ASML Sees Rising Demand After Earnings Hit by Supply Snags

(Bloomberg) -- ASML Holding NV signaled plans to raise its forecast later this year as demand for its chip-making machines outstrips supply.

“In light of the demand and our plans to increase capacity, we expect to revisit our scenarios for 2025 and growth opportunities beyond,” Chief Executive Officer Peter Wennink said. “We plan to communicate updates in the second half of the year.”

ASML shares gained as much as 8% on Wednesday in Amsterdam. 

Analysts asked ASML executives on an earnings call about whether demand for chips is falling due to weakening global macroeconomic conditions, but Wennink said he hasn’t seen any sign that demand for his company’s equipment is tapering off. The Dutch company is only able to fulfill about 60% of the orders for its mature deep ultraviolet lithography systems this year, he said.

“The demand we are currently seeing comes from so many places in the industry,” Wennink said. “It’s so widespread. We have significantly underestimated the width of the demand. That, I don’t think, is going to go away.”

Wennink said a large industrial conglomerate told him last week that it was buying washing machines to tear out chips and use those components to build its modules, and incidents like this are happening “everywhere.” He added that a major Chinese customer also told ASML that it has sold out all of its capacity throughout 2023.

The optimism for ASML, the world’s largest semiconductor equipment maker, was tempered after sales forecasts for the second quarter fell short of analysts’ expectations as the company’s decision to delay testing its machines to speed up deliveries once again hit earnings.

In the second quarter, 800 million euros of net delayed revenue was excluded from the company’s guidance, according to Chief Financial Officer Roger Dassen. “That is the result of the fact that we expect more fast shipments at the end of Q2 than we had at the end of Q1.”

Dassen also cited the increase in labor, component, freight and energy prices. “If I were to quantify that, I think all in all we might be looking this year about a 1% incremental impact on the gross margin,” he said.

Inflationary pressures are growing amid a rise in service fees to secure parts that are in short supply and very high demand, a jump in freight costs on changing shipping corridors and fuel prices and “very strong” competition in labor markets in Asia and Silicon Valley, according to Dassen. 

Last week, ASML’s major customer, Taiwan Semiconductor Manufacturing Co., said its suppliers are facing challenges including a constraint in labor and chips, which has led to a longer delivery time for tools. The Taiwanese chipmaker said it’s working closely with suppliers to resolve the issues. 

ASML has cornered the market for the latest advanced extreme ultraviolet lithography equipment needed to make cutting-edge chips that are faster and more efficient. 

However, the company began skipping some final testing in its factories last year to speed up delivery. This meant clients get their machines more quickly, but ASML had to delay about 2 billion euros worth of sales that were expected to ship in the first quarter.

ASML’s customers include Samsung Electronics Co. and TSMC, which have been investing heavily to keep up with rebounding demand as lockdowns ended. It competes with Japan’s Nikon Corp. in deep ultraviolet machines used to produce more mature chips.  

The wait times for semiconductor deliveries rose to a new high in March, after lockdowns in China and an earthquake in Japan further hampered supply. Lead times -- the lag between when a chip is ordered and delivered -- increased by two days to 26.6 weeks last month, according to research by Susquehanna Financial Group.

Key Insights

• In the first quarter, ASML shipped 9 of its newest EUV machines, which print smaller circuits while increasing capacity and speed.
• ASML said Wednesday it predicts sales of 5.1 billion euros ($5.52 billion) to 5.3 billion euros for the second quarter compared with an estimate of 5.86 billion euros in a Bloomberg analyst survey.
• ASML kept its guidance for 20% sales growth and a capacity for 55 EUV units this year
• Dassen says the company is investigating whether it is feasible “to get to a capacity for EUV by 2025 – low-NA EUV – of 90 units and DUV 600 units.” “That’s what we’re looking at for 2025. For the medium term we’re also looking at 20 units for High-NA.”
• “Backed by a very well filled orderbook and a ramp in production capacity 2023 is shaping up well already,” said Marc Hesselink, an Amsterdam-based analyst ING. Hesselink said he sees an unchanged picture overall with “high demand for years to come.”
• ASML stock dropped about 16% since the start of the year, compared with about a 21% retreat in the Stoxx Europe technology index.

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