Intensifying Foundry Competition, Strong Testing Demand

Overview

This Morgan Stanley meeting minutes shares key insights gained from the semiconductor industry conference in Taiwan, mainly focusing on the semiconductor capital equipment industry. The report takes a more positive attitude towards the trend of expanding foundry spending and Teradyne's network testing demand, while pointing out that the revival of Intel and Samsung in the foundry sector is reshaping the industry competitive landscape.

Core views

The core view of the report is that the semiconductor foundry competitive landscape is becoming more dynamic. The recovery of Intel and Samsung, combined with unprecedented demand, is creating ripple effects among the top three leading foundries and OSAT (outsourced semiconductor assembly and test). In foundry terms, Intel EMIB (Embedded Multi-Die Interconnect Bridge) progress far exceeds its foundry business. EMIB demand is extremely strong, coming from clients like MediaTek, Trainium seeking TSMC alternatives. Regarding Intel foundry, Apple seems to be the only high-profile client, possibly using A-series chips for HVM (High Volume Manufacturing) in 2029. Intel might also receive orders related to Nvidia game chips, possibly receiving Tesla AI6 orders before TeraFab goes into production. Intel 18A process yield is about 50%, striving to improve. Samsung foundry business is also active and good, Google may use Samsung CPU in 2028 HVM phase. However, Samsung faces the challenge that almost all US clients hope to shift to Taylor facility, where capacity is still under development. Regarding the testing environment, the overall testing environment remains very strong, demand continues to exceed supply. Teradyne initial orders related to Nvidia GPU testing target Rubin chip probing; the company now tests most applications beyond Nvidia GPU FT, including Mellanox, RTX, Vera CPU, and LPU/Groq. As Teradyne gradually obtains RTX, LPU, and chip probing work, its share with Nvidia is unlikely to change meaningfully due to Rubin Ultra or Feynman.

Analysis framework

The report is based on firsthand observations and interviews from the semiconductor industry conference held in Taiwan, adopting on-site research methods to collect the latest industry dynamics. Analysis primarily revolves around foundry competitive landscape, test equipment demand, and specific manufacturer business progress, assessing industry development trends by comparing foundry business development of Intel, Samsung, and TSMC, and market share changes of test equipment manufacturers in different application scenarios. In test equipment analysis, the report specifically focused on the allocation of different insertion stages for CPO (Co-Packaged Optical) testing, and the impact of GPU testing time changes on equipment demand, supporting judgments on test equipment manufacturers' business prospects through these specific technical details.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Semiconductor Test Equipment Supply and Demand Analysis

  The report analyzes the situation where test equipment demand continuously exceeds supply, applies the supply-demand framework to judge the impact of the testing stage as a bottleneck on equipment manufacturers, which helps understand the business prospects and pricing power of test equipment manufacturers.

• Competition and Strategy FrameworkPorter's five forces

  Foundry Industry Competitive Landscape Analysis

  The report analyzes the competitive dynamics of Intel, Samsung, and TSMC in the foundry field, applies the competitive analysis framework to evaluate changes in industry competition intensity and the challenge posed by new entrants (Intel, Samsung) to existing leaders (TSMC).

Asset mapping & comparison

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

• Teradyne Inc (TER.O)

  Benefiting from strong network testing demand and testing stage bottleneck

  Strengths

  Stable testing share in multiple Nvidia application areas, strong demand for Mellanox-related testing

  Weaknesses

  Uncertainty remains in share allocation for CPO testing

  Comparison

  Compared with Advantest, each has focus on different CPO testing insertion stages

  Risks

  Changes in testing time and technology routes may affect demand

Key data

• Intel 18A Process YieldApproximately 50%Striving to improve
• GPU Testing Time ChangeIncreased from 850 seconds to 1200 secondsTesting time increase from Blackwell to Rubin

Impact & implications

The report believes that the expansion of foundry spending and continued strong testing demand constitute a positive for the semiconductor capital equipment industry. Positive progress by Intel and Samsung in the foundry sector may change the current foundry market landscape, creating new opportunities for equipment suppliers. The status of the testing stage as a bottleneck means that test equipment manufacturers, especially leading companies like Teradyne, may continue to benefit from the strong demand environment.

What to watch

• Final allocation result of CPO testing insertion stages
• Progress in customer acquisition for Intel and Samsung foundry businesses
• Changes in testing time and technical requirements
• Changes in testing demand in China, Tesla, and other areas