Semiconductor Equipment Giant ASML’s Order Book Expected To Benefit From AI Chip Boom

Amjad Ali July 16, 2024

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ASML dominates the global market for lithography systems, complex tools that use lasers to help create the tiny circuitry of semiconductors. It is the only maker of lithography systems using extreme ultraviolet (EUV) wavelengths, needed by TSMC to make the most complex processors for smartphones and AI chips.

Christophe Fouquet took over as president and chief executive of Dutch semiconductor equipment maker ASML on April 25, 2024. Photo: Reuters

“We expect ASML’s order received value to reach close to 5 billion euros [US$5.4 billion] in the second quarter, higher than consensus estimates,” Mihuzo analyst Kevin Wang said, with strong orders from TSMC of ASML’s EUV product line.

The results are the first under ASML’s new chief executive Christophe Fouquet, who took over the reins at Europe’s biggest tech firm as it navigates the ongoing US-China fight over chips.

ASML, worth about 400 billion euros, has described 2024 as a “transition” year when business will be flat before rebounding strongly in 2025, driven by demand for its most advanced tools.

Shares in the group have risen 45 per cent this year and are trading near record highs above 1,000 euros each, about 40 times forecast 12-month forward earnings, significantly higher than the STOXX Europe 600 tech index.

A growing order book would reassure investors that demand for ASML’s most advanced products is returning, following a weak first half of 2024, in which the company relied heavily on orders of older equipment from China.

Analysts are expecting second-quarter net income of 1.41 billion euros on revenue of 6.04 billion euros, according to the mean estimate from 16 analysts, based on London Stock Exchange Group data.

That compares with net income of 1.94 billion euros on revenue of 6.90 billion euros in the same period a year ago.

ASML engineers walk past a an extreme ultraviolet lithography system at the company’s headquarters in Veldhoven, the Netherlands, on November 20, 2023. Photo: Reuters

ASML had a 38-billion-euro order backlog at the end of the first quarter. That means it needs new orders of 4 billion euros to 6 billion euros each quarter to meet its forecast of 2025 sales at the upper end of a 30-billion-euro to 40-billion-euro range.

The company’s machines, which cost up to US$300 million each, have delivery lead times of 12 to 18 months, and orders are closely coordinated with customers including Samsung Electronics, Intel, and memory chip specialists SK Hynix and Micron Technology.

For slightly older generations of chip-making technology, ASML competes with Canon and Nikon of Japan. Chinese firms including Shanghai Micro Electronics Equipment are attempting to develop competing lithography tools.

But Chinese chip makers, who are prevented by US-led export restrictions from obtaining ASML’s best tools, have escalated their purchases of older ASML equipment in the past year, representing nearly half of company sales in the first quarter.

China’s rapid increase means lost market share and more competition for non-Chinese firms. The European Commission has begun polling European semiconductor industry firms on whether they feel Chinese state subsidies are distorting markets.

ASML argues that world needs older chips, as was shown by shortages during the Covid-19 pandemic, and China is stepping in to supply them.

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Amjad Ali July 16, 2024

0 0 2 minutes read