Many Semiconductor Equipment Companies Showing Solid Growth Through 1H 2016

| About: Lam Research (LRCX)

Summary

Based on 1H 2016 revenues it appears that the semiconductor equipment companies will exhibit solid growth in 2016.

Japanese equipment companies have exhibited greatest growth YoY Q2 2016/Q2 2015, but sales have plummeted QoQ Q2 2016/Q1 2016.

Inspection and metrology companies have shown the strongest growth due to decreasing IC dimensions and the move to 3D NAND and logic.

On September 6, SEMI, the semiconductor equipment consortium, published its August update of the World Fab Forecast report, which shows increased equipment spending, reaching 4.1% year-over-year in 2016 and 10.6 percent in 2017. Southeast Asia shows the largest growth, with 157% in 2016, driven mainly by 3D NAND. China, in second place for overall spending, shows 64% growth for 2016 primarily due to 3D NAND by non-Chinese companies, closely followed by Foundry companies.

Table 1

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SEMI followed that release with another release on September 12 breaking out semiconductor equipment billings by geographic region on a QoQ and YoY basis as shown in Table 2 below.

Table 2

2Q2015

1Q2016

2Q2016

2Q16/2Q15

(YoY)

2Q16/1Q16

(QoQ)

Taiwan

2.34

1.89

2.73

17%

44%

China

1.04

1.6

2.27

118%

41%

Korea

2

1.68

1.53

-24%

-9%

Rest of World

0.53

0.51

1.31

147%

160%

North America

1.55

1.01

1.2

-23%

19%

Japan

1.4

1.24

1.05

-25%

-15%

Europe

0.52

0.35

0.37

-29%

5%

Total

10.46

8.28

9.39

26%

11%

Source: SEMI/SEAJ

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SEMI's tables serve as a guideline, illustrating sales of semiconductor equipment into a particular country. The data was gathered jointly with the Semiconductor Equipment Association of Japan (SEAJ) from over 95 global equipment companies that provide data on a monthly basis.

The 95 companies compiled for Table 2 come from all regions and come in all sizes. They are also publicly traded and private. In other words, the data in Table 2, is a broad brushstroke of the state of the industry based on three different quarters, which was presumably used as a basis for SEMI's forecast in Table 1.

For investors, it is more meaningful to get specific data for an individual publically traded company. SEMI sells the data - I'm giving it to my readers here free of charge. Data comes from The Information Network's (theinformationnet.com) market research report entitled "Global Semiconductor Equipment: Markets, Market Shares, Market Forecasts."

Table 3 shows specific revenue data for Lam Research (NASDAQ:LRCX), which I've arranged to match SEMI's format of Table 2.

Table 3 - Lam Research Revenues

2Q2015

1Q2016

2Q2016

2Q16/2Q15

(YoY)

2Q16/1Q16

(QoQ)

Taiwan

290.9

354.8

226.4

-22.1%

-36.2%

China

245.5

197.1

345.6

40.7%

102.3%

Korea

424.3

354.8

232.7

-45.2%

-34.4%

Southeast Asia

51.7

92.0

344.8

567.4%

274.9%

North America

210.9

92.0

147.9

-29.8%

60.8%

Japan

208.0

170.8

202.6

-2.6%

2.8%

Europe

50.1

52.6

45.8

-8.6%

-12.9%

Total

1,481.3

1,314.0

1,545.9

4.4%

17.6%

Source: The Information Network

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The important thing to note is that revenues are significantly different from the consensus in Table 2. Even more important, one can make assumptions as to Lam's customers based on country revenues. For example, Singapore is the home to Infineon, Intel (NASDAQ:INTC), Micron (NASDAQ:MU), NXP (NASDAQ:NXPI), and STMicroelectronics (NYSE:STM), as well as three wafer foundries - GLOBALFOUNDRIES, TSMC (NYSE:TSM), and UMC (NYSE:UMC).

I've also shown a similar format for Tokyo Electron Limited in Table 4. Revenues for TEL are similar to those of LRCX, i.e., strong growth in China and Southeast Asia. The main difference is negative QoQ revenue growth in North America for TEL versus strong growth for LRCX, presumably due to strong sales at INTC by LRCX.

Table 4 - Tokyo Electron Limited Revenues

2Q2015

1Q2016

2Q2016

2Q16/2Q15

(YoY)

2Q16/1Q16

(QoQ)

Taiwan

23,130

42,517

30,504

31.9%

-28.3%

China

14,084

15,260

30,049

113.4%

96.9%

Korea

28,140

30,965

19,805

-29.6%

-36.0%

Southeast Asia

2,169

5,030

10,360

377.6%

106.0%

North America

30,776

19,765

17,022

-44.7%

-13.9%

Japan

25,011

26,423

17,819

-28.8%

-32.6%

Europe

17,053

9,557

5,234

-69.3%

-45.2%

Total

140,363

149,517

130,793

-6.8%

-12.5%

Source: The Information Network

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In addition to emulating SEMI's template with actual companies, I've compiled global revenues by the top 16 semiconductor equipment companies, also showing YoY and QoQ growth in Table 5. Note that revenues are in the country of origin and are not converted to U.S. dollars, which will distort YoY growth.

As I discussed in a recent article in Seeking Alpha entitled "Applied Materials' Q3 Earnings Call - Separating The Hype From Reality," Lam Research is gaining market share on Applied Materials, which is clearly shown in Table 5.

"LRCX estimates it will gain 7 points on top of its 2015 dominating share of 47%, it will totally dominate the 3D NAND and Logic market."

Table 5 - Revenues of Top 16 Companies

North American Companies

(M USD)

2Q2015

1Q2016

2Q2016

2Q16/2Q15

(YoY)

2Q16/1Q16

(QoQ)

Applied Materials (NASDAQ:AMAT)

1,635

1,587

1,786

9.2%

12.5%

Lam Research

1,481

1,310

1,546

4.4%

18.0%

KLA-Tencor (NASDAQ:KLAC)

756

713

919

21.5%

28.9%

Veeco (NASDAQ:VECO)

131

89

75

-42.7%

-15.7%

Axcelis Technologies (NASDAQ:ACLS)

78

68

64

-17.8%

-4.5%

Nanometrics (NASDAQ:NANO)

49

47

56

14.7%

17.4%

Rudolph Technologies (NASDAQ:RTEC)

59

54

63

5.4%

15.3%

Total

4,190

3,869

4,509

7.6%

16.6%

Japanese Companies

(M Yen)

2Q2015

1Q2016

2Q2016

2Q16/2Q15

(YoY)

2Q16/1Q16

(QoQ)

Tokyo Electron

140,363

149,517

130,793

-6.8%

-12.5%

Screen Semi Solutions

34,700

51,700

41,200

18.7%

-20.3%

Nikon

24,500

68,100

51,800

111.4%

-23.9%

Canon (NYSE:CAJ)

10600

10900

11700

10.4%

7.3%

NuFlare Technology

11,842

7,115

10,326

-12.8%

45.1%

Ebara

6,100

42,400

8,800

44.3%

-79.2%

Ulvac

5,007

4,803

4,162

-16.9%

-13.4%

Total

233,112

334,535

258,781

11.0%

-22.6%

European Companies

(M Euro)

2Q2015

1Q2016

2Q2016

2Q16/2Q15

(YoY)

2Q16/1Q16

(QoQ)

ASML (NASDAQ:ASML)

1,654

1,333

1,740

5.2%

30.5%

ASM International (ASMI)

201

142

139

-31.0%

-2.6%

Aixtron (NASDAQ:AIXG)

40

21

34

-15.6%

59.0%

Total

1,895

1,497

1,913

0.9%

27.8%

Source: The Information Network

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Investor Takeaway

The most obvious investor takeaway is the dramatic ramp in QoQ revenues for North American and European equipment companies in stark contrast to Japanese companies, that saw dramatic decreases QoQ.

While macroeconomic factors such as the slowdown in China, problems stemming from Brexit, and production adjustments for high-performance smartphones, at first glance one would think all companies would be impacted irrespective of headquarter location.

With the move to smaller dimensions and 3D NAND and logic, the biggest winners are the inspection and metrology companies, namely KLAC, NANO, RTEC, and NuFlare Technology.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.