Factors Driving AMAT’s Revenues from Semiconductor Systems
AMAT’s Semiconductor Systems
Applied Materials (AMAT) is in the middle of an up cycle as its core business of SME (semiconductor manufacturing equipment) is seeing strong growth momentum. The company’s Semiconductor Systems division supplies three major technology products: transistor and interconnect, patterning and packaging, and imaging and process control to memory, foundry, and logic chip manufacturers.
The division earns 88% of its revenues from memory and foundry customers. In fiscal 2Q17, the division’s revenues rose 51.9% YoY (year-over-year) to $2.4 billion, accounting for 73% of the company’s revenues. The sales were driven by strong double-digit growth in foundry and memory.
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For fiscal 3Q17, AMAT’s Silicon Systems revenues are expected to rise 4% sequentially to $2.5 billion. During the same quarter, Lam Research’s (LRCX) and KLA-Tencor’s (KLAC) revenues from Silicon Systems rose 7% and 2.7% sequentially, respectively.
AMAT dominates the foundry equipment market. However, it reported 18% sequential decline in foundry revenues in fiscal 2Q17 as it lost some share to KLAC, which reported 31% sequential growth in foundry shipments. LRCX’s foundry revenues fell 12% sequentially during the same period.
In fiscal 3Q17, AMAT’s foundry revenues could decline further but in low-single digits, as LRCX reported 2% sequential decline in foundry revenues during the same quarter. On the other hand, KLAC reported 26% sequential growth in foundry shipments.
DigiTimes reported that the world’s largest foundry, TSMC (TSM), is transitioning to 7nm (nanometer) node and AMAT, LRCX, Tokyo Electron, Hitachi High Technologies, and Advanced Micro-Fabrication Equipment are its suppliers. The report stated that Tokyo Electron and LRCX could gain a larger piece of TSMC’s order.
TSMC plans to bring the first-generation 7nm process online in early 2018 and the second-generation 7nm process, which would adopt EUV (extreme ultraviolet) lithography technology, which could be online at the end of 2018. Samsung (SSNLF) plans to launch 7nm node directly using EUV lithography technology.
AMAT expects the adoption of EUV to start from 2019 onward, and this adoption could be limited largely to foundry and logic manufacturers. Memory manufacturers may not adopt EUV widely.
Next, we’ll look at AMAT’s financial performance in the memory and logic markets.