KUALA LUMPUR: US-based Lam Research Corporation, a leading provider of wafer fabrication equipment (WFE), which made Malaysia a manufacturing centre of excellence, plans to add further capacity which could see UWC, Fronken Corporation, Greatech and Pentamaster as among the beneficiaries, according to an analyst report.
Maybank Investment Bank Research said on Monday the company had recognised the tremendous long-term growth potential of semiconductor opportunities in Asia and it was stepping up the localisation and also upskilling the local supply chain.
Its Batu Kawan plant in Penang state began production in May this year and it should achieve US$3bil of output by mid-2022.
Lam Research a leading manufacturer of WFE equipment which are primarily used in deposition, etch and cleaning. Lam is based in California and was founded in 1980.
Lam’s manufacturing facilities span across the US, Austria, South Korea, Taiwan and Malaysia. Lam’s closest competitors include Applied Materials and Tokyo Electron.
According to the Semiconductor Equipment Manufacturers Industry (SEMI) expects 29 high volume fabs to break ground by 2022 (2021: 19, 2022: 10), which will spur equipment spend above US$140bil in the coming years, and should begin in earnest in 2023.
“Of this, 20 fabs will be in Asia. Lam needs to localise and aid in upskilling of the local supply chain as this is a critical success factor to satisfy customers’ demand (that is scalability, timeliness and quality), ” according to Maybank Research, which attended Lam Research’s briefing.
Upon adding further capacity, Lam Research’s Malaysia footprint will account for 37% of its enlarged 342, 100 sf of manufacturing space globally.
“Asia manufacturing space will account for two-thirds of global. From a revenue perspective, Asia is expected to contribute US$8bil of output by mid-2022.
“Lam expects material spend run-rate in Malaysia to grow from US$250mil to US$850mil by 2023. Further, we believe suppliers that can serve Lam well may have opportunities to grow beyond serving Lam in Malaysia, but across Asia, ” it said.
Maybank Research said Lam’s Asia expansion and push for localisation could create interesting growth opportunities for some Singapore and Malaysia-listed suppliers in the coming years.
“In our universe, we believe UMS/ Frencken/ Venture may be a good fit for Lam (i.e. either currently already a supplier/ may have the potential to do so in the future). Among non-rated names, we do not rule out that JEP (UMS’ subsidiary), Grand Venture Technology and UWC may have opportunities to supply Lam in some way, ” it said.
It also said UMS, Frencken and Venture are potential winners because they already have exposure in WFE precision engineering and/or assembly.
“These companies also have a strong track record serving blue-chip customers, which is important from the perspective of operational excellence, as well as ESG factors (e.g. safe working practices).
Despite rising capital intensity and increased capex discipline, the fact remains that the WFE industry is cyclical.
“We believe successful penetration/ wallet share expansion with Lam could help suppliers cushion negative cyclicality, depending on the timing and size of opportunity secured.
“As successful localisation appears a key priority for Lam to drive its Asia expansion, we believe this is just the beginning of Lam’s supply chain buildout in Malaysia and across this region, ” it said.
Maybank Research said UWC, Fronken Corporation, Greatech and Pentamaster among the companies which could benefit from this strategy.
Other companies are UMS and JEP which are listed in Singapore and have operations in Penang and Singapore. Frencken, which is Singapore listed, has operations in Bangi, Selangor and Singapore while Venture has operation in Penng, Johor and Singapore.
Grand Venture Technology which operates in Penang and Singapore is another potential beneficiary.
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