Morgan Stanley: Semiconductor Production Equipment

Market Dynamics by Application

> Segment Dominance: Logic/Foundry is the largest segment of the Wafer Fab Equipment (WFE) market. Within this segment, TSMC accounts for approximately 30–50% of the market.

> Industry Specialization: Among major Japanese equipment makers, companies are typically associated with specific application plays:

SCREEN: Primarily a Logic/Foundry play.

TEL (Tokyo Electron): Primarily a DRAM-related play.

KOKUSAI: Primarily a NAND-related play.

Front-End vs. Back-End

> Market Split: The semiconductor equipment market is split roughly 9:1 between front-end and back-end equipment.

> Trend Rebound: While the back-end equipment share trended downward for over 20 years as front-end tool value-add and unit prices rose, it has recently rebounded due to surging demand in the AI semiconductor market.

Competitive Landscape in Key Equipment Segments

> Lithography: The market is highly concentrated, with ASML holding a 95% share of the CY25 worldwide lithography equipment market.

> Dry Etching: The market for etchers is diverse. Lam Research leads with a 43% share, followed by Tokyo Electron (20%) and AMAT (19%).

In Conductor Etch, Lam Research is the dominant player with a 50% share.

In Dielectric Etch, Tokyo Electron holds the majority share at 55%.

Nvidia Compute Chip Cost Breakdown

> Gross Profit: The gross profit margin accounts for 75% of the total cost.

> Frontend Costs: The wafer cost represents 6% of the total.

> Backend Costs: These total 19% of the cost structure, broken down into:

HBM cost: 13%.

Test cost: 3%.

CoWoS cost: 3%

ASIC Cost Breakdown

> Gross Profit: The gross profit margin is significantly lower at 45% of the total cost.

> Frontend Costs: The wafer cost represents 13% of the total.

> Backend Costs: These total 42% of the cost structure, broken down into:

HBM cost: 24%.

Test cost: 7%.

CoWoS cost: 11%.

$NVIDIA(NVDA.US) $Alphabet(GOOGL.US) $Amazon(AMZN.US) $Applied Materials(AMAT.US) $Lam Research(LRCX.US)