Semiconductor Equipment & Materials covers the tools, test systems and specialty materials chipmakers use to build chips. MoatScope covers 26 companies here. Four have a wide moat, 13 a narrow moat and nine none.
How the industry makes money
Equipment makers earn when chipmakers build or upgrade factories, then keep earning on service, spare parts and upgrades across the installed base. Materials suppliers earn on every wafer that runs through a fab. A few large chipmakers account for much of the industry's demand.
Where the moats are
Switching costs appear in 16 of the 17 moat-rated companies: once a tool is qualified into a chipmaker's process, replacing it risks yields on production lines worth billions. Intangible assets appear in 13 and efficient scale in eight, since each manufacturing step supports only a few suppliers.
- ASML: the photolithography systems fabs use to print circuit patterns, and the sole producer of the most advanced lithography tools.
- Applied Materials: the largest and most diversified maker of wafer-fabrication equipment, across deposition, etch and ion implant.
- Lam Research: etch and deposition systems for building chips' three-dimensional structures.
- KLA: the dominant maker of inspection and metrology equipment that catches defects during manufacturing.
The narrow-moat group includes Teradyne, Qnity Electronics, Entegris, MKS, Onto Innovation, FormFactor and Kulicke & Soffa. Companies without a moat include Ultra Clean, AXT and Aehr Test Systems.
What wears moats down
Orders follow chipmakers' spending cycles, which can swing sharply. Customer concentration gives the largest buyers bargaining power, export controls limit sales to some markets, and each new manufacturing technology reopens the contest for the next generation of tools.
What the quality scores say
The four wide-moat companies score between 84 and 86 on MoatScope's quality scale, and the industry averages 50.
What to watch
- Chipmakers' capital spending plans.
- Export controls and sales to China.
- Service and upgrade revenue from the installed base.
Moat ratings and quality scores on this page update as companies report. Price versus fair value for every company in the industry is in the screener.