The semiconductor industry is experiencing transformative pressure due to the increasing demand for artificial intelligence (AI) technologies, particularly in the smartphone sector. Doug Lefever, the chief executive of Advantest, the largest provider of chip testing machines worldwide, has articulated concerns about a potential “vicious” downturn in the semiconductor market, should investment from major US technology firms in data centres slow.
Lefever's remarks were made in light of the significant financial commitments that companies such as Meta, Google, and Microsoft have made towards constructing data centres capable of supporting advanced computing capabilities. He noted, “I don’t like to use the word bubble because it implies that it’s going to go away, but there will be cycles,” in reference to the fluctuations the industry could face. Lefever indicated that if there were to be a decrease in data centre development, it would resonate throughout the entire supply chain.
Despite the potential challenges posed to wider semiconductor investment, Lefever highlighted an optimistic outlook on the market for AI-enabled smartphones. He described current demand for these devices as “kind of slow” but remarked that it could see a rapid upturn if a “killer app” emerges, generating widespread consumer interest in upgrading their devices. “Everyone is holding their breath, waiting for the killer app with the AI handsets . . . if that happens and people start replacing their phones, it’s going to be crazy,” he added.
Advantest commands a dominant position within the semiconductor testing market, controlling more than half of this sector. The increasing complexity and costs associated with semiconductor manufacturing have resulted in a surge in demand for Advantest's testing equipment. This has significantly boosted the company's share price, which has risen over 80 per cent in the past year and around 500 per cent over the last five years.
Lefever noted that a modern advanced chip may undergo testing by Advantest machines between 10 and 20 times throughout the production process, a marked increase from the single digits five years ago. Consequently, the duration of testing has also expanded, as exemplified by Nvidia's latest Blackwell product, which requires three to four times longer for testing than its predecessor. This positive trend led Advantest to raise its net income target for the 2024 fiscal year by 16 per cent to ¥122 billion ($792 million).
Although Japan’s stature in chip manufacturing has diminished since its peak in the 1980s, Advantest is part of a robust cluster of Japanese semiconductor equipment and materials firms maintaining significant market positions in niche areas of the supply chain. The company operates in 18 countries and still garners 20 to 25 per cent of its revenue from China, despite this percentage having decreased recently. Lefever expressed confidence regarding these figures, stating that the business has not been directly impacted by US sanctions which target China’s capacity to produce advanced technology, as such restrictions generally focus on fabrication capabilities rather than testing machinery.
Lefever emphasized that even if there were to be a complete shutdown of business with China, demand from other global markets would likely offset the loss. Referencing a recent incident where one Chinese company faced sanctions, he remarked, “We thought it could be a year, and it was months. It was remarkable,” underlining the resilience and adaptability of the semiconductor market in the face of geopolitical challenges.
Source: Noah Wire Services