Headline numbers for ASML Holding NV look bad, but what they really show is a global powerhouse struggling to handle its own unassailable popularity.
The Dutch maker of semiconductor-manufacturing equipment forecast second-quarter revenue 10% below analyst estimates. Distraught investors, who’ve already driven the stock down 21% this year, ought to take a chill pill. While it’s not great that more than 500 million euros ($541 million) in sales is left on the table for the June period, part of that shortfall is due to clients’ own impatience.
Chipmakers including Taiwan Semiconductor Manufacturing Co., Samsung Electronics Inc. and Intel Corp. rely on ASML for the most advanced manufacturing in the world. Its top-of-the-line machine, using extreme ultraviolet light, costs around $150 million and the company is able to produce just 55 units per year. But customers don’t want to wait, and they’re pushing the Veldhoven-based supplier to move faster.
As a result, around 800 million euros of sales are being pushed back to subsequent quarters due to a quirk in the company’s business model. Before revenue is recognized, a piece of gear must be built and tested in its own factories. But in response to clients’ haste, ASML has started shipping and installing systems directly at client fabs before all the verification is finished. Called fast shipments, this process pushes back the date at which customers might formally accept delivery, and thus the timeline for revenue recognition. For the full year, however, the company’s sales growth target of 20% remains unchanged.
This recent surge in fast shipments points to the simple fact that supply cannot meet demand. Recent lockdowns in China have made the situation worse because components needed for ASML’s equipment can’t be made or shipped. A January fire at a factory in Berlin, by contrast, was a mere interruption that barely derailed output. Inflationary pressures, staff shortages and hiring, and even the logistical challenges of diverting around Russian and Ukrainian airspace are all taking their toll on margins. The total cost could wipe 200 million euros off earnings this year.
But the company has a plan. Or at least, it thinks it does. In a statement Wednesday, ASML said it would “revisit our scenarios for 2025 and growth opportunities beyond.” What that means is surveying its own suppliers to see how feasible it is to boost capacity beyond projections the company gave even a quarter ago. While semiconductors are a fast-moving sector, chip equipment is forecast years in advance with very technical and complicated supply chains.
Bullishness from big names like TSMC and Intel, coupled with more nations — including China and the US — deciding they want to bolster their own technological sovereignty has convinced ASML that demand will remain strong through to the end of the decade. All that’s left for the Dutch giant to do now is prove to clients, and investors, that it can ramp up quickly enough to meet the challenge.
Bloomberg
