External factors influencing AMAT’s growth
Earlier in this series, we saw that Applied Materials (AMAT) had reported strong growth in orders in the Memory, Foundry, and Display segments in fiscal 2Q16.
A significant portion of these orders are likely to be seen in the company’s fiscal 3Q16 earnings. The high demand for Applied Materials’ equipment is being driven by macroeconomic, industrial, and competitive factors. Let’s look at some of these factors.
World Semiconductor Trade Statistics (or WSTS) expects the world semiconductor market to fall by 2.4% YoY (year-over-year) to $327 billion in 2016. Gartner expects semiconductor capital spending to fall by 0.7% YoY to $64.3 billion in 2016.
This is driving manufacturing equipment demand from China. Applied Materials reported 150% YoY growth in new orders from China in fiscal 2Q16. Gartner’s senior research analyst David Christensen said, “This will dramatically affect the competitive landscape of global semiconductor manufacturing in the next few years, as China becomes a major market for semiconductor usage and manufacturing.”
Economic instability, rising inventory, and the slowing demand for smartphones and PCs (personal computers) have forced many semiconductor companies to stall capacity expansion. Many companies are resorting to restructuring. In the analog space, companies are selling off extra capacity.
Despite this, AMAT reported growth, as some semiconductor companies, especially Intel, Samsung (SSNLF), TSMC, and Micron (MU), are investing in upgrading manufacturing technology nodes that will help them to manufacture next-generation chips at reduced costs.
The memory market is transitioning toward 3D NAND flash technology, while foundries are investing in the 10nm (nanometer) node. Intel has committed $9.5 billion to capital spending in fiscal 2016. TSMC has committed $10.5 billion.
Other than macroeconomic and industrial factors, competition is adding more pressure and threatening Applied Materials’ dominant position in the semiconductor manufacturing equipment market. We’ll look into this in the next part of the series.