There’s no doubt in Peter Wennink’s mind that the industry will gobble up ASML’s ambitious capacity expansion. It’s just a matter of when.
At the earnings call discussing Q1 results with investors, ASML provided more information on its ambition to ramp up production even further. The semiconductor equipment manufacturer is discussing with supply chain partners to secure capacity to ship 600 DUV and 90 0.33-NA EUV systems per year by 2025 – a significant step up from the previous ambition announced only 7 months ago. That plan called for 375 DUV and 70 ‘regular’ EUV tools per year.
CEO Peter Wennink explained that the previous plan was based on market intelligence that’s now about one year old. Since then, visibility has increased. “Our customers are now sharing much longer-term capacity improvement plans, which extend into the 2024-2025 timeframe,” Wennink explained.
ASML has also been able to obtain a clearer picture of what’s driving that demand. At the high end, lithographically speaking, die sizes are growing. “This has to do with the fact that to be more energy efficient, devices’ clock frequencies are decreased. However, this also has an impact on performance. So, how do you compensate for that? By adding more transistors. When you have more transistors, you add silicon square millimeters,” Wennink said.
On top of that, in the medium term, there’s what Wennink referred to as “technological sovereignty demand,” ie demand resulting from government incentives to ‘reshore’ semiconductor manufacturing. “This helps our leading-edge customers build out fab capacity quicker.”
Finally, there’s a huge surge in demand for mature-node semiconductors that don’t need ASML’s most advanced scanners to be manufactured – dry DUV (ArF or KrF) is typically more than good enough. These include power ICs, sensors and microcontrollers. Non-semiconductor applications such as displays for virtual-reality goggles and photonic devices are on the up as well.
“I met an executive of a very large industrial conglomerate last week. He told me that they’re buying washing machines to rip out the semiconductors to put them in industrial modules. Semiconductor technology that’s 15, 20, 25 years old is now being used everywhere. It’s all driven by IoT-type applications,” Wennink revealed. “Almost every customer we ever sold a machine to is coming to us to ask for a DUV tool, which is particularly true for dry.”
Frantically
These customers will have to be patient. If they order a tool today, they’ll get it in the second half of next year. ASML would be able to sell 600 DUV systems this year if it had the capacity to manufacture them, and Wennink said he would be “happy if we can do 60 percent of that” this year. That would amount to 360 tools. The current backlog contains “a little over” 500 units, and an estimated 60 DUV tools have been shipped per quarter recently. ASML expects lead time to return to 9 months once capacity has been ramped up.
Come 2025, however, Wennink isn’t saying that the semiconductor industry will immediately gobble up all capacity. “It might be that we don’t need it in 2025. But it will definitely be needed in the second half of the decade, in 2026, 2027 or 2028. It’s basically what we feel that actually needs to be available in 2025 for the rest of the decade.” Building capacity has a lead time too, the CEO pointed out, which at the moment is more relevant for chipmakers than the ‘regular’ lead time when ordering equipment.
Wennink isn’t particularly worried about scenarios in which demand suddenly drops, for example in response to unfavorable macroeconomic developments, while ASML is still frantically scaling up. Even if as much as 35-40 percent of 2023 demand were lost, the company would still ship at maximum capacity – and ship more tools than it will be shipping this year. Wennink’s message to investors: there may be ups and downs in the future, but the big picture is a market growing from 595 billion dollars last year to 1 trillion dollars by 2030 or so.
Report back
ASML’s suppliers have rallied around the new capacity target and are now working out plans to make it happen, Wennink revealed. “It’s really a matter of them creating the plans to actually get to that capacity number by the timeframe that we asked. They need to build square meters, build factories, hire people, order specialized machinery. That all needs confirmation from their supply chain. They need to get permits and find construction workers. It’s very practical stuff.”
If the expansion is constrained by financial means, ASML is willing to step in. “If a supplier runs into a financial ceiling, we might help. That’s not to take away the risk but just to make sure that people execute faster. I think that might happen. But generally, our suppliers are big enough to pay their own capex. So, I don’t think that’s going to be a major issue.”
Suppliers are expected to report back in the second half of the year, and ASML will update on the progress in Q4.
Main picture credit: ASML