In the current context where Global investment in Datacenters may experience a slowdown, the Semiconductors Industry is facing new challenges.

However, $NVIDIA (NVDA.US)$Supplier, leader in Global Chip Testing Equipment.$Advantest (6857.JP)$Doug Lefever, CEO of Advantest, stated on December 26 that the demand for AI Smart Phones could potentially bring new growth points for the Semiconductors Industry, helping the industry avoid falling into a "malicious" recession.

Lefever pointed out that although large Technology companies such as$Meta Platforms (META.US)$、$Alphabet-A (GOOGL.US)$and$Microsoft (MSFT.US)$Investment in the AI sector remains strong, but there may be signs of a slowdown in investment in Datacenters. Although this slowdown may not last long, any deceleration could have a significant impact on the Semiconductors Industry Chain due to the high market concentration of large-scale Datacenters. Lefever emphasized that while reluctant to use the term "bubble," cyclical fluctuations may intensify, and if the next cycle arrives, it could be quite severe.

Despite the uncertainty surrounding Datacenter investments, Lefever has an optimistic outlook on the future of AI Smart Phones. He believes that although the demand for AI Smart Phones is currently "a bit slow", it could rapidly take off in the future. He explained:

"Everyone is holding their breath, waiting for the killer application of AI phones to emerge. If such an application is born and users begin to replace their phones on a large scale, the market will witness explosive growth."

Currently, the demand for AI phones is not large.

The competition for AI phones has already begun on a Global scale. On Wednesday, Samsung launched three new phones equipped with AI features: the S24, S24 Plus, and S24 Ultra. These phones come with a range of AI capabilities, including real-time phone translation, voice recording transcription, video search, and photo editing. The prices for these new models in the USA range from $800 to $1300. Samsung is boldly experimenting in the AI Smart Phone sector, aiming to reactivate the Smart Phone market and differentiate itself from Apple.

Apart from Samsung, Google is also developing local AI technology for its Pixel series, while domestic manufacturers like Honor, OPPO, and Xiaomi are actively launching Smart Phones equipped with AI technology. According to market research Institutions Canalys, AI features will become an important selling point for future Smart Phones, with 5% of Smart Phone shipments this year expected to have AI functionality, reaching 0.635 billion units by 2027, accounting for 45% of the total Smart Phone market.

Although AI phones have sparked heated discussions in the industry, some Analysts are cautious about whether AI features can drive large-scale upgrades. Some Analysts point out that most Smart Phones already contain certain AI functionalities, and Samsung's newly launched features may not be enough to drive a large-scale replacement trend.

Park Kang-ho, an Analyst at Daxin Securities, believes that existing AI features may not be sufficient to stimulate consumers to replace their phones on a large scale. However, if AI phones can achieve deeper interconnection with other smart devices (such as Autos, home appliances, computers, etc.), it may trigger broader IT device demand, thus driving overall market growth.

Advantest benefits from the surge in Semiconductors demand.

Public information shows that Advantest is headquartered in Tokyo, Japan, and is one of the world's leading manufacturers of Semiconductors testing equipment, playing a key role especially in providing high-end graphics processing unit (GPU) testing equipment for companies like NVIDIA. As Semiconductors technology continues to advance, the demand for testing equipment has surged. Lefever emphasizes that as chips become more complex and expensive, the market demand for their services is also experiencing explosive growth.

In recent years, Advantest has performed remarkably, with its stock price increasing by over 80% in the past year, and around a 500% growth over five years. This significant increase reflects the high recognition of the company's dominant position in the Semiconductors testing field.

Although Japan has lost its leading position in global chip production since the 1980s, Japanese manufacturers of Semiconductors testing equipment and materials, such as Advantest, still occupy a critical position in the Global Semiconductors supply chain. While these companies operate in relatively specialized niche markets, their products and services are crucial for the smooth operation of the Global Industry Chain.

Lefever points out that in the production process of modern advanced chips, each chip needs to undergo multiple tests, usually requiring at least 10 to 20 tests during the process from wafer cutting to finished product assembly. Five years ago, this number was typically in single digits. This trend highlights the increasing importance of chip quality control and drives surging demand for testing equipment.

In addition, the extension of testing time is also an important factor driving performance growth. For example, NVIDIA's latest Blackwell product has a testing time that is 3 to 4 times longer than that of the previous generation. This change indicates that chips have become more complex during the design and production processes, requiring longer periods for precise testing.

Benefiting from the surge in semiconductor demand, Advantest's performance outlook for fiscal year 2024 has also been significantly upgraded. The company expects net income for fiscal year 2024 to grow by 16%, reaching 122 billion yen (approximately 0.792 billion USD). Lefever stated, "We are confident about future demand, particularly in the AI-related fields, as technological breakthroughs continue, the semiconductor testing equipment market will continue to grow."

Editor/ping