The Dutch lithography equipment supplier looks like it'll be very busy in the second half of 2024.
July 2, 2024
ASML (Nasdaq: ASML), the Dutch lithography equipment maker, has had a rough start to 2024.
It reported in its first quarter results that revenues had fallen 22% to 5.3 billion Euro ($5.9b USD). That on the surface sounds pretty bad.
But it’s also reflective of the slowdown we’ve seen across much of the semiconductor industry this year. Nearly all of the chipmaking Big Boys are feeling the sting of lighter capital budgets in our higher interest rate environment.
ASML’s revenues have grown at an average of 11.7% annually over the past twenty years. Though that growth tends to be cyclical. Before the 22% drop in this year’s Q1, its overall sales fell (8%) during its previous fiscal year 2024.
ASML’s Revenues. Source: FinChat.io
That mirrors a similar drop of another fab equipment supplier, Applied Materials (Nasdaq: AMAT). Applied’s system sales similarly fell in fiscal 2024 as well.
Applied Materials’ System Sales. Source: FinChat.io
And downstream of the process, Taiwan Semiconductor (NYSE: TSM) — who is one of the world’s largest semiconductor manufacturers who buys equipment from ASML and Applied Materials — is also seeing a slowdown in its business. Its total wafer revenue, i.e. the sales it derives from designers for making their chips, has been in a similar lull as well.
Yet even with the semiconductor industry’s lackluster recent sales numbers, I’m actually quite optimistic for ASML in particular this year. And the source of hope comes unexpectedly from a white knight named Intel.
Intel has faced its own set of challenges in recent years. It was aggressively losing market share in the important data center market to NVIDIA’s GPUs and to AMD’s GPUs.
Yet to offset its losses in this cutthroat data center server race, Intel has been investing significantly to build out its Foundry division.
Intel used to use its fabs exclusively to manufacture its own Intel chips. But it now offers its manufacturing services to others, who are happy to let Intel pay for the hefty equipment costs and then hire this America-based supplier to produce their own proprietary chips.
And some of the most expensive parts of building new fabs is lithography equipment. Which Intel is now buying massive amounts of, directly from ASML.
In the previous fourth quarter of 2023, ASML booked an all-time company record of 9.2 billion Euro ($9.9b USD). That was more than double the bookings it received in any other quarter of the year.
60% of those Q4 bookings — around 5.6 billion Euro ($6b USD) — were for ASML’s cutting edge and very expensive extreme ultraviolet system (EUV).
Source: ASML Q4 2023 Earnings Report
Let’s follow the crumb trail of clues a bit deeper down the rabbit hole.
The boost in the 4Q bookings are widely reported to be Intel going all-in and ordering six of ASML’s newest Twinscan EXE:5000 High-NA EUV lithography machines. These are the industry’s most innovative and highest-output EUV machines; capable of producing cutting edge chips and at high production output.
Six machines might not sound like a lot at first glance. But remember that each of these has hundreds of thousands of components, takes several months to assemble, and is priced at 354 million Euro ($380 million USD) apiece.
So six of the latest-and-greatest Twinscans will cost Intel 2.1 billion Euro ($2.3b USD) on its capital expenditures budget this year.
That’s a massive investment. Why is Intel loading up on so many new lithography machines right now?
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