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JP Morgan Sees Another Growth Year For Semiconductors Through 2016

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In a report published Thursday, JP Morgan analysts predicted another growth year in 2016 for Semiconductors stocks, driven by technology transitions in memory and 10nm FF.

Most of the semiconductor capital equipment companies have reported their March quarter, the 2H15 outlook for wafer fab equipment (WFE) spending "is starting to take shape," the analysts said.

In the report JP Morgan noted, "Overall, 2015 WFE spending will likely come in +3% to up 7% from last year's ~$32B level ($33-$34B range) - we model $33.5B. We have fielded many investor questions / concerns on whether 2015 will mark the peak spending year for semiconductor equipment."

The analysts believe that 2016 will be another growth year. Their bottom up analysis points to about $35B in spending, representing 4.5 percent y/y growth, based on technology transitions by memory customers. The technology transitions include continued 3D NAND ramps, additional 20nm conversions and initial 1Xnm DRAM deployments.

The analysts also foresee increased participation by foundry and logic customers "deploying FinFET technologies (especially 10nm FF) as well as associated rising capital intensity with further proliferation of multi-patterning steps and vertical transistors."

"In general, we see capital intensity increasing by 10-15% on a per wafer basis when transitioning from 14nm/16nm FinFET to 10nm FF and by 15+% when transitioning to 20nm and below DRAM / 3D NAND. The number of critical patterning layers is increasing dramatically – in the foundry/logic segment, the number of critical layers is increasing by over 3x going from 28 nm node to the 10nm node…a significant increase," the analysts added.

JP Morgan maintained an Overweight rating on Applied Materials, Inc. (NASDAQ: AMAT), KLA-Tencor Corp (NASDAQ: KLAC) and Lam Research Corporation (NASDAQ: LRCX).

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