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    VLSIinsiders’ Cloudside Chat — November 18, 2020

      Nov 18, 2020

     

    VLSI's latest forecast upgrades for Semiconductors, Equipment, and Critical Subsystems.

     

    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.

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    Transcript

    VLSIinsiders’ Cloudside Chat — November 18, 2020

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

    ANDREA LATI: This is Andrea Lati.

    JOHN WEST: This is John West in Europe.

    RISTO PUHAKKA: And this is Risto Puhakka.

    DAN HUTCHESON: So, guys, things are booming, huh?

    RISTO PUHAKKA: Yeah, it's this time of the month when we look at our forecast. And Andrea, how does it look like?

    ANDREA LATI: It was surreal I’ll say actually given, you know, the state of the world. I mean, there were improvements across the board. So, we ended up upgraded our forecast across the board. Electronics went to positive territory now for about 1% from minus three. IC sales forecast were also upgraded from six and a half percent to 8%. And the biggest upgrade actually happened with the equipment market where we were forecasting a 10% increase for the year and now we're at about 16%. So again, very, you know, positive data across the board, which is good because, you know, that means that the overall fundamentals are healthy. I mean, I was getting very nervous for a while because the electronics were not, you know, still in negative territory. But even there, we're seeing a lot of positives. So overall, it was a great, you know, third quarter. The outlook for the fourth is also very good. And when I look at all the pieces that we look, when we do our forecast, things look pretty solid for 2021 as well. So, again, you know, there is also that, you know, dark cloud of COVID because cases are increasing, but when we look at our industry and what drives it. 2021 is shaping up to be a pretty good year for the industry.

    RISTO PUHAKKA: Yeah, well, actually, let's, I mean. I'm always curious what changed how, you know, these are substantial changes in November. So, what changed? What do you think, Andrea?

    ANDREA LATI: If you want to dig in, actually, we saw big improvements primarily in the logic markets, which was already doing very well. And also, in the Analog market, where basically we're seeing that rebound in the automotive and industrial sectors. So, it's fine to show you the IC sales as well. So, there were really the biggest drivers of the increase. Memory is more mixed because if you look at memory, actually, we think that the fourth quarter, there is going to be a sequential decline. So, they're actually, we're seeing some headwinds. And also, if you look at the inventory side of the memory side, it's on the high side. However, the non-memory segments, you know, the inventory levels there are actually in a pretty good shape. And again, you know, the data center segment did very well in the third quarter. If you look at the capex for the top eight hyper scales that we track, they were up 21% sequentially in about 20% also on year per year basis. And the biggest driver there, you know, as you probably know, was Amazon. Their capex has pretty much doubled from, you know, a year ago basis. And again, it's really reflecting this, you know, e-commerce and…

    RISTO PUHAKKA: So, Amazon is making sure we can have a Christmas.

    ANDREA LATI: Correct, correct. Just to give you a number. So, you can so last quarter, they spent $9 billion in capex. That's a very big number. And it's either account for a third of the capex of those top eight companies. So huge, huge driver in terms of the overall capex spending for the…

    RISTO PUHAKKA: So, that the brick and mortar that basically shipped from brick and mortar retail moving to Amazon has basically driven our industry also.

    ANDREA LATI: That's correct.

    RISTO PUHAKKA: Yeah.

    ANDREA LATI: So those are some of the main points that led to much, you know, higher numbers than what we had earlier in the year for both equipment and also the IC market.

    RISTO PUHAKKA: The interesting thing was…

    DAN HUTCHESON: Andrea. Andrea?

    ANDREA LATI: Yes.

    DAN HUTCHESON: You said that memory is not doing well, but your main forecast is up 25% year over year.

    ANDREA LATI: Yes. Again, they had a very strong, let's say first half and also their third quarter was very strong. It's really the fourth quarter that they are seeing some headwinds.

    DAN HUTCHESON: Ok. Good.

    ANDREA LATI: So, it's really you know, the previous three quarters that are boosting that number to 20% growth for the year, actually. Fourth quarter is going to be down a little bit.

    RISTO PUHAKKA: The interesting part are memories also that the part of the WFE or the equipment upgrade on the forecast is driven by memory, especially Korean memory makers. So, they already started their spending a little bit earlier than we actually because we expected them to be really next year spending stronger. And now it seems to be that's some degree at least pulled earlier and so the memories is going pretty strong from the equipment perspective as well. So, and…

    ANDREA LATI: Yeah. Yeah, same thing particular. Yeah. Yeah, you're right.

    RISTO PUHAKKA: And the second year will fall off. There's no question about that. So, it's just a matter of timing and some of the capex projections for NAND is actually up next year, the OSEOMs doubling gap exponentially next year. So, there's a lot of a lot of positive signs.

    ANDREA LATI: Yeah. And I think what's happening there is that memory manufacturers in general feel that there will be short supply next year, you know, given that, you know, last year, and this year there was not as much spending. So, they're trying to sort of get ahead a little bit and not have this, you know, big swings that we usually see in the memory market. So, it's more of a pre-emptive move to kind of keep supply and demand more balanced, you know, next year, so. But yeah, the general expectation is that supply will be tight in the second half of next year, for both DRAM, especially for DRAM actually.

    DAN HUTCHESON: Yeah, wafer supplies are tight as well. Did you see that Foxconn is wants to buy part of Solaris so they can get access to 200 millimetres wafers?

    ANDREA LATI: Yeah.

    RISTO PUHAKKA: So, hey but John, then they're probably the subsystems and test guys are smiling all the way to the bank here right now.

    JOHN WEST: Yeah, so based on Q3 results and the calls I have been having recently, so they're looking at a 20 plus percent growth this year. You know, clearly, they're growing faster than the equipment market. Because, you know, I mean, the supply chains were empty at the beginning of this year. So, they've really ramped that up, but a lot of work on looking at inventories. So actually, the inventory of finished goods for the subsystem guys have actually stayed pretty flat all year, which, you know, so as a percentage of their total revenues, Actually, inventories have been dropping right the way back down to normal levels. So, they're in good shape. The interesting thing that we're getting now is they're really trying to figure out what story they tell their investors about next year. Yeah. How do you explain this? And I guess that's our job to find a way to explain why, well, what this year has been good because it's quite clear, but certainly the next year, the question is, you know, what is the story for next year?

    DAN HUTCHESON: Yeah.

    RISTO PUHAKKA: That is absolutely true. And…

    DAN HUTCHESON: And everybody's wondering.

    RISTO PUHAKKA: Yeah, yeah. But it's really, that's really, you know, looking back to six months or nine months, now at this point, this year has been just one positive surprise after another. I mean the COVID created a huge hassle for two months, but then it's been just one positive news after another ongoingly.

    DAN HUTCHESON: Yeah, as long as you exclude COVID from that.

    RISTO PUHAKKA: Yeah. COVID from that.

    DAN HUTCHESON: Yeah. You mean positive for our industry, right?

    RISTO PUHAKKA: Yeah, of course, I'm talking about our industry. Yeah, I'm talking about our industry. So…

    DAN HUTCHESON: Our industry has come to the rescue in terms of COVID.

    RISTO PUHAKKA: Yeah. Yeah. In certain ways. And like, we had a zoom problem this morning. You know, I was, again, it comes back to the, you know, the industry will, you know, going to have a good prospect until zoom problems are resolved. So…

    JOHN WEST: I had spoken to somebody earlier this week actually talking about the impact of EUV because you get to go back a couple of years ago. There really wasn't a clear path forward for this industry, technology wise. Whereas now, EUV seems to be functioning and that, you know, I think now is a lot more confidence about, okay, they can actually, now they know it works. And if it they can actually make some money out of it. There's a clear path forward perhaps that's another reason why it's interesting set a very clear path to seven, five, and three nanometres now.

    DAN HUTCHESON: It's pretty clear to three nanometres given to you know, but a lot of that depends on whether ASML goes ahead with INA. But I think they broken the long game.

    RISTO PUHAKKA: Yeah. They certainly did. Yes.

    DAN HUTCHESON: Talking about amazing feat of engineering and science and, you know, managing a team of thousands to pull this off. I mean, it's just, you know, you look at what ASML has done. It's just so phenomenal, unprecedented.

    RISTO PUHAKKA: Yeah, yeah. So I mean, if you compare, you want to always compare to other industries, you know, looking at SpaceX, it looks it's easier to shoot up people to space than build an INA and EUV system. So…

    DAN HUTCHESON: Yeah, you'd have to develop new science.

    RISTO PUHAKKA: Yeah. So…

    DAN HUTCHESON: So anyway, okay. Anybody else have anything else to talk about?

    RISTO PUHAKKA: Think this covered this week's news pretty well. So, we've been busy on updating our models and continue to do so next couple of weeks, and everything is going to be on our website.

    DAN HUTCHESON: Okay. Look forward to seeing it there. So, thanks everybody for taking the time today.