"The Era of Materials, Components, and Equipment Is Coming"...Partners See Green Light to Escape Losses as 'Samjeon-nix' Scales Up [Chip Talk]

Rising expectations of benefits for partners from memory capacity expansion
Warmth expected to spread from equipment makers to materials and components firms

As Samsung Electronics and SK Hynix stand at the center of the semiconductor super cycle, a bright outlook is also being forecast for the earnings of materials, components, and equipment companies that work with them. Experts analyze that the boom will first benefit semiconductor equipment makers in the early phase, and that the positive impact will then gradually spread to materials and components companies.

All-out CAPA expansion by the memory 'Big 3'

Recently, securities firms have been releasing a flood of reports raising their target prices while predicting profit improvement for semiconductor materials, components, and equipment companies this year. As major semiconductor manufacturers, which have profited significantly from the surge in memory prices, rush to expand their production lines, expectations for equipment orders have grown in tandem. In particular, high bandwidth memory (HBM), the main focus of the domestic semiconductor "two-top" players Samsung Electronics and SK Hynix, is pushing up the process difficulty and wafer consumption with each new generation, further exacerbating supply constraints in commodity DRAM.

Moon Junho, an analyst at Samsung Securities, said, "Since the core background of the steep rise in memory prices lies in structural supply shortages, DRAM capacity expansion is expected to be strong this year," adding, "This year, Samsung Electronics is expected to add wafer production capacity of around 80,000 sheets per month at its Pyeongtaek Plant 4 (P4), and SK Hynix is forecast to carry out a new expansion of around 40,000 sheets per month at its Cheongju M15X fab." Micron, which fell behind in the competition to supply Nvidia with HBM4, is also accelerating its DRAM expansion by recently acquiring a fab from Taiwan's PSMC for 1.8 billion dollars (about 3 trillion won).

Equipment makers smile first

This capacity (CAPA) expansion by the memory "Big 3" is a boon for the materials, components, and equipment companies that work with them. In particular, partner equipment makers such as Wonik IPS, which has built a long-standing cooperative relationship with Samsung Electronics, are drawing intense attention in the industry. The main product of Wonik IPS, PECVD (plasma-enhanced chemical vapor deposition), is equipment that deposits a thin film on a wafer (semiconductor substrate) and is essential for forming insulating and protective layers between chips.

Wonik IPS posted cumulative sales of 634.8 billion won for the first to third quarters of last year, with semiconductor equipment sales accounting for more than 80% of the total. BNK Investment & Securities said, "We expect orders related to Samsung Electronics' Pyeongtaek P4 expansion and its Taylor fab in the United States, as well as SK Hynix's M15X fab and M16 1c (10-nanometer-class 6th generation) process migration," and estimated that Wonik IPS's semiconductor equipment sales will surpass 1 trillion won this year. Previously, when Samsung Electronics aggressively expanded its capital expenditures (CAPEX) between 2020 and 2022, Wonik IPS recorded annual sales exceeding 1 trillion won for three consecutive years.

Jusung Engineering, which posted an operating loss of 12.6 billion won in the fourth quarter of last year due to reduced new equipment orders from SK Hynix, is also expected to return to profit this year. As customers' fab expansion has proceeded more slowly than planned, orders are currently centered on retrofit equipment, but new equipment orders are anticipated from the end of the first half of this year. Kim Donggwan, an analyst at Meritz Securities, said, "Purchase orders (POs) from domestic and Greater China customers are all expected to be concentrated around the second quarter of this year, so earnings will likely show a weak-first-half, strong-second-half pattern," and estimated this year's annual operating profit at about 61.7 billion won, roughly double that of the previous year.

CMTX captures both materials and components

CMTX, the only primary partner of TSMC in Korea, is also expected to post double-digit growth in earnings this year. Since last year, CMTX has been supplying etching-use silicon parts (rings and electrodes) for TSMC's advanced processes at 3 nanometers (nm, 1 nm = one-billionth of a meter) and below, and 14 of its products have passed quality (qual) testing, with 2 products currently in mass production. Through its subsidiary Sellic, the company also produces 200 tons of silicon ingots annually, having internalized semiconductor materials as well.

The etching process, which removes unnecessary portions from a wafer, is a core step that accounts for 40% to 80% of semiconductor manufacturing process costs. As semiconductor front-end processes continue to become more miniaturized, the replacement cycle for etching consumables exposed to extreme process environments is also becoming shorter.

Samsung Electronics is currently CMTX's largest customer. However, as semiconductor manufacturers increasingly adopt aftermarket models in which they contract directly with materials and components suppliers without going through equipment makers, CMTX's sales, which have been heavily concentrated on Samsung Electronics, are expected to diversify to TSMC, Micron, and others. TSMC has presented a CAPEX guideline of 52 billion to 56 billion dollars for this year, up 32% from the previous year.

Choi Seunghwan, an analyst at Shinhan Investment Corp., said, "CMTX's sales to TSMC are expected to increase from 5 billion won in 2025 to more than 10 billion won in 2026 and more than 20 billion won in 2027," and forecast that the company will post annual sales of 214 billion won this year (up 33.3% year-on-year) and operating profit of 73.1 billion won (up 41.6%).

Analyst Moon said, "In the early stages of a CAPEX cycle, profit growth at equipment makers comes first, and once those pieces of equipment begin full-scale operation, profits for materials and components start to rise," adding, "In terms of short-term earnings momentum, semiconductor equipment stocks have an advantage, but from the second half of this year, earnings growth for materials and components stocks is also expected to begin in earnest."