Higher Semiconductor Spending To Drive Applied’s Growth In 2014

by Trefis Team
Applied Materials
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Applied Materials (NASDAQ:AMAT), a leading semiconductor equipment manufacturer, has seen its topline growth slow in the last two years on account of lower equipment spending by semiconductor manufacturers. An uncertain macro environment combined with soft demand for consumer devices forced many chip manufacturers to reduce or postpone their expansion plans. Global semiconductor capital equipment spending declined by 16.1% annually, reaching $37.8 billion in 2012 and research firm Gartner estimates the same to have declined further (by 8.5%) in 2013. [1]

However, the accelerated changes in device technology and the adoption of new materials in the industry is expected to re-accelerate demand for semiconductor equipment in the next two years. Gartner estimates capital equipment spending in the semiconductor industry to increase by 16% and 17% in 2014 and 2015, respectively.

Applied derives around 58% of its valuation from the SSG segment alone and an additional 33% is attributable to the Service business, which is largely focused on the semiconductor market. The company anticipates healthy investment by its semiconductor customers in the year ahead and believes that the major technology trends will play to its strength.

Accounting for approximately 15% of the market, Applied is the No. 1 semiconductor equipment supplier. With a robust pipeline of new products, the company believes that it is well positioned in the semiconductor market and will see profitable growth in 2014 and beyond.

In this article, we discuss the key players and factors driving semiconductor equipment demand. We are in the process of updating our price estimate of $16 for Applied Materials.

See our complete analysis of Applied Materials here

Factors Driving Semiconductor Equipment Demand

Rising mobile shipments, a recovering DRAM market, growing NAND demand and the pending technology transitions (22nm and 16 nm, FinFET,and 3D NAND) are key factors driving demand for semiconductor equipment.

1. NAND is the strongest growth segment

The rising mobile shipments is driving demand for NAND flash memory with bit growth for 2013 estimated to be in the 40%-50% range. In addition to the ongoing mobility trend, the transition to 3D NAND technology is driving demand for semiconductor equipment.

Applied expects investment for 3D NAND technology to accelerate in 2014 and 2015, as more manufacturers adopt this technology. The transition from planar to 3D NAND will drive additional demand for deposition and etch equipment, and as a result the company expects its available market to grow by about 25% for the first generation 3D NAND devices. It claims to have a clear and sustainable differentiation in the field and expects its market share to grow as 3D NAND factories ramp into volume production. Last month, Samsung started mass production of the industry’s first 3D vertical NAND flash memory.

2. Improving DRAM demand

Within the DRAM space, the market conditions are improving with average selling prices recovering to levels last seen in 2010. Structural changes in the market, along with rising bit demand for mobile applications, are key factors driving growth in this segment. Applied claims that its DRAM customers are increasing their bit supplies and we can see some additional capacity being added next year as well, if market conditions remain favorable.

3. Rising adoption of FinFET (3D) transistors

Applied claims that the FinFET technology adoption is the most attractive opportunity in foundry spending. It views the use of more advanced materials in FinFET production as an important growth driver. Intel (NASDAQ:INTC) has already adopted the technology and TSMC and Samsung (PINK:SSNLF) have aggresive roadmaps  to achieve the same, albeit at different geometries.  As transistors decrease in size, FinFET technology provides better circuit performance, power efficiency and processing speed, important features for today’s computing devices.

Applied claims to be in a strong position to gain from the adoption of the FinFET technology as it has a high share in EPI tool, which is extensively used for the technology. The FinFET technology can increase Applied’s addressable market by around 35%. [2]

Investment By Samsung, Intel & TSMC To Account For 52% Of Semiconductor Industry Capex

Intel, TSMC and Samsung are some of the biggest chip manufacturers in the semiconductor market. The three company’s together account for more than 50% of the total capital spending in the industry. Samsung and Intel are each forecast to spend approximately $11 billion this year, whereas TSMC is expected to spend slightly less than $10 billion. [3] Nine of the top 10 semiconductor industry capital spenders are expected to increase their semiconductor capital expenditures in 2014. In contrast, only four of the top 10 capital spenders increased their spending levels in 2013. [3]

Intel is in the process of transitioning from 300-millimeter to 450-millimeter wafers in a few years and is also investing in building its next-generation 14 nm manufacturing process. Intel intends to step up its investment to drive long term growth by maintaining its technology lead over other players in the market.

TSMC is the world’s first dedicated semiconductor foundry. The rising demand for smartphones and tablets has benefited TSMC as it has an industry-leading semiconductor process technology. As such it is the leading foundry to key fabless chips manufacturers such as Qualcomm (NASDAQ:QCOM, the leading vendor of processors for smart phones and tablets) and others. TSMC is expanding its 28 nm capacity. Though Samsung is estimated to lower its capital spending marginally this year (by $50-$60 million), it retains its top slot in semiconductor capital spending.

Samsung, Intel and TSMC have been the top three customers for Applied for many years, and thus Applied will benefit from the high capital spending by these companies this year.

Applied’s Top 3 Customers In Terms Of Revenue Contribution



















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  1. Gartner Says Worldwide Semiconductor Manufacturing Equipment Spending to Decline 8.5 Percent in 2013 , September 19, 2013 []
  2. Applied Material’s Management Presents at Citi Global Technology Conference – (Transcript), Seeking Alpha, September 4, 2013 []
  3. Samsung, Intel, TSMC Dominate Semicon Capex in 2014, PCB Design, March 26, 2014 [] []
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