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.
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.