RISTO PUHAKKA: Yeah, the last piece of that restriction, specifically SMIC came the last piece. Huawei restrictions were more limited because they were more broader, but the SMIC restrictions are definitely dragging.

    DAN HUTCHESON: Well, plus, it's also affecting things like TSMC, right? Because they said, you know, wafers made on American equipment can't be shipped to Huawei, right?

    RISTO PUHAKKA: Yeah. And that was, and but that was an interestingly that, you know, even if I don't know. Andrea, you have better a better handle of TSMC statistics, but I don't think that slowed them down at all. It was just a mad reallocation of market shares in the second half. But, but

    DAN HUTCHESON: Right, but I'm thinking in terms of just equipment sales, if you're TSMC and the government's doing that. When you make your next order, you got to shift to a Japanese supplier, you got to speak with an American supplier when you really don't know.

    RISTO PUHAKKA: Oh, yeah. It does. It does impact across the board. But it's really visible in China, not visible on in Taiwan.

    DAN HUTCHESON: So essentially, the United States has accelerated its loss of semiconductor technology.

    RISTO PUHAKKA: It certainly did. It certainly did. It certainly did.

    DAN HUTCHESON: So, but coming back to the general economic situation and what we're hearing. John, why don't you talk a bit about what the, what's happening with the critical subsystems? Because they tend to be the canary in the coal mine, telling us whether either business is booming or not booming?

    JOHN WEST: Yes. So, like Risto said, you know, last year ended really strong and the expectation is for this year to be fairly solid, high single digit growth even more perhaps. That hasn't changed. I think that I'm getting a sense that the OEMs are starting to think ahead, what the industry will look like in two, three years’ time, the size of the industry. And they're getting a little bit concerned about some of their smaller suppliers, whether they will have the resources to ramp up, or even the management to be able to give them that transition from being the size they are now to the next level that they have to get to. So, we're getting more inquiries coming in asking about certain companies, we're getting a feeling that there's might be some consolidation and these are quite small companies that $20 to $50 or $60 million dollars. So, when those get acquired, they don't really hit the headlines. So, they've been done in the background. So, I get a sense there's a lot of that happening. So again, just preparing for the next big ramp, you know, may not be this year, but certainly the next two, three years. I think there's preparation of that going on.

    DAN HUTCHESON: Yeah. So, Andrea, let's talk a little bit about sort of some of the indicators. I know that I saw the Semiconductor Analytics as I did the day, the last couple of weeks. Electronic prices were really strong and that indicates that there's the inventories, Christmas sold off, and that we're sitting in a pretty good situation there. However, in terms of supply demand, foundry and OSATs moved into a glut and I don't know that's just because of December and December is always a low month, which is what I would expect.

    ANDREA LATI: I think we're seeing a little bit of an analogy there, which is normal. But if we look at overall pricing, the chip price index that we have, and it's actually be going up quite a bit, especially in December. So, it's looking really good as far as the IC market is concerned going into 2021. And if we look at the memory side, you know that the memory recovery last year was a little bit lumpy because it started strong. And in the second half, we saw a bit of weakness, but then it improved a little bit. I think that we're probably going to see more steadiness there this year. And part of that is because, especially the DRAM side, they haven't been spending as much money. So, I think, you know, we're getting back into that cycle again. The good thing now is that we're on the higher side. And so overall, I think on both memory and logic sides, overall conditions are actually fairly tight. So, the IC market actually should have a very, very good year ahead of us. And on top of that, we should get a little bit of a tailwind from the macro economy, which as you know, last year was dismal. There has to be a rebound this year. And of course, that's going to help, you know, the IC market quite a bit as well besides the work at home economy that we saw last year, so it's sort of a win-win situation for them. On the equipment side, you know, I'm pretty positive. Again, you know, as far as the demand is concerned, I'm more worried about this whole, you know, China restriction issue that we've had, you know, last year, especially the second half of last year. And for me, that's more of a concerning part because I don't know how it's going to play out this year. And of course, if we do see that escalates, it could actually impact the overall growth for the equipment market. So, it remains to be seen, but again, if I look at just on pure, you know, fundamentals, we should have another good year also for the equipment market on both sides, memory and also advanced logic and foundry.

    DAN HUTCHESON: There will be other COVID that we is this providing the other tailwind is coming from COVID all the new shutdowns because that has to be driving memory demand and processor demand per data center.

     ANDREA LATI: Correct. Yeah.

    DAN HUTCHESON: Last year, remember when the shutdown came in, initially, there was this pause but then you know, and ASP’s drop. So, we saw some sort of inventory reshuffling, but then there was a huge demand for bandwidth and that's going to continue into this year, didn't we say it last year.

    ANDREA LATI: That's here to stay. And also, you know, as I was sharing with you earlier, if you look at the financials from all these cloud companies, they are making a lot of money. Yes, they are spending a lot of money, but they are also making a lot of money, their profitability is very strong. And they will continue investing, because it's a great business for them. So that side of the semiconductors should be very strong in 2021 and beyond.

    DAN HUTCHESON: Yeah. Hey, Risto, earlier you mentioned about Applied and Kokusai. What's going on there?

    RISTO PUHAKKA: Oh, that was that was an interesting twist. Applied up the offer on the Kokusai. I think it was from 2.2 billion to three and a half billion 50-60% increase on the pricing and the whole deal is just waiting approval from China. That's basically is the last piece on that and then the acquisition is complete. But it also reflects really the evaluations how they have increased, you know, over the last, you know, since the it was announced a year and a half ago, the evaluations have gone up on the equipment company. So, it's a reflection on that in Applied to make it public from that perspective. So, it makes perfect sense.

    DAN HUTCHESON: Any thoughts about what people have been telling you? You've been talking to them the last week or so?

    RISTO PUHAKKA: Basically, regarding Kokusai and it's basically

    DAN HUTCHESON: I'm thinking about just general in terms of how people are seeing the market going into this year. Everybody bullish?

    RISTO PUHAKKA: Everybody is bullish, but they're kind of a little bit cautious also, but really the dominant conversation is like John mentioned, really starting to rethink the industry, equipment industry. I mean, we've been talking this $100 billion dollars WFE. We are at 60 plus now and not their 10 billion, you know, high EUV will make ASML lot weaker and things like that. So, there is really companies who are rethinking because organizationally that they need to adjust. They need to invest. They need to invest capacity. They need to invest supply chains. They need to and then they also need now need to rethink where that capacity manufacturing capacity is going to be placed.

    DAN HUTCHESON: Great. John, any thoughts about from the people you've been talking to about how bullish they are, you know, going into the year?

    JOHN WEST: Yeah, I think everyone's well, bullish. I think that they're adding capacity in Singapore, Malaysia, Vietnam. They're not going to China at the moment. They’re holding on to the assets they have in Europe and the US. Yeah, I think there's certainly we're going to see a shift in the supply chain, certainly to that part of the world, Singapore, Malaysia, and Vietnam.

    DAN HUTCHESON: Is there any shortage of money? I know you were talking about that earlier.

    JOHN WEST: And that's an interesting thing, isn't it? There's a lot of money and the question is what do you do with that? You can't just sit on it. We can sit on it for a while. But you've got to do something or give it back. And I know it's not popular to give it back. So yeah, I mean, certainly the OEMs are looking really strong right now. But again, yeah, I think that they're investing out money looking at new opportunities, strengthening their supply chains. Yeah, that's what I'm seeing at the moment.

     DAN HUTCHESON: Great. Hey, well, thanks for taking the time today guys to put this together.