Semiconductor equipment used to be a very cyclical industry up until 8-10 years ago. There were massive boom and bust cycles. Applied Materials was well known for being a hire & fire company - during the boom they would hire anyone with a pulse and their parking lots used to full. Great bonuses were given out, stock would double, and they threw great parties like having their internal conference at ski resorts in Canada and such.
The downturns used to be miserable, starting with forced unpaid shutdowns, then pay freezes or even pay cuts, followed by waves of rolling layoffs every quarter. There was a revolving door between the companies. Lam used to be joking called “Left Applied Materials”.
Things have changed now. Semiconductor and semi equipment cycles have moderated. To begin with, the industry consolidated - Applied, Lam and KLA Tencor are the only US based semi equipment players left. Meanwhile, thanks to the explosive proliferation of software and technology into every aspect of daily life (esp. in the post pandemic era), the whole world is completely dependent on semiconductors. Silicon is truly the oil that fuels the worldwide tech engines.
So, these semi equipment companies have been absolutely indispensable to the world economy. Since they have consolidated into so few large companies, they are basically an oligopoly - life is good for all of them. Applied no longer hires and fires people en masse - their business is more predictable and less cyclical. The old times who are entrenched in these companies are doing well for themselves.
Semicap companies also now have sizable and growing service revenue. They charge foundries big sums of money to keep their machines humming. ASML machines sell for 200M a pop these days. It makes sense for TSMC to spend >10M a year to keep them in good working order.
Yes, companies like ASML and Applied realized that the services revenue help smooth out the cyclicality of the capital equipment business. In downturns, AGS (Applied Global Services) used to be the highest revenue earning and most profitable division of Applied. It started out as spare parts and servicing of equipment, now includes all sorts of consulting
The question is how much pricing power the equipment makers have. They only have few buyers. Who will buy from AMAT, KLA , or LAM research other than a few fabs? [ The equipment makers are not even oligopoly by definition. Oligopoly means a few players serving a large number of customers - who on individual basis have very little power over price. A few players serving a few players is not an oligopoly]
Same thing can be said about the EDA vendors Although they have bigger market to serve in terms of number of customers if not in terms of dollar value…
The only plausible interpretation is that, apparently in conjunction with the South Korean government, the Biden administration has de facto decided that all chip firms—even if small, seemingly innocuous, and barely linked to the United States—are off limits to Chinese buyers. If Magnachip isn’t allowed to couple up with a Chinese private equity fund, it is hard to imagine anyone else will be allowed to, either. This is bad news for China’s efforts to acquire chip expertise by buying foreign companies. Just don’t expect anyone in the White House to call it decoupling.
This article seem written on wishfull thinking by associating every Chinese purchase with technology
Both Korea and Japan has signed up for RCEP and they are keep investing to take advantage of China-Europe railway.
infact Huawei has introduced newest smart TV (matching the most expensive Samsung lineup) that is almost a computer with full smart phone integration, video conferencing and 13megpixel webcam.
Huawei also giving away 10inch tablet with that TV purchase. display panels are surplus in China.
Boston consulting group has put Huawei Number 8 globally in innovation and Samsung number 6.
I am not sure how Apple and Tesla ahead of these as primary display and battery suppliers are in Asia.
Hardware is seen as “uncool” compared to software because hardware engineers are paid far less than SWE. Double their pay and people will come beat down their doors.
SWEs are not money faces. They want to change the world. Tell them that they are changing the world, they would accept peanuts and a piece of pie for their work.
