Summary of Conference Call Notes on Semiconductor Capital Equipment Industry Industry Overview - The semiconductor capital equipment industry is experiencing a robust investment outlook, particularly in the DRAM segment, driven by increasing demand for AI semiconductors and various DRAM types including HBM, LPDDR, and GDDR [1][2] - The forecast for wafer fabrication equipment (WFE) demand has been raised by 3-4% for CY25-27, with expected growth rates of +11% year-over-year (yoy) to $113 billion in CY25, $124 billion in CY26, and $132 billion in CY27 [1][8] Key Insights - **WFE Demand Growth**: The demand for WFE, excluding China, is projected to surpass the CY22 peak in CY26-27, indicating a favorable business environment for front-end companies [1][9] - **DRAM Investment**: Major DRAM manufacturers are expected to expand production capacity, with $6 billion of the $11 billion increase in the CY26 forecast attributed to DRAM investments [1][8] - **NAND and Foundry Investments**: While NAND demand continues to exceed supply, investment in NAND is not uniform across manufacturers, as major players prioritize DRAM investments. Logic/foundry investments are expected to grow, particularly in advanced processes [2][9] Company-Specific Insights - **Tokyo Electron (TEL)**: The company has been reiterated as a "Buy" with raised earnings estimates and target prices, expected to grow faster than the WFE market due to DRAM investment expansion and new product offerings. The new target price is set at ¥38,000, up from ¥36,000 [3][11] - **Kokusai Electric**: Rated as "Neutral," with expectations of weaker earnings momentum due to a decline in new customer ratios in China and low memory exposure [7][12] - **SCREEN Holdings**: Rated as "Sell," anticipated to have the weakest earnings momentum among covered companies due to low memory exposure and declining new customer ratios in China [7][12] - **Lasertec**: Rated as "Neutral," expected to see increased orders mainly for MATRICS, but limited upside in current valuation [7][12] Financial Projections - **WFE Market Forecasts**: - Total WFE for CY25 is projected at $113 billion, with a yoy growth of +11% - For CY26, the forecast is $124 billion, also +11% yoy - For CY27, the forecast is $132 billion, with a slower growth of +7% yoy [8][9] - **Memory Segment Growth**: - DRAM is expected to grow from $32 billion in CY25 to $38 billion in CY26, maintaining a +20% yoy growth rate [8][9] - NAND is projected to grow from $10 billion in CY25 to $13 billion in CY26, with a +30% yoy growth rate [8][9] Risks and Considerations - Investment appetite among key customers in NAND is mixed, which may affect overall demand and investment strategies [2][7] - Potential risks include changes in investment at key customers, export controls, and competitive landscape shifts [15][12] Conclusion The semiconductor capital equipment industry is poised for significant growth, particularly in the DRAM segment, with companies like Tokyo Electron expected to outperform the market. However, challenges remain in the NAND sector and overall investment dynamics, necessitating careful monitoring of market trends and company-specific developments.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Semiconductor/Specialty Equipment (SPE) sector - **Market Forecast**: The Wafer Fabrication Equipment (WFE) market is expected to experience a 1% year-over-year (YoY) decline in calendar year 2025, followed by a 3% growth in 2026. The market saw a strong growth of 9% YoY in 2024, driven by demand from generative AI and increased investments in China [2][7][10]. Core Insights - **Demand Drivers**: Foundries and DRAM manufacturers are anticipated to benefit from the ongoing growth in generative AI demand, which is expected to be a primary driver for the WFE market [2][7]. - **Temporary Demand Dip**: There are indications of a temporary dip in demand at the start of 2025, influenced by DeepSeek and US-China regulations, particularly restrictions on NVIDIA chip exports to China. However, expectations for the second half of 2025 are optimistic due to strong investment commitments from major data companies and anticipated US government approval for NVIDIA's H20 shipments to China [2][7][18]. - **End Product Demand**: Overall end product demand remains muted outside of generative AI, leading to cautious optimism regarding broader market recovery [2][7]. Semiconductor Shipments - **Global Semiconductor Shipments**: The value of global semiconductor shipments has been increasing YoY for 21 consecutive months, with double-digit growth observed in the last five months. A strong growth of 11% YoY is expected in 2026 [7][10]. - **Potential Risks**: There is a risk of a reactionary decline in non-generative AI applications if end demand does not recover strongly [7][10]. Capital Expenditure (Capex) Trends - **Capex Outlook**: The capex outlook has improved for some foundries and DRAMs, while conditions for North American logic and non-Chinese NAND remain challenging. Concerns about US-China restrictions and tariffs could hinder share price recovery for front-end process companies compared to back-end process companies [7][10]. - **Technology Transition**: As the focus shifts to growth prospects in 2026-27, attention will be on companies positioned to benefit from rising investments driven by technological transitions, particularly in etching and film deposition systems [7][10]. Specific Market Segments - **CoWoS and WMCM**: Supply/demand for CoWoS (chip-on-wafer-on-substrate) is expected to be tight through the second half of 2025 but will balance by 2026. WMCM (wafer-level multichip module) demand is anticipated to rise, particularly for high-end iPhone models [11][15]. - **High Bandwidth Memory (HBM)**: The HBM market is currently tight due to certification delays at Samsung, with expected growth slowing from 219% YoY in 2024 to 121% in 2025, but potentially accelerating again in 2027 [16]. - **DRAM and NAND Memory**: Forecasts indicate DRAM and NAND average selling prices (ASP) will grow 17% and 1% YoY in 2025, respectively, but will decline in 2026. Supply/demand for DRAM is expected to remain balanced in 2025 due to conservative company stances [16]. Smartphone and PC Market - **Smartphone Shipments**: Smartphone shipment forecasts have been lowered to flat YoY in 2025 and a decline of 1% in 2026, influenced by economic downturn concerns and tariff impacts [18]. - **PC and Server Demand**: PC shipment volume is expected to grow 2% YoY in 2025 but decline 4% in 2026. Server demand is projected to grow 2% YoY in 2025, driven by AI server ramp-up and increased cloud service usage [16]. Investment Recommendations - **Top Picks**: The report highlights several top picks within the SPE sector, including AMEC-A, KLA Corporation, Hanmi Semiconductor, ACM Research, Advantest, Tokyo Electron, and BE Semiconductor [10]. - **Focus Areas**: Investors are advised to focus on companies that are well-positioned to benefit from rising investments in technology transitions, particularly in the context of generative AI and related sectors [18]. Conclusion - The semiconductor industry is navigating a complex landscape with varying demand dynamics across different segments. While generative AI continues to drive growth, caution is warranted due to potential regulatory impacts and muted demand in non-AI areas. Investors should remain selective and focus on companies poised for growth amid these transitions [2][7][18].