Chip Equipment's Bright Prospects Are Etched in Stone and Silicon
We see strong growth and reduced cyclicality for the industry.
The wafer fabrication equipment space has been historically cyclical but has enjoyed stellar growth over the past five years thanks to sustained investment by leading-edge logic, foundry, and memory customers. The $50 billion-plus market is dominated by five major suppliers--Applied Materials (AMAT), ASML (ASML), Lam Research (LRCX), KLA (KLAC), and Tokyo Electron (8035)--which account for over 70% of the market and represent an integral part of the semiconductor ecosystem.
We foresee reduced cyclicality for the industry, thanks to consolidation of key customers and an increase in end-market diversity beyond PCs and smartphones toward the public cloud, 5G network rollout, a rise in automotive chip content, and artificial intelligence chip proliferation. Past downturns created challenging conditions for equipment suppliers and chipmakers alike to maintain investment levels and development of new chips or tools. We believe chipmakers (especially memory customers) are better equipped to navigate downturns with greater cash cushions and profitability levels, thanks to consolidation and more rational behavior from a supply/demand standpoint. With both the supplier and customer bases down to a smaller cohort (including the five aforementioned equipment vendors and chipmakers such as TSMC (TSM), Samsung (SMSN), Intel (INTC), and Micron (MU)), we think the wafer fabrication equipment market is now more supportive of consistent and resilient excess returns.
Abhinav Davuluri does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.