Chip Industry Sees ‘Clear Path’ to $1T in Annual Revenue: Applied CEO
Demand for semiconductors “has never been stronger or broader,” but the industry's ability to fulfill this growing demand “remains constrained by ongoing supply chain issues,” said Applied Materials CEO Gary Dickerson on an earnings call Thursday for fiscal Q2 ended May 1. The company supplies wafer fab production tools to chipmakers and is a bellwether of semiconductor industry conditions.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
The quarter played out for Applied “as a two-part story,” said Dickerson. During February and March, “we successfully resolved some key component bottlenecks only for this progress to be offset in April, as COVID-related shutdowns further disrupted already stretched supply,” he said. “These shutdowns are impacting a small number of our suppliers and ultimately delayed around $150 million of revenue in the quarter.” Applied’s quarterly revenue of $6.25 billion was up 12% year over year.
Applied’s top priority “is to work quickly and creatively across the supply chain to bring more industry capacity online,” said Dickerson. The key issues are shortages of silicon components, plus “certain other parts that go into the subsystems of our tools,” he said. “We are doing whatever it takes" by “qualifying” alternative parts, and fashioning “creative ways” to speed shipments, including “merging system modules” at customers’ sites, he said.
Applied is working with customers to “fast-track” the startup and qualification of equipment once it arrives at their fabs, said Dickerson. “If you map out a typical timeline, starting with the shipment of a tool from our factory and ending with the first production wafer out in the customer's factory, the time to install and qualify tools for high-volume production can take months,” said the CEO. “We are seeing strong customer pull for new ramp acceleration services to cut down that valuable time significantly.”
The demand picture for calendar 2022 is “clear,” said Dickerson. “We have the orders booked, a full build plan and a large and growing backlog,” he said. Applied estimates the “unconstrained demand” for wafer fab equipment would be $100 billion or more this year without the supply bottlenecks, he said. “The key question is how quickly supply issues can be mitigated and how much the industry will actually be able to ship this year.”
The main focus for Applied’s customers has turned to “securing supply for 2023,” said Dickerson. On the demand side, “we currently see 2023 remaining strong and being higher than 2022,” he said. “End demand for silicon continues to grow, driven by content growth in existing and new applications,” plus fab utilization “is very high even as newly installed capacity comes online,” he said. “Based on almost 10 years of analytics, this is the highest quarter for industry utilization on record.” Customers are starting up new capacity “faster than ever,” said the CEO. “All tools are being installed by our Applied Materials service team as soon as they arrive at customer fabs, which we have not seen before.”
Applied is witnessing a “broad-based composition” of wafer fab equipment spending, said Dickerson. “Edge applications” are consuming more and more silicon, he said. In automotive, the global average silicon content is now $600 per vehicle, “almost twice as much as in 2015, and this will continue to grow with the adoption of electric vehicles,” he said. Another example is a 5G smartphone, which has 40% more RF content than a 4G handset, he said. “The need for extreme power efficiency and battery-powered edge applications is enabled by innovation in materials and structures and is driving an increase in layers and process steps.”
There’s now consensus within the industry “that there's a clear path to a $1 trillion semiconductor market before the end of the decade,” said Dickerson. “That would represent a high-single-digit compound annual growth rate from where we are today.” For context, it took the industry more than five decades to reach a half-trillion dollars of annual revenue, “and we will add another half-trillion within the next six to eight years,” he said. Global semiconductor revenue totaled $595 billion in 2021, an increase of 26.3% from 2020, reported Gartner last month.