Due to the chip shortage and exploding demand for 5G, AI and high-performance computing ICs, ASML’s sales might break the 18-billion-euro barrier this year.
Already the global chip shortage is driving up ASML’s revenue. The Veldhoven-based semiconductor equipment manufacturer reported Q1 sales of 4.4 billion euros, above the 3.9-4.1 billion euros guided. The main reason for this better-than-expected result, CEO Peter Wennink explained, is that chipmakers rushed to upgrade the software of their tools to increase productivity. “That’s the most effective and efficient way to increase wafer output,” Wennink said in a video posted on his company’s website. ASML’s Installed Base Management (IBM) business grew to 1.24 billion euros in Q1, up from 1.06 billion euros in Q4.
For the remainder of the year, however, Wennink doesn’t expect IBM to grow faster than originally anticipated. “The software upgrades have been pulled in. What has been installed you don’t need to install the rest of the year.” Hardware upgrades would increase productivity even more, but they’re not very popular right now, since they require the tools to go offline. “In a time where you can’t make enough wafers, you don’t want to put the tool down. This is why we don’t see a lot of opportunity above the 10 percent that we guided before.”
There’s plenty of opportunity for additional growth this year, however, and not just because of the current chip shortage. “Our view for 2021 has definitely changed since the beginning of the year. We’ve seen a significant spurt in terms of customer demand, driven by the digital transformation. The roll-out of 5G across the globe, in Asia, the US and to a lesser extent in Europe, drives artificial intelligence and high-performance computing. All these developments and services and products are driving the need for our systems. That’s been a big change as compared to three months ago.”
At the start of the year, ASML expected the logic business to grow 10 percent this year; now it’s guiding 30 percent. The prediction for memory has risen from 20 to 50 percent. The overall revenue growth expectation for 2021 has more than doubled to 30 percent – previously, it was at 12 percent. That would make for a revenue of 18 billion euros in 2021, which would mean that ASML would already make good on its 2018 ‘promise’ to grow revenue to between 15 and 24 billion euros in 2025. Last year, revenue came in at 14 billion euros.
All that extra revenue won’t be coming from additional EUV sales: that number will stay at the previously guided 30 percent revenue increase. It could have been more, had it not been for customers putting orders on ice Q2 and Q3 last year, prompting ASML to tell its supply chain to slow down production. This cannot be undone now that the appetite for chips turns out to be bigger than ever. The integral lead time between the installation of an EUV tool and the start of module production is 20 months.
ASML appears to have found a way to squeeze out a few more EUV tools next year, however. Last quarter, Wennink told investors that his company would ship 50 systems in 2022. That number is now upped to 55. All these systems will be the NXE:3600D model, which will be introduced in the second half of this year. It features a 15-20 percent higher productivity than its predecessor, the NXE:3400C, which of course is also an excellent way for leading-edge chipmakers to increase their wafer output.
Wennink, finally, subtly changed his tune about countries and regions looking for technological sovereignty, or at least reducing their technological dependence on foreign companies. Previously, he had warned that it would be near-impossible to replicate the current global semiconductor ecosystem in a single country or region and that it would increase cost. Only last week, speaking at the Hannover Messe, he argued for technological interdependence over technological sovereignty.
Now, Wennink pointed out there’s an upside for ASML if the US or Europe or Asian countries start increasing semiconductor manufacturing capacity, on top of the huge amounts of money that the Big Three are already spending. “This will lead to higher capital intensity because it’s decoupling a worldwide ecosystem. But it also leads to some capital inefficiency. Well, there’s a beneficiary of that capital inefficiency, and that’s us.”