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Demand for artificial intelligence-enabled smartphones could help to protect parts of the semiconductor industry from a “vicious” downturn if investment in data centres slows, said the chief executive of the world’s largest provider of chip testing machines.
Doug Lefever, who leads Nvidia supplier Advantest, said he was watching for any sign of slower spending on AI by big US tech groups. Meta, Google and Microsoft have been heavy investors in data centres that can deliver massive amounts of computing power.
A fall-off “may not last long and then it may go right back up, but because of the concentration [of hyperscalers] right now in the market, any slowdown in the data centre buildout is going to have big reverberations in the supply chain”, said Lefever.
“I don’t like to use the word bubble because it implies that it’s going to go away, but there will be cycles,” he said. “When that next cycle comes . . . it could be pretty vicious.”
In contrast, demand for AI smartphones was “kind of slow” but could take off rapidly, Lefever said.
“Everyone is holding their breath, waiting for the killer app with the AI handsets . . . if that happens and people start replacing their phones, it’s going to be crazy,” he said.
Tokyo-based Advantest, a key supplier of testing equipment for Nvidia’s high-end graphics processing units, is one of the companies to benefit most from the rapid rise in demand for semiconductors.
The company controls more than half of the semiconductor testing market, and demand for its services has skyrocketed as chips have become more advanced and expensive.
That dominance has lifted its share price by more than 80 per cent over the past year and about 500 per cent over a five-year period, with a recent dip in December attributed to fears that incoming president Donald Trump would get tougher on China.
While Japan has lost its leading position from the 1980s in chip production, Advantest is part of a cluster of Japanese semiconductor equipment and materials companies that hold dominant market positions in niche yet indispensable parts of the supply chain.
A completed advanced chip might now be tested by Advantest machines between 10 and 20 times, according to Lefever, from when the wafer is cut to the assembly of the finished product. Five years ago, that figure was in single digits.
Testing times have also been extended, with Nvidia’s latest Blackwell product taking three or four times longer to test than the previous generation. This gave Advantest the confidence in October to raise its net income target for the 2024 fiscal year by 16 per cent to ¥122bn ($792mn).
The trend of increasing demand for Advantest machines — which can cost $1mn and have more parts than a commercial aircraft — is unlikely to abate soon. It has focused on higher-end performance testing and in some categories has over 60 per cent market share, according to analysts.
The company is in 18 countries but still draws between 20 and 25 per cent of revenues from China, a level that has fallen recently but with which Lefever says he is comfortable.
It has not been directly targeted by US restrictions to curtail China’s ability to produce advanced technology, in part because sanctions tend to target the ability to fabricate the chips themselves.
Even if China were completely closed off, Lefever expected demand to be healthy enough elsewhere to compensate. When one big company in China was hit by sanctions recently, the lost sales were quickly compensated for by other customers, he said.
“We thought it could be a year, and it was months,” he said. “It was remarkable.”
