Credit Suisse Group (NYSE:CS) has updated a few key elements in its rating of Semiconductor Capital Equipment (SCE) companies. The analysis covers a number of companies that are involved at the manufacturing end of the many electronic devices like, smartphones, tablets, TVs and PCs. Some key smartphones and tablets are being released in September and October, the CS analysis looks at how the new devices, like iPhone5, are pulling on the international SCE market.
The report expects the market to recover in 4Q12 . The top picks are ASML Holding NV (ASML), Teradyne Inc., KLA-Tencor Corp. KLA-Tencor Corp. (KLAC). The major accelerators for the SCE market came from the low end smartphones. Demand for PC and large screen tablets is very low, mid sized tablets and high end smartphones are keeping the demand for 15 nm and 28nm strong through 2H12 and 2013.
Shift in Capital Expenditure Model
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For the most part, the analysis does not spike up any new ratings or major projections. The most vital change is in the capex model of a few companies. Intel Corporation (NASDAQ:INTC)’s expenses for 2012 are lowered from a projection of $12.1 billion to 10.55 billion which makes the y-o-y increase flat. The reduction is due to slow down in PC market. For 2013, Intel Corporation (NASDAQ:INTC)’s is reduced from $12.8 billion to $10 billion, down 5 percent y-o-y, Samsung Electronics (LON:BC94)’s down from $13.6 billion to $12.0 billion, down 8 percent y-o -y.
Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) capex projection is up from $7.2 billion to $9 billion, up 9 percent y-o-y. The major driver for this rise in capex would come from the production costs of 20nm chips. Apple Inc. (NASDAQ:AAPL) is expected to recruit Global Foundry and TSMC as major suppliers for 2onm in 2013 and 2014 for its A-series application processors, reducing the share of Samsung in its current System-on-chip supply chain. The report also notes how the huge sway that Apple Inc. (NASDAQ:AAPL) had on the production supply chain has now expanded to an even bigger standing.
The shift in Apple Inc. (NASDAQ:AAPL)’s supply chain will be gradual. The iPhone 5 A6 processor will still be manufactured with Samsung’s components. A7 processor will stay with Samsung for 2013, however the A8 processor with 20nm will be manufactured by TSMC. Credit Suisse strongly believes that Apple Inc. (NASDAQ:AAPL) is too big to move completely away from Samsung. As Apple is projected to produce more than 300 million units in 2014, the requirement for multiple suppliers is evident.
The estimates for Samsung’s capex have been lowered from $13.6 billion to $12 billion for 2013. The shift in capex is due to reduced demand in memory units like, DRAM and NAND flash. Apple holds on to 30 percent of the global NAND demand and therefore has a significant pull on the market. The analysis still sees some positive winds in the DRAM and NAND business. Apple can be pressured into increasing NAND content in iPhone 5. A win-win scenario will emerge when Apple Inc. (NASDAQ:AAPL)prices the 16GB unit at $199 but doubles the NAND content for the 64GB and 128GB.