AI Phones Could Support Chip Sector if Data Centre Spending Slows, Says Nvidia Supplier

Doug Lefever, the CEO of Advantest, the world’s largest provider of chip testing machines, commented that demand for artificial intelligence (AI)-enabled smartphones could help protect parts of the semiconductor industry from a potential downturn. This is especially relevant if investment in data centers slows down. He noted that major tech companies like Meta, Google, and Microsoft have been significant investors in data centers that provide vast amounts of computing power. Lefever expressed concern about any signs of reduced spending on AI by these large U.S. tech groups, which could impact the semiconductor industry.

Doug Lefever, CEO of Advantest, expressed concerns about a potential slowdown in data center investments, noting that any reduction in spending by hyperscalers could have significant ripple effects across the semiconductor supply chain. While he did not use the term "bubble," Lefever warned of possible cyclical downturns, predicting that the next cycle could be quite severe.On the other hand, Lefever pointed to the potential for a surge in demand for AI-enabled smartphones. Although demand is currently slow, he believes that if a "killer app" for AI handsets emerges, it could spark a rapid increase in sales as consumers replace their phones, leading to significant market growth.

Advantest, a Tokyo-based company and key supplier of testing equipment for Nvidia's high-end GPUs, has seen significant growth due to the surging demand for semiconductors. The company controls over half of the semiconductor testing market, benefiting from the increasing complexity and cost of chips. Its dominance in the sector has contributed to a dramatic rise in its stock price, which has surged more than 80% in the past year and around 500% over the past five years. A recent dip in December, however, was linked to concerns over potential tougher policies from incoming President Donald Trump regarding China.Although Japan has lost its dominant position in chip production since the 1980s, Advantest remains part of a group of Japanese semiconductor equipment and materials companies that hold dominant market shares in critical, niche areas of the supply chain. These companies continue to play a vital role in the global semiconductor industry by providing essential testing and materials services, despite the shift in production leadership to other countries.

Advantest has seen significant growth in demand for its testing machines as semiconductor technology has advanced. A completed advanced chip is now tested between 10 and 20 times during the production process, a substantial increase from just a few years ago when testing occurred in single digits. The testing times for newer products, such as Nvidia's Blackwell chip, have also increased, taking three to four times longer than previous generations. This growth in demand and the complexity of testing led Advantest to raise its net income target for the 2024 fiscal year by 16%, projecting ¥122 billion ($792 million).The demand for Advantest's testing machines, which can cost around $1 million and contain more parts than a commercial aircraft, is expected to remain strong. The company has focused on higher-end performance testing and holds over 60% market share in certain categories, making it a dominant player in the semiconductor testing market. Despite a recent decline, China still accounts for 20 to 25% of Advantest's revenues, a figure that CEO Doug Lefever says he is comfortable with. The company's global presence spans 18 countries, reflecting its significant role in the semiconductor industry.

Advantest has not been directly affected by U.S. sanctions aimed at limiting China's ability to produce advanced technology, as these restrictions primarily target chip fabrication rather than testing equipment. Even if China were completely cut off from the global supply chain, CEO Doug Lefever believes that demand from other markets would be sufficient to compensate for any losses. When a major Chinese customer was recently impacted by sanctions, Advantest quickly made up for the lost sales through other clients, with Lefever noting that the recovery was much faster than anticipated, taking only months instead of a year.