Summary
The primary drivers of wafer fab equipment demand are the underlying strength of semiconductor demand and the existing capacity level.
Social distancing and the at-home economy drove accelerated digitization that drove up chip demand through 2020. But this digitization has become a broader trend as companies prioritize their technology investments. Developments in auto, clean energy, IoT, online services and defense segments will ensure continued strength in semiconductor demand, thus driving equipment spending.
Additionally, China’s determination to be self-reliant in chips, the strongest driver of equipment sales in 2020, should remain an important driver until the country can make the equipment locally (not expected to happen in the next 5-6 years). Barring regulatory roadblocks from the American side, this is a tailwind for the industry.
Market researchers also see continued strength. Gartner is forecasting 22.8% growth in 2021 WFE spending (previous 7.8%), on top of a 13.9% increase in 2020. There are three drivers: continued spending on leading edge logic, major memory producers expanding capacity, investment at the trailing edge to alleviate supply chain constraints. SEMI sees 15.6% growth in 2021 and 12.2% growth in 2022 with foundry equipment spending growing 23% and flattening in 2022; memory growing single-digits in 2021 and 26% in 2022 (led by DRAM); power semiconductor equipment growing 46% in 2021 and 26% in 2022 and microprocessor equipment spending jumping 40% in 2022.
Stocks like Applied Materials (AMAT), ASML Holding N.V. (ASML) and Lam Research (LRCX) look attractive at the moment.
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