MS Japan Research: NAND Equipment Shows Signs of Recovery, Pricing Power Diverges

Overview

This report is Morgan Stanley's Japan meeting minutes on the North American semiconductor capital equipment industry. Core conclusion: Overall industry demand remains strong, equipment manufacturers are actively preparing for the >$180 billion Wafer Fabrication Equipment (WFE) market in 2026; Structurally, there is a marginal shift towards optimism on NAND equipment, neutrality on Intel capex, but greater caution on overall industry pricing power and gross margin expansion.

Core views

Divergence between NAND and Intel Capex: Preliminary signs of greenfield investment in NAND outside China have emerged. Kioxia's FY3/27 capex guidance reached ¥450 billion, mostly directed towards equipment. Morgan Stanley believes that driven by cleanroom availability, profitability, and storage capacity (bit) demand, NAND equipment spend is expected to accelerate in 2027. In contrast, Intel's orders (excluding process control) have not turned a corner, its foundry spending will strictly follow customer acquisition progress, and IDM equipment demand has not seen a recovery. Strong DRAM and Advanced Logic Demand: DRAM clients made unprecedented requests for pull-in deliveries and project acceleration, with some plans advancing significantly faster than expected. Momentum in advanced logic processes continues. Although supply chains maintain some caution on growth outlooks for 2027, all equipment manufacturers are preparing for a WFE environment over $180 billion to avoid becoming capacity bottlenecks. Equipment Pricing Power and Gross Margin Outlook: There is divergence in the market view on equipment price hikes. Tokyo Electron (TEL) is confident in increasing pricing, aiming to raise gross margin from the mid-40% range to 50% in FY2028. However, Morgan Stanley believes this is more due to specific factors (such as weak yen and lower gross margin base compared to Applied Materials and Lam Research). Overall, equipment companies receive premiums mainly due to "technological value" rather than "equipment shortages," and cost pass-through is usually the limit of price increases, leading to a reserved stance on overall industry pricing and gross margin expansion. Local Tightness in Mature Processes: Renesas points out that strong demand for memory interfaces and power products for AI is causing tight supply in mature process foundries like 40/28nm, negotiating price hikes with customers. However, given overall capacity utilization remains moderate, IDM firms remain hesitant to immediately substantially increase capex plans.

Analysis framework

Morgan Stanley conducted field research on core Japanese semiconductor equipment and wafer fabs (such as Tokyo Electron, Ebara, Kioxia, Renesas, etc.), employing a "bottom-up" supply chain cross-validation method. By comparing equipment makers' order visibility with wafer fabs' capex guidance and capacity utilization rates, it assesses the prosperity differences across different segments (NAND, DRAM, Advanced Logic, Mature Processes). Additionally, combining financial characteristics of each company (such as gross margin base, exchange rate impact) to strip out common industry trends and company-specific performance allows for an objective assessment of the market focus point of "equipment price hikes."

Methodology notes

• Industry / Industrial Analysis FrameworkUpstream-Midstream-Downstream Transmission within Supply Chain

  Supply Chain Cross-Validation and Order Visibility Analysis

  The research report verifies the real prosperity of different segments of the semiconductor cycle by comparing "accelerated orders/early delivery requests" received by upstream equipment makers (e.g., TEL, Ebara) with "capex guidance/capacity utilization" downstream wafer fabs (e.g., Kioxia, Renesas), avoiding biases from a single perspective.

• Company Fundamentals and Financial FrameworkProfitability Quality Analysis

  Gross Margin Attribution Stripping Specific Factors

  When assessing industry pricing power, the research report did not blindly accept optimistic price hike expectations from a single company (e.g., TEL), but instead compared its gross margin target with peers (AMAT, LAM), introducing exchange rates (weak yen) and base effect attribution to arrive at a more accurate conclusion of "industry-wide price hikes limited."

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Tokyo Electron (TEL)

  Benefits from DRAM client accelerated orders and preliminary signs of non-China NAND greenfield investment.

  Strengths

  Strong position in meeting client urgent demands, actively expanding supply chain.

  Weaknesses

  Gross margin base (mid-40%) lower than US peers, Intel orders have yet to recover.

  Comparison

  Gross margin lower than Applied Materials (AMAT) and Lam Research (LAM) at approx. 50%.

  Risks

  Price hike expectations may stem more from company-specific factors such as weak yen rather than general industry trends.

• Applied Materials (AMAT)

  CMP (Chemical Mechanical Polishing) equipment leader, facing competition from Ebara.

  Strengths

  Well-positioned in CMP intensity improvements driven by advanced packaging and backside power delivery technology, secured orders in advanced packaging areas like TSMC.

  Weaknesses

  CMP market share dropped from 66% in 2021 to 50% in 2025, lost partial market share in China market.

  Comparison

  Compared to Ebara, AMAT has stronger technical barriers in advanced logic and advanced packaging areas.

  Risks

  Although headwinds in the China market have weakened, concerns about share loss remain.

• Lam Research (LAM) / MKS Inc. (MKSI)

  Benefiting from expectations of accelerated NAND equipment spend in 2027.

  Strengths

  Possesses core competitiveness in NAND manufacturing equipment.

  Risks

  Memory manufacturers maintain capital discipline, recent NAND spend may not see substantial rebound.

• KLA Corp (KLAC)

  Process control equipment leader, facing competition from Lasertec.

  Strengths

  Clients willing to evaluate KLA products.

  Comparison

  Lasertec has made significant progress in Actinic detection tools and is gaining customer traction; execution strength is high.

  Risks

  Early shipment of Lasertec A200 HiT system and subsequent potential additional orders may erode KLA's market share.

Key data

• 2026 Global WFE (Wafer Fabrication Equipment) Market Size ForecastOver $180 billionEquipment manufacturers are actively preparing capacity for this market size.
• Kioxia FY3/27 Capex Guidance¥450 billionMost spending will be used for equipment, though total still below 2018/2022 levels.
• Ebara March Quarter Order Amount¥114.6 billionSignificant QoQ increase of 67%, customers ordered in advance to lock annual capacity.
• Tokyo Electron (TEL) Target Gross Margin50%Plan to achieve in FY2028 (improvement starting second half of FY2027), currently at mid-40%.

Impact & implications

The research results indicate that the semiconductor equipment industry has not seen a comprehensive, undifferentiated strong recovery, but rather significant structural divergence. DRAM and advanced logic are the current core drivers, NAND is in the early stage of bottom recovery, and the Intel-related industrial chain still needs to wait for substantive orders. For investors, this means positioning in the equipment sector needs to focus more on targets benefiting from DRAM accelerated orders and advanced packaging/backside power delivery technology evolution, while remaining vigilant about logic relying on Intel capex or blindly betting on industry-wide price hikes.

Risks

• Memory manufacturers (such as NAND vendors) maintaining strict capital discipline may lead to weaker-than-expected NAND equipment spend recovery in 2027.
• Slow customer acquisition progress in Intel foundry business may lead to continued slump in capex at IDM and foundry levels.
• Mature process capacity utilization remains moderate, IDM firms may postpone relevant capex plans.

What to watch

• Track the actual landing progress of non-China NAND greenfield investment and conversion into equipment orders.
• Watch when Intel equipment orders outside process control show a substantive turning point.
• Observe gross margin improvement and price hike execution by vendors like Tokyo Electron (TEL) in the second half of FY2027.
• Track customer R&D/evaluation results and 2027 order additions following shipments of Lasertec ACTIS A200 HiT system.