- ASML, the supplier of chip-making equipment, is anticipated to report a significant increase in new orders as it delivers its second-quarter results on Wednesday.
- The anticipated growth in ASML’s order book is pivotal for several reasons. Firstly, it reassures investors about the sustained demand for the company’s most advanced products, especially after a weak first half of 2024. During this period, ASML relied heavily on orders of older equipment from China. A robust second-quarter performance would indicate a rebound in demand for high-end chip-making tools, driven by the burgeoning AI sector.
OUR TAKE
The surge in ASML’s new orders, fueled by the booming demand for AI chips, highlights the intense race for technological dominance in the global semiconductor market. While China’s robust appetite for older-generation equipment showcases resilience in the face of restrictions, TSMC’s increased orders for ASML’s EUV systems suggest a collective sprint towards the future of smart devices. With ASML’s share price soaring, it begs the question: Will the chip rush continue to propel the tech giants into uncharted territories, or will it lead to a bubble waiting to burst?
–Miurio huang, BTW reporter
What happened
ASML, the supplier of chip-making equipment, is anticipated to report a significant increase in new orders as it delivers its second-quarter results on Wednesday. The surge is attributed to the growing demand for AI chips, prompting customers to expand their manufacturing capacities. The company’s new CEO will likely highlight this influx of orders, reflecting the heightened interest in advanced chip-making equipment.
A crucial point of interest will be the extent to which Chinese companies continue their robust purchases of older-generation chip-making equipment. These machines are critical for producing chips used in electric vehicles and other applications, despite Western policymakers imposing restrictions on the acquisition of more advanced technology. Analysts suggest that key manufacturers of state-of-the-art chips, including Taiwan’s TSMC, which produces chips for Nvidia and Apple, may increase and expedite their equipment orders. TSMC is set to report its earnings on Thursday, potentially offering further insights into market trends.
ASML holds a dominant position in the market for lithography systems, which utilise lasers to create the intricate circuits of computer chips. Notably, it is the sole producer of lithography systems employing extreme ultraviolet (EUV) wavelengths, essential for TSMC to manufacture the most sophisticated chips for smartphones and AI applications.
“We anticipate ASML’s order intake value to approach 5 billion euros in the second quarter, surpassing consensus estimates,” said Mihuzo analyst Kevin Wang, citing robust orders from TSMC for ASML’s EUV product line. ASML’s shares have surged 45% this year, nearing record highs above 1,000 euros each, trading at about 40 times the forecasted 12-month forward earnings, significantly outpacing the STOXX Europe 600 tech index.
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Why it’s important
The anticipated growth in ASML’s order book is pivotal for several reasons. Firstly, it reassures investors about the sustained demand for the company’s most advanced products, especially after a weak first half of 2024. During this period, ASML relied heavily on orders of older equipment from China. A robust second-quarter performance would indicate a rebound in demand for high-end chip-making tools, driven by the burgeoning AI sector.
Analysts expect ASML to report a second-quarter net income of 1.41 billion euros on revenue of 6.04 billion euros, according to a mean estimate from 16 analysts, based on LSEG data. This compares to a net income of 1.94 billion euros on revenue of 6.90 billion euros in the same period last year. A growing order backlog is crucial for ASML, which had a 38 billion euro order backlog at the end of the first quarter. To meet its 2025 sales forecast at the upper end of the 30 billion-40 billion euro range, ASML needs new orders worth 4 billion-6 billion euros each quarter.
ASML’s machines, priced up to $300 million each, have delivery lead times of 12-18 months. Orders are meticulously coordinated with customers, including Samsung, Intel, SK Hynix, and Micron. For slightly older chip-making technologies, ASML faces competition from Japan’s Canon and Nikon. In the past year, Chinese firms have intensified their purchases of older ASML equipment, comprising nearly half of the company’s sales in the first quarter, as U.S.-led export restrictions limit their access to ASML’s most advanced tools.
China’s aggressive investments in older chip-making equipment underscore a strategic shift to bolster domestic semiconductor production capabilities. This trend has led to increased competition and potential market share losses for non-Chinese firms. The European Commission has initiated inquiries into whether Chinese state subsidies are distorting markets, a concern for the global semiconductor industry.
ASML’s stance is that the world needs older chips, a point underscored by shortages during the COVID-19 pandemic. China’s role in supplying these chips is becoming increasingly significant, impacting the global semiconductor supply chain dynamics. The forthcoming financial results and order book updates from ASML will provide critical insights into the semiconductor industry’s trajectory amid the AI revolution.
