AMAT’s industry outlook

Applied Materials’ (AMAT) strong guidance for fiscal 4Q16 reflects the overall semiconductor industry’s health. AMAT revised its forecast for 2016 WFE (wafer fab equipment) spending from flat to single-digit growth. The slight growth would be driven by a 40% YoY (year-over-year) increase in 3D NAND spending and a 5%–10% YoY increase in foundry spending. However, this growth would be partially offset by a 25% YoY decline in DRAM (dynamic random access memory) spending and a slight decline in logic spending.

In 2016, AMAT is witnessing a broader mix of foundry customers from different geographies, especially China.

Why Applied Materials Revised Its Wafer Fab Spending Outlook

Semiconductor industry revives in 2Q16

In January 2016, the semiconductor industry was going through a slowdown as PC and smartphone sales slowed, with Apple (AAPL) reporting its first decline in iPhone sales in 1Q16 and 2Q16. Hence, Gartner has estimated that WFE spending will fall by 2.5% YoY in 2016.

Meanwhile, Intel (INTC) reduced its fiscal 2016 capital spending from $10 billion to $9.5 billion. However, things turned positive for Intel in 2Q16. The world’s largest foundry TSMC (TSM) reported strong sales and increased its fiscal 2016 capital spending from $10 billion to $10.5 billion. SEMI Silicon Manufacturers Group data showed that worldwide silicon wafer area shipments rose by 6.6% QoQ (quarter-over-quarter) in 2Q16.

Industry guidance revised

AMAT also revised its WFE guidance after reporting strong growth in new orders for two consecutive quarters. The company expects its fiscal 2016 revenue to grow by 8% YoY to $10.4 billion. It expects this strong growth in equipment spending to continue in fiscal 2017 as its total addressable market expands threefold in flash memory and OLED (organic light emitting diode) space.

Research firm Technavio expects global WFE market to grow at a CAGR (compounded annual growth rate) of around 4% by 2020, with foundry capturing more than 63% market share by the end of the forecast period. The research firm expects Asia-Pacific (EPP) to account for 72% of the market by 2020, driven by large orders from TSMC and United Microelectronics in Taiwan, Samsung (SSNLF) in Korea, and Semiconductor Manufacturing International in China.

In the next and final part, we’ll discuss production cycles.

Latest articles

President Trump eased the Huawei ban on June 28. Since then, investors have been closely monitoring how US officials implement the policy change.

Dish Network’s (DISH) wireless business is currently in the making, as cord cutting has hit US satellite pay-TV providers harder than their cable counterparts.

Halliburton (HAL) reported its second-quarter earnings on Monday before the markets opened. The company's earnings rose sequentially.

22 Jul

Economic Data and Earnings Before the Fed's Meeting

WRITTEN BY Mohit Oberoi, CFA

Economic data and earnings will keep investors busy this week. More than a quarter of the S&P 500 companies are scheduled to release their earnings.

22 Jul

Why UPS's Q2 Earnings Could Fall Year-over-Year

WRITTEN BY Anirudha Bhagat

UPS is scheduled to report its second-quarter earnings results on July 24. Estimates suggest that things aren't looking good for it this quarter.

Boeing (BA) plans to report its second-quarter 2019 results on July 24.