ASML To Top WFE Semiconductor Equipment In 2023, Overtaking Applied Materials

Maria Vonotna

ASML (NASDAQ:ASML) volition overtake Applied Materials (AMAT) arsenic the apical WFE Semiconductor Equipment supplier successful 2023, according to my investigation entitled Global Semiconductor Equipment: Markets, Market Shares and Market Forecasts.

In Chart 1, I amusement HoH revenues for these companies, showing the wide person is ASML astatine +69.8% gross alteration for 2023/2022, up of AMAT, which exhibited a +5.0% change, and KLA (KLAC), the lone different institution with affirmative growth. All companies outperformed Lam Research (LRCX), which exhibited a -29.9% HoH gross change.

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Chart 1

This volition beryllium the 2nd clip ASML tops perennial person AMAT. The past clip was successful 2019 contempt AMAT moving $331 cardinal from its 2018 revenues into 2019, which I discussed successful my Aug. 19, 2019, Seeking Alpha nonfiction entitled Applied Materials: It Was Worse Than It Appears.

In Chart 2, I show AMAT's WFE revenues betwixt 2013 and 2022. In these 10 years, the trendline (blue dotted line) shows a marketplace stock drop.

I besides amusement connected this illustration with the orangish bars that successful 2019 AMAT took $331 cardinal from 2018 revenues and enactment it into 2019 simply by changing its accounting policies. The $331 cardinal propped up AMAT's stock from $17.4% to 18.1%.

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Chart 2

Table 1 shows existent revenues for the Top 6 companies betwixt 2017 and 1H 2023. On adjacent examination, ASML has been successful the Top 3 during this period, though CY 2022 was problematic for the institution based connected proviso concatenation disruptions and a occurrence astatine its EUV works successful Berlin successful January 2022. These disruptions led to ASML shipping incomplete EUV systems to customers with deferred payments nether its “fast shipment” program. I discussed these successful my July 21, 2022, Seeking Alpha nonfiction entitled ASML: January Fire Responsible For Big Revenue Pushouts To 2023.

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ASML’s Tailwinds

Frankly I person been troubled astir headwinds from ASML, chiefly astir its mediocre proviso concatenation management, deficiency of clarity astir the Berlin fire, and imaginable immersion DUV sanctions connected shipments to China. Currently, these issues person been resolved, and ASML is inactive capable to vessel to China.

Large Backlog

What remains is simply a beardown tailwind of a immense backlog DUV and EUV systems. Chart 3 illustrates EUV shipments (units) from 2015 done 2024 (my estimates) for standard, debased NA systems and the upcoming "high EUV" systems. It besides shows my investigation of the backlog, which successful 2024 volition beryllium 105 debased EUV and 16 precocious EUV, according to our study Sub-100nm Lithography: Market Analysis and Strategic Issues.

At the extremity of 2022, ASML had a backlog of 100 EUV systems with an ASP of $200 million. Unlike representation IC companies, logic/foundry semiconductor companies are not apt to cancel orders contempt the downturn and oversupply of chips successful 2023 arsenic starring foundry companies migrate to smaller exertion nodes. I had initially forecast this downturn successful my June 25, 2021, Seeking Alpha nonfiction entitled Applied Materials: Tracking A Likely Semiconductor Equipment Meltdown In 2023.

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Chart 3

In addition, ASML received acceptance from its customers connected DUV tools to admit gross upon shipment. This volition effect successful €700M of gross recognized successful 2023 and nary longer deferred into 2024, arsenic a effect of screaming request for DUV systems coming from China.

Nvidia Chips astatine <7nm Nodes

Another tailwind is the information that ChatGPT runs connected Nvidia's (NVDA) A100 and H100 processors, and TSMC (TSM) makes the A100 and H100 with its 7nm and 4nm processes, respectively, and its caller GH200 utilizing ASML’s DUV and EUV systems.

While ChatGPT is the sweetheart of the generative AI market, determination are different AI chips including AMD (AMD) and different proprietary accelerators made a 3nm utilizing ASML lithography systems.

As AI continues to reshape industries crossed the globe, ASML recognizes the value of this exertion and actively participates successful its development. The company's precocious semiconductor manufacturing processes are captious for the accumulation of AI-specific chips. ASML's cutting-edge fabrication technologies alteration the instauration of specialized processors, including GPUs (Graphics Processing Units) and AI accelerators, which are indispensable for heavy learning and different AI applications.

ASML’s Headwinds

U.S. Sanctions connected China successful 2023

The announcement that Huawei introduced its caller Mate 60 Pro smartphone powered by a caller Kirin 9000s spot was made connected SMIC’s 7nm node exertion has raised eyebrows regarding the potency of U.S. sanctions.

The quality of China’s SMIC to marque precocious ICs has been stymied by U.S. sanctions. But the quality for SMIC to scope 7nm is thing new. I pointed that retired 15 months agone successful a May 18, 2022, Seeking Alpha nonfiction entitled “Applied Materials: SMIC Move To 7nm Node Capability Another Headwind.”

Importantly, successful my nonfiction I noted:

“My investigation shows that SMIC is successful accumulation connected its N+2 node, equivalent to the 7nm node and comparable to TSMC. And it was accomplished without the usage of EUV lithography, conscionable arsenic TSMC did with its archetypal procreation 7nm node (N7) introduced successful 2018.

Instead of SMIC manufacturing 28nm logic chips astatine its caller fabs successful Shanghai and Shenzhen China, SMIC has moved archetypal to its N+1 node (8nm equivalent) and past N+2 node. Moving to a smaller node requires a antithetic semiconductor processing instrumentality merchandise mix, benefiting instrumentality suppliers.”

Table 2 shows revenues of the Top 6 companies for the play Q2 2022 compared to Q2 2023 for China sales. Here we spot that the strongest YoY maturation of 232.9% for ASML.

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ASML’s Headwinds

U.S. Sanctions connected China successful 2024

According to a quality nonfiction successful Yahoo Finance connected Sept. 1, 2023:

"AMSL, Europe's largest exertion steadfast by valuation, said that starting January 1, it would nary longer beryllium capable to vessel the Twinscan NXT:2000i, its astir precocious immersion heavy ultraviolet (DUV) lithography system, to China."

While pull-ins are a tailwind for 2023, China sanctions successful 2024 could yet correspond a headwind for ASML. Between 2018 and 2022, revenues from China person represented 18.5% of ASML's planetary revenues.

So the pull-ins of instrumentality earlier the extremity of 2023 anterior to sanctions taking effect astatine the extremity of the twelvemonth are liable for the beardown maturation of ASML. ASML volition not beryllium capable to vessel its astir precocious DUV immersion tools (i2000 systems and above) to China, but tin vessel its mid-critical immersion tools.

How that changes successful airy of U.S. sanctions astatine the heels of Huawei products remains to beryllium seen, but could correspond a headwind for ASML due to the fact that sanctions could beryllium escalated if needed to artifact the advancements of Huawei and SMIC foundry capabilities.

It took the authorities of The Netherlands much than a twelvemonth of negotiating with the U.S. arsenic to whether ASML would adjacent abide by U.S. sanctions, since it's not a U.S. company. The Dutch gave in, but stricter sanctions could derail the arrangement.

Investor Takeaway

In its caller net call, ASML accrued its 2023 gross guidance to 30% YoY, up from 25%. Conversely, my forecast for WFE (based connected my May 2022 SA nonfiction described above) is -20% gross growth. AMAT reported successful its caller net telephone a hold successful installation of immoderate of the tools, and propulsion outs with immoderate of the starring foundry customers. Its precocious vulnerability to DRAMs is besides a negative, arsenic I forecast WFE walk successful DRAMs volition beryllium -40.2% YoY successful 2023, arsenic shown successful Table 3.

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Incidentally, the precocious WFE walk successful 2020 and 2021 was the instauration of my thesis that WFE successful 2023 volition driblet significantly.