This post was originally published on this site
Chip-equipment supplier shares fell Friday following a report that third-party chip fab Taiwan Semiconductor Manufacturing Co. was delaying deliveries to a facility under construction in Arizona because of demand concerns.
The Reuters report, which cited two unnamed sources, said that TSMC
TSM,
was looking to control costs with its latest directive to suppliers.
While U.S. shares of TSMC fell 2.4% in Friday trading, the PHLX Semiconductor Index
SOX,
was down3%. Shares of chip-equipment suppliers Applied Materials Inc.
AMAT,
KLA Corp.
KLAC,
Lam Research Corp.
LRCX,
and ASML NV
ASML,
fell more sharply, all down more than 4%.
Shares of GlobalFoundries
GFS,
another third-party fab, fell nearly 5%, while Advanced Micro Devices Inc. shares
AMD,
fell 4.3%, and Lattice Semiconductor Corp.
LSCC,
shares fell 4.9%.
Meanwhile, the S&P 500 index
SPX,
was last down 1.1%, and the tech-heavy Nasdaq Composite Index
COMP
declined 1.6%.
Citi Research analyst Atif Malik argued that the report was “no new news,” and viewed any pullback in the chip-equipment subsector as a buying opportunity.
“We note that equipment makers like Tokyo Electron
8035,
and Applied Materials have already talked about leading-edge weakness this year offset by mature logic strength,” Malik said in a Friday note. Shares of Tokyo Electron rose more than 3% in Tokyo trade.
At Citi’s recent global tech conference, Malik said Tokyo Electron had mentioned seeing some amount of leading-edge push-outs for about one to two quarters, while KLA said it has more than $900 million in deposits on mature logic projects.
Late Thursday, before the Reuters report, Jefferies analyst Mark Lipacis released a note, observing that stock performance for the SCE [semiconductor capital equipment] subsector, since 2022 has correlated to advanced packaging exposure.
Advanced packaging is the industry workaround for the slowing of Moore’s Law, which states the number of transistors on a chip should double every two years, making them faster, smaller and more efficient. Whether the law has been broken is a topic for debate among chip CEOs. While Nvidia Corp.’s
NVDA,
Jensen Huang contends that Moore’s Law is dead, Intel Corp.’s
INTC,
Pat Gelsinger maintains it is still alive.
Either way, Lipacis believes that the unit growth of chips using advanced packaging will increase by 10 times to 90 million notebook central processing units in 2024, from 2023’s 9 million data-center CPUs/graphics processing units that are expected to power generative AI and large language models.
“The bull-case is that LLMs get inferenced in the handset,” Lipacis said. Should that happen expect the total addressable market for advanced packaging to increase by another ten times.
“LLMs with a large number of parameters could require larger chips in smartphones that need advanced packaging, potentially as early as 2025,” Lipacis said. “We estimate the number of premium cellphones at 550 million and TAM at around 1.3 billion.”
The Jefferies analyst noted that Applied Materials, Lam, KLA and Camtek Ltd.
CAMT,
Onto Innovation Inc.
ONTO,
and Disco Corp.
6146,
“remain top picks.”
Wolfe Research analyst Chris Caso, who initiated coverage of the SCE group in a note dated Thursday, called Applied Materials his top pick, saying he considers the company “the most balanced exposure to leading edge, lagging edge, and memory while being best positioned to outperform [wafer fab equipment makers] with process and material innovations.”
Caso gave outperform ratings to Applied Materials, ASML, KLA, and Lam.
