■ Summary: We carried out our regular survey of the Asia tech markets in early November, and once again COVID-19 prevented us from visiting China, South Korea, or Taiwan. Key takeaways included excessive demand forecasts based on Chinese smartphone makers’ bullish production plans and resultant full capacity utilization at Taiwanese and South Korean foundries’ 200mm and 300mm lines. We also saw waning risk of falling DRAM prices, and new enquiries equal to 1.5–2.0x assembly and package equipment companies’ output capacity to meet demand or reconfigure supply chains, notwithstanding the risk of duplicate orders. There is a considerable discrepancy between these trends and real demand, and we think that they all face a significant correction risk following Chinese New Year through 2Q 2021. We forecast strong semiconductor capex through 1H 2021 on front-loading by local Chinese firms amid intensifying US-China trade friction and investment in cutting-edge processes by South Korean and Taiwanese foundries. We are more downbeat than before on memory investment, and reiterate our forecast for negative WFE market growth overall in 2021.

■ New takeaways from feedback survey: See main text (pp. 6–7). Of particular note are (1) emerging risk of delays to Intel’s new Ice Lake and Sapphire Rapids server CPUs, (2) just modest 2021 demand recovery from hyperscalers and Chinese data centers, (3) YMTC becoming increasingly prominent among Chinese hardware manufacturers, (4) excessive assembly and package equipment related enquiries, and (5) there are already increased enquiries aimed at building a supply chain for Honor in the back-end SPE market.

■ Investment implications: We think there will be few negative data points for the overall supply chain until Chinese New Year. We thus think that the stock market will keep focusing on production forecasts and procurement trends at individual companies rather than real final demand. We previously expected the market to start factoring in the risk of falling memory prices in Jan–Mar around December, but DRAM prices have turned upward on excessive procurement by Chinese smartphone makers. In the short term, we expect trends to remain strong for front- and back-end SPE makers across the board amid investment in expanding cutting-edge processes by logic and foundry companies and excessive demand from assembly and package equipment makers. In particular, conditions appear ripe for back-end SPE companies to beat FY3/21 guidance, so expectations are likely to mount heading into 3Q results. However, we expect the downturn risk for the supply chain overall to become reality following Chinese New Year (12 February 2021) and trigger share price corrections. We see no reason to revisit our bearish stance for the SPE sector based on fundamentals. At the individual stock level, numerous new models by Chinese smartphone makers and an increase in potential new customers due to the sale of the Honor brand means the environment for Anritsu (6754) is better than we expected. We retain our OUTPERFORM rating. There are signs that automotive semiconductors are starting to overheat, but demand is partly to replenish channel inventories following falls. We maintain our OUTPERFORM rating on Renesas Electronics (6723) as we think the upswing in auto semiconductor sales will continue going into Jan–Mar 2021. Demand is likely to stay strong for the semiconductor materials sector in 4Q 2020, but we expect a steep slowdown once it starts to wane after Chinese New Year, and maintain our neutral view.