- Believing chip industry capex will drop 13% in 2016 to $46B due to weak memory spend, RBC's Mahesh Sanganeria downgraded Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX) to Underperform today, while respectively cutting his targets to $12 and $52.
- Sanganeria expects DRAM capex to drop 38% next year, and NAND flash capex 17%. Foundry capex is expected to be "flattish," and spending by IDMs (pressured this year by Intel's capex budget cuts) up 3%. "DRAM spending is positioned to decline in 2016 after two years of high level spending on new capacity and 20nm conversion. 3D NAND in CY16 appears to be limited after Samsung filled up Xi’an fab with 90k capacity as Micron and Toshiba need to expand current fabs for 3D conversion ... IDM/foundry spending will likely remain muted until 10nm ramp."
- He thinks Applied's 2016 outlook is too optimistic. "During JulQ earnings call, management expected DRAM spending to be down 10% and NAND to remain at a high level driven by continued 3D NAND investment in CY16. Additionally, the company expects big 10nm foundry spending."
- Regarding Lam, he observes DRAM/NAND now account for ~60% of total shipments. and thinks calendar Q4 shipments could miss estimates. DRAM and NAND prices have come under pressure in 2015, fueling speculation memory makers (Samsung in particular) could pare their investments.
- In spite of the downgrade, AMAT rose 1.1% in regular trading, aided by a 1.6% Nasdaq gain. Lam fell 0.4%. Both companies have had some bad news priced in over the last several months.