Low Demand for ASML Machines Signals Capex Slowdown – EPS News
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The semiconductor industry appears on the path to recovery, driven by renewed investments in chip manufacturing facilities and a growing market for artificial intelligence hardware. However, there is lower demand for new chip-manufacturing equipment, from companies such as ASML, which presents a different picture.
Inside ASML’s NXE3400 wafer stage during exposure. Credit: ASML
Leading chip equipment manufacturer ASML recently reported financial results for the first quarter 2024. While the gross profit percentage of sales is still more than 50 percent, the company disclosed a substantial reduction in revenue and, especially, bookings for new equipment.
ASML’s financial report reflects the industry’s recent struggles. Demand for its extreme ultraviolet (EUV) lithography equipment, essential for advanced chip production, plunged in Q1 2024. Revenue and net bookings declined year-over-year, and the number of new lithography units sold dropped compared with previous quarters. The Dutch company sold 70 lithography systems in the last quarter, 54 less than the same period a year ago.
Net bookings show a dark picture for short-term investment in cutting-edge chip manufacturing systems. ASML has bookings for 3,611 new lithography machines; a year ago, they had orders for 9,186.
However, ASML remains optimistic. The company expects a surge in demand fueled by fierce competition among prominent chip foundries such as Taiwan Semiconductor Manufacturing Company (TSMC), Samsung and Intel. All three companies heavily invest in new manufacturing facilities, with Intel aiming to become the world’s second-largest foundry by 2030.
“We expect second-quarter total net sales between €5.7 billion and €6.2 billion with a gross margin between 50 and 51 percent. ASML expects R&D costs of around €1,070 million and SG&A costs of around €295 million,” said Wennink. “Our outlook for the full year 2024 is unchanged, with the second half of the year expected to be stronger than the first half, in line with the industry’s continued recovery from the downturn. We see 2024 as a transition year with continued investments in both capacity ramp and technology to be ready for the turn in the cycle.”
ASML’s newest EUV machines can cost upwards of €300 million (about $320 million) or more each, so the company has to coordinate closely with its customers on the development of advanced chips.
The recent delivery of ASML’s first High-NA EUV scanner to Intel signifies a technological leap for the industry. This advanced equipment offers significant performance improvements and will play a key role in future chip fabrication processes. While standard EUV equipment will be the primary driver of ASML’s recovery in the next few years, High-NA systems are poised to contribute meaningfully to the company’s revenue stream in the long run.
Intel’s new High Numerical Aperture Extreme Ultraviolet (EUV) lithography scanner. Credit: Intel
The U.S. government’s role in this growth is significant. Government subsidies are expected to be crucial in expanding domestic chip manufacturing capacity, ultimately increasing demand for ASML’s equipment. This aligns with the ongoing U.S.-China trade tensions, where both countries strive for chip production self-sufficiency.
While the global market softened in Q1, ASML’s sales to China held up relatively well. Revenue from China increased slightly compared to the previous quarter, although it remained lower year-over-year. This suggests that China’s chip sector may be weathering the downturn differently than other regions.
The impact of U.S. sanctions and the request to halt servicing equipment in China for ASML remains to be fully understood. While China was ASML’s top market, the company has downplayed the immediate impact of restrictions on its most advanced EUV machines. However, a ban on servicing existing machines in China could significantly disrupt their operations and customer relations. ASML is navigating a complex situation between the two superpowers, and the ultimate consequences of these actions are still unfolding.
Looking ahead, analysts expect ASML’s revenue and earnings to grow 10 percent and 18 percent, respectively, in 2026.
Dan Hutcheson, an analyst at TechInsights, emphasizes the role of geopolitical factors in shaping the industry’s outlook. The ongoing trade tensions between the U.S. and China undoubtedly influence investment decisions and supply chain dynamics. Additionally, the burgeoning field of AI is creating a surge in demand for memory solutions, particularly those catering to data centers transitioning to accelerated computing.
This trend, fueled by GPUs and other specialized hardware, requires high-performance solutions, including flash memory.
Despite a slow 2024, the semiconductor industry is bouncing back with new investments in chip manufacturing, a growing AI market, and government support for local production. Though U.S.-China trade tensions continue to impact the industry, the outlook remains optimistic.
Pablo Valerio has been in the IT industry for 25+ years. While primarily based in Barcelona, he has also worked in the United States, Italy, Germany, The Netherlands, and Denmark. For the past 10 years he has been a regular contributor to several publications in electronics, communications, mobility, and smart cities. His work appears in EE Times, IoT Times, InformationWeek, EBN, LightReading, Network Computing, and IEEE Spectrum, among others. Pablo holds a MS in Electrical Engineering from The Ohio State University.
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