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    VLSIinsiders’ Cloudside Chat — December 03, 2020

      Dec 3, 2020
    • The recent events in China and their impact on semiconductor equipment
    • How 2020 is closing out and the Outlook for 2021
    • Next year – John –
    • The mystery around specialty chip makers starting to buy now
    • And 2022: Is it a downturn waiting to happen?
    • And, as always, what we’re hearing about order visibility

    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 — December 03, 2020

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

    ANDREA LATI: This is Andrea Lati.

    JOHN WEST: This is John West.

    RISTO PUHAKKA: This is Risto Puhakka.

    DAN HUTCHESON: So, guys, what's going out there? What are you kind of seeing in the condition, business conditions? What I'm seeing in semiconductors is it’s booming. It’s really hot. What are you guys seeing?

    RISTO PUHAKKA: Well, it's…Yeah, go ahead, Andrea.

    ANDREA LATI: So, let’s talk about the semiconductors. Yeah, I agree with you. Things are going pretty well. I was talking to, you know, Risto earlier on, about, you know, overall market conditions there in pricing. And when we track pricing, you know, we've seen this really incredible stability. Yet, you know, in the quarter, we had some memory makers, you know, downgrading their outlook. So, there was a little bit of a disconnect between what we're seeing and what we're saying. And then yesterday, Micron went and up there, you know, guidance for the current quarter, because they're seeing better market conditions. So that, you know, stability that we've been seeing for a pretty long time, basically, you know, is showing out there. So, you know, the market conditions are pretty favourable. So, we're ending the year on a pretty strong note and also the outlook for next year also looks pretty good.

    RISTO PUHAKKA: Yeah, I have to say, Andrea. You know, you can forecast Micron’s sales better than they can forecast themselves, you know, because we had this conversation the last, their last quarter they released, that it’s not correct what they got.

    DAN HUTCHESON: Yeah. So, John, what are you seeing in the subsystems space?

    JOHN WEST: Yeah, it's, I've had a couple of people say, it feels a lot like in 2017-2018 where the industry just grew and just kept growing. We're seeing now companies are sustainably around about record quarterly shipments of subsystems. And they've all been told recently to be ready for a 20% surge in any given quarter just in case some of these new fab projects come through. So, everyone's feeling extremely confident. And then again, they've got three to four months stability right now, so they're going to be very happy.

    DAN HUTCHESON: Now what you were, you were saying earlier, you were talking about, you know, the more clean rooms being built or being expanded. It's coming from smaller chip makers, not just the large chip makers that they were they kind of silent. What's up with that?

    JOHN WEST: Yes, I think this year, you could characterize the sort of big chip makers have just been adding a lot of capacity. They had a lot of spare space in their fabs anyway. But for some of the smaller chip makers, they're kind of squeezed out of the finance. You know, for them to get the money and the permission to do the expansions which are being either delayed or put off, seems like some of those are starting to come through. So, these will be typically smaller fab niche applications, but I think the first half of next year some of those will start to come to fruition. So, it may not add too much for wafer fab equipment, but it's a positive adder the next year.

    DAN HUTCHESON: You think it's actually…

    RISTO PUHAKKA: Yeah. The other thing here, we hear the second and third-year foundries are expanding pretty aggressively right now to in anticipation of capacity haul from SMIC. So today, they are doing extremely well, as well.

    DAN HUTCHESON: I think there's been a huge China exodus, these companies decided to, they realized that there was just going to be an increase in problems there. So, they've tried to diversify their supply chain and get out of China, which is, but they're all doing it quietly. But now you're seeing it with the money being spent. Right?

    RISTO PUHAKKA: Yeah, exactly. That's exactly what’s going on there. So...

    DAN HUTCHESON: You can say a lot about China, Risto.

    RISTO PUHAKKA: Well, there is that, there is, of course, the whole situation with SMIC. It's becoming clear that there's already export license problems, let's call them problems. So, SMIC missed some deliveries. They were actually pretty open about it. Then the second one is then, you know, last week, Tsinghua Unigroup defaulted, what it was $200 million of bonds and that's why MPC parent, so that's create bunch of question marks in China. And then there has been recent articles about how China's government is asking more accountability, on the projects that are funded, that there is some more tangible deliverables. And we were kind of joking that maybe there is some calling of the flock, so to speak, to create some more action there but definitely the that machine is spending a lot and delivering little, so that's probably the biggest challenge there right now.

    DAN HUTCHESON: Yeah, yeah. John, what are you seeing with regards to China?

    JOHN WEST: Yes. So, there is a little bit of evidence of the chip makers and equipment companies in China stockpiling subsystems, not excessively. So, we hear reports maybe they've got about six months of inventory, just in case. Whereas in the past, they'd have like, a couple of weeks, maybe a month. So, there is a bit to a build up, but it's not too excessive. But again, we'll see how that plays out later on next year.

    DAN HUTCHESON: So, Andrea, here's a big question. With SMIC being shut off, you know, and all of a sudden, China being radioactive for equipment manufacturers. Do they? Do the equipment industry to the sales go down or do they just move to other places like these smaller chip companies? So, what's your feeling? Is it some mix between the two?

    ANDREA LATI: I think it’s a mix, especially on the logic side for sure, it will move elsewhere. I'm already seeing that because, you know, as Risto mentioned before, the secondary foundries are doing really well this year. I mean, they’re growing as fast as TSMC almost, right? So, and part of that is SMIC effect. On the memory, on the other hand, that's little bit of the more tricky because, you know, China is not making much in the memory side. So, if that equipment buying all of a sudden comes to a halt, it will have some impact on the equipment market for sure.

    ANDREA LATI: It’s a mixed picture.

    DAN HUTCHESON: Yeah. So now let's, what about next year, guys? What are you seeing happening there?

    RISTO PUHAKKA: Well, I think the equipment forecast is betting that memory will come back substantially more significant way compared to last few years. And the good news is we are already seeing some signs of it. Actually, we may already see the memories coming back six months earlier than because we see shipments to Korea increasing…

    DAN HUTCHESON: Yeah.

    RISTO PUHAKKA: …already second half this year. So that’s we hear about Samsung. And we actually, I think, Andrea, you upgraded the Samsung capex this year on the way.

    ANDREA LATI: Yeah, I think the memory recovery on the equipment side is already underway, there is no doubt about that, it's really a matter of whether they can sustain that. But when we look at prices again, they look pretty good. So, I do think that, you know, they still have a pretty long runway there. And also, let's not forget, you know, standing there has been pretty low especially if you look at the multinationals, right? It has been pretty low in the last couple of years. So, they'll have to start catching up in order to make sure there is enough supply down the road because we might end up with shortages in the second half of next year, especially for DRAM. So, I think, you know, on the equipment spending side, I think memory looks pretty solid, you know, next year and also in 2022, at least for the multinationals.

    RISTO PUHAKKA: So, you actually said the critical word this time Andrea “shortest of DRAM…

    ANDREA LATI: Yes.

    RISTO PUHAKKA: …second half next year.”

    ANDREA LATI: They’re not even spending the money, Risto, and you know what happens. It's now for DRAM, it's almost lumpy the way, you know, they're, I mean they're trying to smooth all this capacity increases but it's difficult. So…

    DAN HUTCHESON: Do you guys still see Logic holding next year?

    RISTO PUHAKKA: What? Logic is healthy, definitely healthy. And it's a little bit questionable whether we see Capex going up or down. We have kind of two different views, it's probably findings on TSMC’s is three nanometres that's going to dictate that.

    ANDREA LATI: Yeah.

    RISTO PUHAKKA: But otherwise, we can see it pretty healthy.

    DAN HUTCHESON: What about ATP and packaging? Any thoughts there? Because we tend to often this relates more to WFE.

    RISTO PUHAKKA: That's true. Packaging is doing actually, there is actually a shortage right now. I just got to have…calling me last week and say, “Hey, where can we find wire bonders?” So basically, that was the question and of course you refer them today and they use all suppliers and that’s one thing. So, there is the capacity poll right now and they come back, they're coming back from the pretty low levels over the last 18 months of revenues. And second thing is, you Dan, wrote about the heterogeneous integration or HI. My English is handled that much better is that you know, we see a lot of long-term demand from that direction started to come up and that requires very high-end equipment, you know, hyper bonding, you know, high accuracy type placement machines, you know, you're moulding large packages, you know, and all those things, you know, factoring on itself. So, from that perspective, we think assembly is going to do quite well for the coming years.

    DAN HUTCHESON: What's great in Bessie in class, right?

    RISTO PUHAKKA: Yeah, yeah. And then we are the tester, you know, there was, because of Huawei, there was reshuffling of test capacity and it's still underway. But once that's over, then we don't see any reason why test, you know, wouldn't do well. Memory test has been doing extremely well this year reaching about 1 billion in total revenues, up like 40%. It's still cyclical. So, given the memory outlook, what we have is, we don't, I don't see any reason why they wouldn't repeat it next year. So, test is very positive compared to what it was like three months ago. So, I think there's a good outlook for next year.

    DAN HUTCHESON: Oh, great, John, what’s about subsystems?

    JOHN WEST: Same thing. So, on the critical certainly on the things like probe cards and test sockets. They're still shipping as many as they can possibly make, so we know that the chip makers, uh, making chips and having them tested, so that hasn't changed at all. That's fine. And the next year, again subsystems, everybody is saying, high single digit is the consensus right now that they are working on a possible plus 20% if things work out the way some of their customers are telling them. So yeah, actually, it looks pretty solid.

    DAN HUTCHESON: What about things like vacuum and valves?

    JOHN WEST: Yeah, again, that kind of grind the market. Again, you'd kind of think that, with EUV coming on might have an impact on their businesses, with potentially fewer deposition the next steps, but that hasn't stopped them at all. In fact, those guys are actually really outgrowing the market. So, anyone that's selling to 3D NAND in particular is seeing that their sales are going outgrowing the market significantly this year and also potentially next year.

    DAN HUTCHESON: Yeah, Risto, so you've been seeing the depth edge skies and…

    RISTO PUHAKKA: Yeah, I am coming.

    DAN HUTCHESON: …sort of the wisdom of the financial analysts, that EUV guy came.

    RISTO PUHAKKA: Yeah, I'm coming to a conclusion, especially this year proven that you know, EUV’S accelerating or EUV’S accelerated the semiconductor manufacturer because it enables advanced nodes. EUV’S accelerating edge and depth demand because at the end of the day, you need to have very tight tolerances on the depths and edge around EUV and you need advanced equipment. The interesting part is that the EUV cycle may be a little bit different from the process tool cycle because you want to install those earlier and then fill in the capacity. So that makes it kind of interesting from the forecasting perspective, but my view is that because etch and depth are out outgrowing lithography this year.

    DAN HUTCHESON: Yeah. It's kind of the classic economics of substitution. No one is going to buy just right footed shoes…

    RISTO PUHAKKA: Yeah. Yeah, that's true.

    DAN HUTCHESON: …both right and left footed shoes, you know.

    RISTO PUHAKKA: Yeah.

    DAN HUTCHESON: Hey, guys, thanks for taking the time today. This is really great.