Munich, Beijing The order books at ASML are full: In the second quarter, the chip manufacturers ordered equipment worth 8.5 billion euros from the Dutch machine builder. CEO Peter Wennink said this Wednesday: “A new record. We don’t see any diminishing demand.”
Nevertheless, investors are nervous: on Wednesday morning, the share price in Amsterdam fell by up to four percent at the start of trading. During the course of the day, however, the price rose to its highest value in a month, to almost 490 euros.
The reason for the uncertainty: CEO Wennink halved the sales forecast for 2022. Revenue would only increase by ten percent. Wennink explained: ASML delivers the chip machines to the buyers faster than before in order to serve the high demand. The final inspection now takes place in the factories. Therefore, the sales would be booked later.
Since the beginning of the year, the papers have already fallen by almost a third, which is not only due to the new accounting practice. Rather, ASML threatens to feel the consequences of world politics more and more.
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Europe’s most valuable tech group could be fatal to its success. Because semiconductors are scarce, and chip builders are building more new factories worldwide than ever before. Only ASML masters the so-called EUV lithography, the most advanced production process in the industry.
The downside of being at the forefront of technology: the US and China are increasingly at odds over ASML. A portion of sales could collapse in the long term due to the conflict between the superpowers.
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The US is urging the Netherlands to extend the export ban on high-tech semiconductor manufacturing machines. This is reported by the financial information service Bloomberg. ASML is already not allowed to deliver EUV machines to China that cost up to 160 million euros each. They fall under the Wassenaar Agreement between 42 countries, including the Netherlands. It stipulates that the export of technology with simultaneous military and civilian uses must be approved by the government.
If the USA has its way, the sale of systems with simpler technology, so-called DUV systems, to the People’s Republic will also be prohibited in future. US security advisers have been pushing for some time that America should keep a good two-chip generation lead over China.
Joe Biden’s government is continuing what the previous US President Donald Trump began. In 2018, the Republican intervened with Dutch Prime Minister Mark Rutte to refuse a license to export an EUV machine to Chinese chipmaker SMIC. Trump was apparently successful: the equipment never reached China.
An export ban for DUV machines would hit ASML harder than the EUV ban. New business in China would come to a standstill. In the second quarter that has just ended, the group only achieved ten percent of sales in the People’s Republic with machine sales. In the first quarter it was still 34 percent. Last year, ASML generated 2.7 billion euros in sales in China, which corresponds to 14.5 percent of all sales.
A Chinese foreign ministry spokesman called the US attempt “tech terrorism.” This will make all countries aware of the risk of technological dependency on the US and prompt them to become “independent and self-reliant more quickly”.
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China is the world’s largest buyer of semiconductors. For years, the state and companies have been investing billions in research and development to become less dependent on imports. It is estimated that $170 billion in subsidies has flowed into the industry over the past decade. US sanctions are already preventing the sale of chips to Chinese tech companies such as Huawei, Hikvision, Semiconductor Manufacturing International (SMIC) and ZTE.
China relies on modern machines
In order to catch up technologically, the Chinese chip producers are dependent on access to modern machines. US chip suppliers such as Applied Materials and Lam Research are no longer allowed to sell certain products to SMIC, the largest Chinese manufacturer. Now the requirements for ASML and Nikon from Japan are also to be increased.
The machine builder’s employees are far from able to produce as much as the customers order.
(Photo: via REUTERS)
According to estimates by Bloomberg analysts Masahiro Wakasugi and Brian Moran, ASML’s sales could fall by five to ten percent if sales of the DUV lithography systems are prohibited.
Currently, ASML could still cope with the failure of China. CEO Wennink said: “The demand is significantly greater than our capacities.” ASML has orders of over 33 billion euros on the books. For comparison: For the current year, Wennink expects sales of 20.5 billion euros.
Customers have to wait more than two years
According to market researchers from Trendforce, customers of chip machine manufacturers around the world currently have to wait between 18 and 30 months before they can get the equipment. Before the pandemic, it was three to six months, the experts said. According to Trendforce, the DUV machines, such as those manufactured by ASML, are among the most popular systems.
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Market researcher Counterpoint predicts that chip machine business will grow by almost a fifth to $129 billion this year. Last year, revenues shot up by a third.
How long the good order situation will last is unclear. The world’s largest contract manufacturer TSMC recently announced that it would only spend 40 billion dollars on new machines and plants this year. The Taiwanese had previously promised up to 44 billion.
The fact that the individual world regions are decoupling from each other could also have advantages for ASML, Wennink pointed out: “The technological sovereignty ensures large investments and subsidies.” America, the EU and Japan support the settlement of the chip giants such as Intel, TSMC, Samsung and Global foundries with billions.
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