Federal Chips Incentives Likely Won’t Kick In Before 2023: Applied CFO
Applied Materials posted record quarterly revenue of $6.2 billion, up 41% year over year, despite having to navigate “a challenging supply environment,” said CEO Gary Dickerson on an earnings call Thursday for fiscal Q3 ended Aug. 1. The COVID-19 “pandemic has accelerated the digital transformation of the economy and the adoption of advanced technology, creating a permanent structural shift for the industry,” but it also “disrupted global supply chains and logistics,” he said.
“Supply-side” inventories remain “below normal,” while “long-term demand drivers are strong, fueled by memory-intensive AI computing,” said Dickerson. Demand for semiconductors “is no longer about one or two killer applications, but rather an expansive structural shift in the economy toward digitization and automation,” he said. “Smart and connected devices at the edge not only consume more silicon, they are driving exponential growth in machine-generated data.”
Though global consumption of silicon is accelerating, “adoption rates of new technology vary considerably by region,” said Dickerson. Applied estimates that by 2025, “China will have only reached the same levels of silicon spend per capita the U.S. saw in 2015, and India trails China by another eight to 10 years,” he said.
As national governments “are increasingly recognizing the strategic importance of semiconductors,” and government R&D and production incentives become available in the U.S., Asia and Europe, “they can provide multiyear support as the industry moves from lean and just-in-time supply chains to more resilient, flexible and secure approaches, including regionally distributed capacity,” he said. But putting the right manufacturing infrastructure in place “is only one piece of the puzzle,” he said. “Investment in innovation infrastructure to lead in the development and commercialization of next-generation technologies is even more critical to winning the future.”
Dickerson is involved personally “in a number of different discussions” about government chip incentives, said the CEO. “There's tremendous pull across many different regions.” He thinks it’s important from a “supply chain continuity” standpoint to build “more regional capacity” throughout the world, rather than consolidate capacity in Asia, as it is now, he said. “That's a big area of focus.”
Applied is “not counting on anything from government spending in 2022,” said Chief Financial Officer Dan Durn. “Our view is you start to see it in '23 and '24. If it happens faster than that, then it's upside to the perspective we have.” The Semiconductor Industry Association declined comment Friday. Congress can “reinvigorate” U.S. chipmaking by funding initiatives authorized in the Chips for America Act and enacting an investment tax credit to “build and modernize” U.S. fabs, SIA, the Information Technology Industry Council and 18 other groups and associations wrote the House and Senate leadership last month (see 2107220005). Those initiatives remain unfunded.
As a key supplier of OLED vapor-deposition equipment and services to Chinese panel makers, Applied thinks OLED is “on the cusp” of reaching a “more attractive” inflection point for cutting into LCD’s share of large-screen TVs, said Durn. There remain technical challenges “that need to be solved in the OLED market to drive it into large-format displays and start to replace LCD,” he said. “That's a little way out.”
Once customers start “putting capacity behind that inflection,” there will be an opportunity to take the large-screen OLED market “structurally larger,” said Durn. “It will be a long-term technical shift in the industry's road map on those large-format displays.” OLED solutions will be more “capital-intensive” than LCD technologies are today, but “it will be an attractive piece of business for us when it happens,” he said. “But I still think we're a little ways away from that inflection actually hitting the market and customers putting capital behind it.”