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ASML outlook undimmed despite 'mixed signals' from chip makers

19 Apr 2023

Customers adapt to market pressures but demand for lithography equipment continues to exceed ASML's capacity.

Semiconductor lithography equipment firm ASML has posted sales of €6.7 billion for the opening quarter of 2023 - and says that its outlook for the rest of this year is unchanged, despite adjustments by chip-manufacturing customers.

That sales total exceeded the range of €6.1 billion-€6.5 billion outlined previously, and was close to double the figure of €3.5 billion recorded in the same period last year.

CEO Peter Wennink attributed the firm’s higher-than-expected sales and profit margin to faster installations and earlier acceptance of both extreme ultraviolet (EUV) and deep ultraviolet (DUV) lithography systems, as requested by some of ASML’s key customers.

“We continue to see mixed signals on demand from the different end-market segments as the industry works to bring inventory to more healthy levels,” Wennink added, reflecting a near-50 per cent decline in quarterly bookings year-on-year, to €3.8 billion.

“Some major customers are making further adjustments to demand timing while we also see other customers absorbing this demand change, particularly in DUV at more mature nodes.”

Despite that slowdown, system orders have been so strong in recent quarters that existing bookings still easily exceed ASML’s annual production capacity, with the company boasting a backlog close to €39 billion.

“Our focus continues to be on maximizing system output,” observed the CEO.

EV transition in China
Discussing the latest results with investors, Wennink stressed that 2023 would still end up being a year of very strong sales growth, up around 25 per cent on the already record-breaking 2022 figure of €21.2 billion.

“While it's clearly an uncertain environment, demand continues to exceed supply,” he said.

Aside from the effects of high inflation and interest rates, leading to weaker consumer demand, ASML is still waiting for the Netherlands government to issue new guidance regarding export controls to China.

However, any impact from that decision on this year’s sales figures is expected to be minor. And with Wennink anticipating a short and shallow recession, the longer-term demand picture also looks healthy.

That is partly because of the sheer breadth of applications driving semiconductor uptake. On one hand a small number of leading chip makers are continuing to invest in next-generation lithography required for the most technologically advanced devices.

On the other, the proliferation of electronic devices needed inside major applications like electric vehicles (EVs) is pushing demand for a sharp increase in the production of more mature semiconductor devices with older lithography tools.

This is especially true in China, where the EV market is expected to take off over the next few years, and ASML is still allowed to sell its less cutting-edge equipment.

“Expansion plans for the EV transition and new communications networks [in China] is driving demand in the mature and medium-critical [technology] domain,” the CEO told investors.

“Lots of end products are emerging, but the semiconductor infrastructure is still being built. [Many are] underestimating the end demand for these mature applications, but [to me] it looks very sustainable. The end markets are there.”

• Following the latest update ASML’s stock price dropped in value by around 3 per cent, likely reflecting investor fears that the order push-outs seen in the latest quarter may dent demand beyond 2023.

Currently trading at around $620 on the Nasdaq, ASML’s stock is up nearly 50 per cent from the lows reached in September 2022, and equivalent to a market capitalization in excess of $250 billion.

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