AMAT’s Memory business
Previously in the series, we saw that Applied Materials (AMAT) is reporting strong growth in the foundry business. Another segment driving the Semiconductor Systems’ growth is the memory business. The company supplies equipment for DRAM (dynamic random access memory) and non-volatile NAND manufacturing.
In 2016, the memory industry started transitioning to 3D NAND. The major players in the industry include Micron (MU), Intel (INTC), Toshiba (TOSBF), and SK Hynix. Samsung (SSNLF) already provides 3D NAND, but it’s expanding its 3D NAND capacity. This expansion increased AMAT’s revenue and helped it gain a ~7% share in the NAND market.
Memory opportunities for AMAT
AMAT earns more than 10% of its revenue from Micron, Intel, and Samsung. While Samsung and Intel are also foundry customers of AMAT, Micron is a pure-play memory customer. Samsung has stopped DRAM production to focus on NAND, and Intel only manufactures 3D NAND.
As seen from the above graph, 3D NAND manufacturing is a material-intensive process. A 64-layer 3D NAND uses 64 deposition-etch processing sequences compared to just one with 2D NAND. Moreover, 3D NAND manufacturing includes Epitaxy, implants, and rapid thermal processing, which increases the opportunity to supply more equipment.
Intel is investing $12 billion in capital expenditure in fiscal 2017. A major portion of this will go towards production of non-volatile memory. Micron has allocated $5 billion towards capital expenditure for fiscal 2017. $2 billion of this will be used for NAND production.
Competition from Lam Research
However, AMAT faces strong competition from Lam Research (LRCX), which has listed Samsung, SK Hynix, and Micron, the top three memory makers in the world, as its key customers from which it earns more than 10% of revenue. Lam Research earns 61% of its revenue from memory and expects DRAM and NAND wafer fabrication equipment demand to grow in double digits in fiscal 2017.
Meanwhile, AMAT’s logic revenue is expected to grow at a steady rate. After foundry and memory, the company’s third growth driver is its display segment. Next, we will look at the factors that could drive growth in the company’s display segment.