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Lam Research Rises In Semiconductor Etch Sector On Heels Of 3D NAND Memory


  • The complexity of 3D NAND chip production was responsible for large revenue growth of processing equipment manufacturers in 2017 that will continue in to 2018.
  • In the plasma etch sector, Lam Research gained market share against its main competitor Japan's Tokyo Electron.
  • Lam Research's market share rose to the mid-50% range, and that share is expected to increase based on the company's technological achievements.

3D NAND Etch Background

Shown in Chart 1 is a schematic of a 3D NAND structure and the types of equipment used in creating the structure. 3D NAND scaling utilizes a combination of deposition and etch processes to define complex 3D structures with extremely high aspect ratio (HAR) features.

Chart 1

The HAR channel etch tool must drill tiny circular holes or channels from the top of the device stack to the bottom substrate. It is critical to achieving uniform hole size through multiple layers to define the channel of memory cells. More than a trillion holes must be etched simultaneously and uniformly on every wafer, each with an aspect ratio of 40:1 for 32- and 48-layer devices with 64 layers moving to 60:1. For comparison, the highest aspect ratio structure that's etched in planar 2D NAND is less than 15:1. The HAR etch is illustrated on the left side of Chart 1, using a dielectric etch process.

The staircase etch step, shown on the lower part of Chart 1, creates the individual contact pads for each memory cell within the layers. A highly controlled etch process is used to define the size of each contact pad. Repeated vertical etch and lateral trim etch processes are adopted to form the staircase.

Materials to create a stack of layers are customer dependent - Samsung (OTCPK:SSNLF) deposits alternating layers of silicon nitride and silicon dioxide on the substrate, while uses alternating layers of conductive polysilicon and insulating silicon dioxide. Thus, etch equipment needs to be versatile with process recipes to meet the needs of individual customers.

NAND Market

The market for semiconductor process equipment for 3D NAND production is huge. Below is a chart from Lam Research’s (NASDAQ:LRCX) 2018 Investor Presentation. My interpretation of this chart for WFE (wafer front end) is

This article was written by

Robert Castellano profile picture

Robert Castellano has 38 years of experience analyzing the semiconductor markets.

He runs the investing group Semiconductor Deep Dive. It provides investors with recommendations for stocks with the greatest near- and medium-term growth potential. Members receive detailed analysis and research tools to make investments in semiconductor and tech stocks. Learn more.

Analyst’s 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.

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Comments (34)

Robert Castellano profile picture
On the face of it, LRCX is the better play. However, you have to take in several factors, because being a better company (management, innovation, revenue growth, market share growth) does not translate to a better stock in the real world. KLAC revenues come from the inspection/metrology sector of the equipment market. As I noted in a previous SA article, they dominate the market and have a market share 4 times greater than AMAT, because they sell equipment into all 6 major application processes whereas AMAT sells into only 3. LRCX sells into 0. So KLAC does not compete at all with LRCX
AMAT compete in many more of the major sectors of the semiconductor equipment market than LRCX, which only competes in etch, deposition, and clean, whereas KLAC competes in only process control (inspection/metrology). AMAT also sells into the display sector outside semiconductors.
Now within the semiconductor industry going head-to-head, LRCX competes against AMAT in etch (subject of the article) and deposition. LRCX got into the deposition market with the acquisition of Novellus, dropped out of the PVD business and started developing ALD equipment. But AMAT recently entered the ALD market but is smaller than LRCX. They compete strongly in PECVD, and non-tube CVD. LRCX is smaller but ha greater growth in 2017 against AMAT.
If we look at the application where AMAT and LRCX compete in the etch and deposition sectors it is clearly 3D NAND and also DRAM. The large growth in the memory business was a strong driver in the large growth in the equipment market last year. So, a rising tide raised all boats. Since LRCX gained market share in the 5 segments it competes against AMAT (dielectric etch, conductor etch, PECVD, LPCVD, and ALD), clearly it has best-of-breed equipment and has a strong foothold in all memory companies. And since the memory sector is forecast to be the strongest sector in 2018, that bodes well for LRCX, meaning that it should continue its market share growth in 2018. Keep in mind that a great deal of equipment was purchased in 2017, and because of overshoots in one year that are responsible for the up and down cycles of equipment purchases, growth will be no where as strong as 2018. This is when market share growth becomes important because there is no rising tide. In 2019 I see a correction in the equipment market so that revenue growth will be negative 10% over 2018. DRAM memory markets will be strong, but primarily coming from new Chinese companies, so the slate is cleaned in moving to different, new customers.
So in the real world, LRCX has a clear advantage. However, main street is very different from wall street, and here's where AMAT has an advantage. I've describe these in above comments, namely its stock buybacks, expertise in hype, and business relationship with Gartner which has a strong influence in the investor community, yes those same people who put a buy, sell, or hold on a stock. In the hype realm, go back and read earnings call statements and one would think that AMAT just invented the best mousetrap and wrote a best-selling novel. Then look at how they performed, when you start reading my articles on market share gains against competitors (not only LRCX but ACLS). Yet its stock has rocketed, increasing 60% in the past year.
Given these factors, the better play may be a toss-up. I don't promote any stock over another. I try to separate the hype from reality in my articles and call a spade a spade.
Robert Castellano
In your views - currently which is a better play among these: AMAT LRCX KLAC? Thanks
Robert Castellano profile picture
MBI70, I agree with you because there is one key factor that most people don't realize. AMAT is doing everything to pump up its stock, while LRCX is doing everything to make the best products and technology.
One of the points I try to make to readers of my SA articles is to call the hype coming out of AMAT. I wrote an article about that topic back on May 21, 2014 in an article entitled "What Applied Materials Didn't Say That Made Its Stock Pop. "https://seekingalpha.c...
In essence, LRCX gave an earnings call and said it was experiencing push outs in equipment installs because of the down industry. AMAT gave their earnings call a month later and never used the term push out, even though it was experiencing them, and as I have shown in my recent articles, was losing market share to LRCX. When LRCX had used the term, its stock plummeted. When AMAT did not use the term, its stock popped.
Another example as to how AMAT is primarily concerned about stock values (keep in mind management's salaries are chump change compared to their stock options) is that AMAT has a "business relationship" (I've been told that directly by a VP there) with Gartner, and gives Gartner it revenue by type of equipment. Gartner is the only company that gets it. Why? Take a look at all the analyst notes and you will see Gartner as the source reference to all semiconductor charts. So, Gartner gives these sell-side analysts their market share info and they then stick it in their reports and notes. Therefore, these analysts primarily rely on Gartner for their data source. Whatever Gartner supplies them regarding market share for AMAT and competitors gets put in analyst reports. Since Gartner is the only company that gets these numbers, there is no way to validate them, and as a result they are suspect. So, every analyst report is suspect. What this "business relationship" is I don't know, but if AMAT was upfront, they would give that info to everyone who asks. Instead, only Gartner gets it.
I agree with those who own both AMAT and LRCX. Took awhile to warm up to AMAT but pulled the trigger in late 2016. Lam has been a staple.(even through the cycles). Figure nothing wrong with owning both for market share.
Kirk Lindstrom profile picture
Good summary and graphic for 3D etch!

I added at $160 recently and took profits again at $190 in my trading IRA and newsletter Explore portfolio with some of the shares... pretty much adding some free shares with the cycle. BUT I still hold shares in my taxable account and newsletter Portfolio with a $3.33 purchase price. With the new $4.40 dividend, that means I'll get 132% back each year just on dividends.... which get taxed at the low qualified dividend rate.

I agree with carltropper. I first added AMAT to my personal account in 1996 and newsletter in 1998 and it has also been a huge winner.

Probably closer to a high than the next major low so I take profits as both go higher, but you have to be aware that the final tops ALWAYS come when the analysts turn the most bullish and CEOs are promising growth with "this time it is different....."

Half kidding..... perhaps if you and others who don't hold shares announce you are buying then we'll get a top signal. -grin-

My first mention of owning and recommending LRCX 10 years ago https://seekingalpha.c...
Lam is heading to 250 mark soon
Robert Castellano profile picture
carltropper, the problem is they compete head to head in all semi equip sectors except wafer clean. That strategy may have worked in 2017 when everyone saw unusually large growth (30-40%). In 2018 Gartner says the semi equip will be down a few percent (I say it will be up 10%) and really down in 2019. So in 2017 there were enough purchases for everyone to win. Going forward there will be winners and losers for a smaller piece of wafer front end equipment spend
nathanlane profile picture
Wait until the sales start topping out. In the meantime they are both great companies (AMAT and LAM) to make money on. I don't know how to tell which one is really better or if it is worth it to just pick one of the two to bet on.....
There are other companies tied to Lam’s etch success in semi.
The Lam CEO emphasized how healthy the semi industry looks compared to the past along with the huge ongoing demand drivers.
The dividend increase and stock buyback both say that this time things are different and here’s the cash to prove it.
Micron is the horse to bet on
I bet on both. Lam is less sensitive to cyclical fluctuations though.
Robert Castellano profile picture
Seems so. I'm planning on writing a SA article on how they're 3D-NAND shipments are a larger percentage of 2D + 3D NAND than any competitor.
Robert Castellano profile picture
WesInvestor, the problem is they compete head to head in all semi equip sectors except wafer clean. That strategy may have worked in 2017 when everyone saw unusually large growth, In 2018, Gartner says the semi equip will be down a few percent (I say it will be up 10%) and really down in 2019. So in 2017 there were enough purchases for everyone to win. Going forward there will be winners and losers for a smaller piece of wafer front end equipment spend
LAM (LRCX) is gaining too much attention IMO. AMAT (Applied Materials) has much more potential and has won more integrity & satisfaction awards. I'd bet on AMAT long term. More potential and doing things the right way.
I own both; they are both good companies IMO.
Did you see market share numbers? I think (RC would know for sure) Amat u
Amat used to be number 1
Now 3
Very informative....
Micron is up 35% in the past month!
Robert Castellano profile picture
Good for you if you own it.
Robert Castellano profile picture
And you too mxiked
Thanks for the reply! Interesting piece!
$53.94 Bobby Boy!
tarheelboy profile picture
I bought more today; own from 126 to 209 and the cash is flowing.
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