Jefferies sees supply constraints driving semiconductor sector

Investing.com -- Jefferies wrapped up its annual Semiconductor Conference on Thursday, with nearly 100 companies from the semiconductor and hardware sector attending. The firm said management teams across compute, analog, semi-cap, optical, and memory segments delivered positive messaging about business fundamentals.

Optical component makers provided strong updates at the conference. Coherent Corp. (NYSE: COHR) said demand for its products was extraordinary and expects demand to exceed supply for at least 12 to 18 months. The company indicated it may need to expand capacity beyond its existing plans to increase production four times.

Shipments of 1.6T transceivers are now expected to reach 100 million units in calendar year 2027, while demand for 800G products remains strong. Several companies said meaningful adoption of co-packaged optics has shifted to the second half of calendar year 2028 at the earliest and could move to 2029 or 2030 due to testing, reliability, supply-chain, and standardization issues.

The delay is creating opportunities for near-package optics, with multiple hyperscalers, switch vendors, and XPU providers developing their own architectures instead of waiting for standardized CPO solutions. Coherent said the optical-content opportunity in NPO is comparable to CPO.

For compute companies, supply rather than demand is becoming the main constraint. Nvidia Corp. (NASDAQ: NVDA) has moved to secure substrates, DRAM, and other critical inputs. Advanced Micro Devices Inc. (NASDAQ: AMD) locked in substrate capacity during the pandemic and expects potential year-over-year growth in both units and average selling prices tied to the release of Venice on N2 process technology.

Intel Corp. (NASDAQ: INTC) faces substrate constraints but said Clearwater Forest demand is tracking ahead of expectations and Granite Rapids is supporting better ASPs despite having fewer cores than competing products.

Data center demand continues to drive recovery in the analog segment. Auto commentary showed modest improvement, particularly in China and electric vehicle applications, but Tier 1 inventories remain low with limited signs of restocking.

On memory, Nvidia is reportedly evaluating 8-Hi HBM4E, 12-Hi HBM4, and 8-Hi HBM4 alternatives to Rubin Ultra's original 12-Hi HBM4E specification. Jefferies said selected moves from 12-Hi to 8-Hi are primarily a way to stretch a constrained die pool and increase accelerator shipments.

The test segment showed positive trends, with wafer-level burn-in adoption continuing to build. Aehr Test Systems (NASDAQ: AEHR) is growing its backlog, while Cohu Inc. (NASDAQ: COHU) tracks its funnel by program rather than by account.

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