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Seeing little signs of litho tool demand slowing down amid increased macroeconomic uncertainty, ASML continues to aggressively expand manufacturing capacity as planned.
For the time being, increased macroeconomic uncertainty isn’t impacting ASML’s business. The Veldhoven-based equipment maker reports a record order intake of 8.9 billion dollars in Q3, taking the order book to an unprecedented 38 billion dollars at the end of the quarter. “I think the secular trends are very much intact,” said CFO Roger Dassen in a video interview published on ASML’s website.
Slowing consumer demand, an energy crisis and rising inflation are stoking fears of a recession. Some chipmakers have responded by lowering their capital expenditures. TSMC, for example, cut this year’s capex by 10 percent, though the foundry’s investments are still well above levels in previous years. Operating in a collapsed memory market, Micron slashed spending by 30 percent year-on-year.
ASML, too, is spotting signs that customers are taking a more cautious approach. “Uncertainty is at a very different level than it was even a couple of months ago,” Dassen acknowledged. “Some customers are actually running our tools at a utilization level below the record levels that we’ve seen before. And we see for the first time in quite a while that some customers are delaying the preferred time that they would like to get our tools.”
Most chipmakers, however, still want their tools sooner rather than later, Dassen stressed. “The lion’s share of the customers are really pushing. They’re raising their hands to say if there’s a delay someplace else, then please get the tools to us even earlier.” Demand is driven by technology transitions, capacity expansions beyond 2023 and government subsidy schemes to boost local semiconductor manufacturing.
Part and parcel
According to ASML’s preliminary evaluations, the recently updated US export controls won’t have much impact either. “Our initial appreciation is that the direct implication for us is fairly limited. There’s not a lot of US technology in our tools and we can continue to ship non-EUV lithography tools out of Europe into China.” The tightened restrictions could lower demand from Chinese customers if they can’t acquire other equipment they need. But in that case, other chipmakers would step up, especially given the fact that demand for litho tools far exceeds supply at the moment, Dassen said.
As things stand, Dassen sees no reason for ASML to change course. “We still have some very strong dynamics going in favor of us.” The company will continue to ramp up annual manufacturing capacity to 600 DUV and 90 0.33-NA EUV systems per year by 2025, plus working towards 20 high-NA systems in the years to follow. At the same time, ASML is taking steps to ensure that manufacturing capacity in-house and in the supply chain can respond to a decline in demand. “The key word is flexibility. It’s part and parcel of the capacity expansion to execute in a flexible way.”
The ramp-up is already taking shape, ASML’s numbers show. Correcting for fast shipping, which results in delayed revenue recognition, the company’s Q1 sales came in at 4.9 billion euros, Q2 at 5.7 billion euros, Q3 at 6 billion euros and in Q4, 6.4 billion is being guided. “That’s a good indication and good evidence of the fact that we’re getting a better handle on the supply chain situation. The better handle means that we actually see the move rates in the supply chain go up and we also see the predictability of those move rates going up. We put a lot of effort into this, working very closely with the supply chain and particularly with those suppliers that were struggling a little bit. But I think, all in all, the situation is definitely progressing.”
Firing on all cylinders, ASML predicts a full-year revenue of around 21.2 billion euros, an increase of 14 percent compared to last year. That number doesn’t include 2.2 billion euros in deferred revenue as a result of fast shipping. Last year, revenue increased by 33 percent.
On 11 November, ASML will present an updated long-term business plan during its Investor Day.