ASML reflects this: People with 120 different nationalities work at over 60 ASML locations across the world. A lot of ASMLs technology is not on blueprints, he said. Industry, Customers in Construction Services With 39,000 people and counting at over 60 locations worldwide, we are a growing global force in the semiconductor industry. And unfortunately, Russia's recent military reversals in Ukraine do not make the nuclear option less likely. And though the shortage will eventually get under control, emerging markets and technologies such as AI, robotic process automation and 5G connectivity will fuel the growth of the semiconductor industry for years to come. The prediction is significantly higher. Coincidence? TSMC still has all of its leading-edge semiconductor production in Taiwan. It was the war in Ukraine and the danger of escalation of the conflict that tipped the balance in favor of selling. Balanced, expert investing strategies from a technologist's perspective. Looking at the market segments, given the very strong demand situation and our continued push to increase capacity, we see growth in both Logic and Memory in 2022. Therefore, in 2012, these three major customers invested in ASML and became its main shareholders, with an investment of up to 6.5 billion US dollars. Moore's Law and 'shrink' continues, but I think the real game changer is the industry drivers mentioned before: AI, robotic process automation and 5G connectivity. Although EUV devices accounted for only 26 of the 229 lithography machines the firm sold in 2019, they made up a third of sales by revenue. We believe that the company's target to achieve higher margins could be attainable due to its dominance in the EUV lithography technology as highlighted in our previous analysis. Now, there are some rumors out there that the brokers and the distributors are playing a devious role here because they stock up all the inventory and drive up the prices, but I don't believe that that much. Key Points Major customer TSMC is reportedly cutting its capital expenditure plans for 2023. And all of these mining rigs require power supplies to deliver all that power. ASML's big customersTSMC, Samsung, and Inteldon't place purchase orders and then expect two-day shipping. First of all, the creators of Ethereum have been promising for some time to move to a "proof of stake" approach to transaction processing that would greatly reduce computational requirements. Its not even remotely possible for anyone to catch up with ASML anytime soon, said Douglas OLaughlin, an analyst at Fabricated Knowledge, an industry newsletter. Jeff Marks 19 hours ago These machines, which cost approximately $140 million each, shine exceptionally narrow beams of light onto silicon wafers that have been treated with "photoresist". You can withdraw your consent at any time on our cookie consent page. - Peter Wennink, CEO. Its shares trade at a mouthwatering 32 times forward earnings, double or more those of its biggest customers. I have no business relationship with any company whose stock is mentioned in this article. Smarter, smaller, faster and more energy-efficient chips are enabling life-changing innovations, such as retinal chip implants that help people who have lost their sight to regain partial vision. Well show you how youll be supported to develop and upskill, and what your compensation and benefits package could include. It was kept alive by Philips, itself facing financial difficulties, and by subsidies from the Dutch government and the EUs predecessor. If the only concern I had about ASML and TSMC was that growth expectations might be overblown, I wouldn't have sold them. Operations Y/Y, Asml Holding Nv'sManagementEffectiveness, Asml Holding Nv'sLong Term Debt to Equity, Asml Holding Nv'sTangible Leverage Ratio, Asml Holding Nv'sWorking Capital Per Revenue, Asml Holding Nv'sInterest Coverage Ratio, ASML'sSuppliersManagementEffectiveness, ASML'sEmployee Efficiency at the Competitors, ASML'sCompetitorsManagementEffectiveness, Asml Holding Nv'sCustomersExpenditureGrowthRates, Asml Holding Nv'sCustomersStockPerformance, Asml Holding Nv'sCustomersWorkforceEfficiency, Customers in Miscellaneous Fabricated Products No information in this publication is intended as investment, tax, accounting, or legal advice, or as an offer/solicitation to sell or buy. Based on our estimates, we forecast the demand for EUV systems from memory customers to grow by 16.6% in 2022 and reach 36 systems by 2024 which we expect to benefit ASML. In addition, recent reports by Bloomberg suggest that the US administration may be weighing tougher sanctions on SMIC. Whereas managers can move up or sideways within the company, technical specialists can become recognized based on their expertise, with the highest of these honors being an ASML Fellowship. For all the respect and admiration he has for ASML, the difficulties chipmakers are likely to encounter are not evident in the companys stellar share price increase, says Timm Schulze-Melander at Redburn in London, who is the only analyst tracked by Bloomberg with a sell rating on ASML shares. Is Top Semiconductor Stock ASML Still a Buy as the Chip Downturn Drags On? Features like Apple Inc.s augmented reality headsets with high-density and long-lasting batteries or servers that could someday run the AI tool ChatGPT-7 are just not possible with current technology, he said. The Dutch are already working on new EUV machines with better optics, which can process more silicon wafers per hour. Putin could easily anticipate that the response of the West would be economic sanctions, which could include denial of access to advanced semiconductors, as China had already been denied. It's shocking to think about nuclear warfare, but until recently, a major land war in Europe would have been unthinkable as well. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Invest better with The Motley Fool. Overall, we expect the transition of DRAM players to use EUV technology and the planned investments to expand capacity to drive demand for ASML's EUV equipment for memory customers such as Samsung, Micron and SK Hynix announced their investment plans to expand their capacities. We provide chipmakers with everything they need - hardware, software and services - to mass produce patterns on silicon through lithography. ASML is the only maker of such machines and its EUV customers include the world's . All rights reserved. I had been willing to wait out another recession, and even endure further losses to the Portfolio, but the Ukraine war increased risk in many areas, as I explain below. For the development of its more advanced High-NA EUV systems, we believe its interest and partnership with this supplier may provide a benefit to the company for complex lenses. More transistors means more computing power for less money, which makes it easier to incorporate chips into just about any electronic device, which in turn increases the demand for more chips, and more powerful chips. I have no business relationship with any company whose stock is mentioned in this article. Appreciation of ASMLs dominant position has not been confined to customers or investors. These customers have planned significant investments for the capacity expansion, and we expect the growth of TSMC, Samsung and Intel investments to drive demand for ASML's EUV systems. Also, the US and Europe have unveiled plans to invest about $100 billion in the chip industry. ASML's roadmap directly aligns with TSMC's plans -- it will launch its first high-NA EUV system in 2022, followed by a faster version in 2024. ASML gives the world's leading chipmakers the power to mass produce patterns on silicon. Both TSMC and ASML are planning capacity expansions, not merely for advanced nodes, but for legacy nodes that normally would see no expansion. Copyright 2019-2022 (ASML) All Rights Reserved. Hes an expert in data-driven recruitment, recruitment marketing and talent sourcing. Lastly, we analysed its profitability and forecasted its margins going forward by taking into account its bargaining power over customers as the sole supplier of EUV systems. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. That's why I recently accumulated more shares of ASML during the latest tech sell-off, and why I believe it's one of the best long-term plays on the semiconductor market. TSMC is ASML's biggest customer, making up nearly 40% of its sales last year, and was the first chipmaker to deliver high volume chips using EUV technology. Based on our calculations, we obtained a demand forecast of 52 systems in 2024. Our customers are companies such as Intel, who use our machines in fabs microchip manufacturing plants to create microchips that are eventually used in many electronic devices, including smartphones, laptops and much more. A lot of that spending will go toward new lithography systems. Little did he know then that about 40 years on the company would be so crucial to the $580 billion semiconductor industry that it would be the epicenter of a US-China chip war. Micron has placed purchase orders for multiple EUV tools from ASML as part of a long-term volume agreement, - Sanjay Mehrotra, Micro CEO. In this scenario, Russia attacks one or more Ukrainian cities with tactical nuclear weapons. In anticipation of this transition, Ethereum miners are likely not investing in any more mining capacity. Second, how the controls will be aligned with countries that have competing companies, such as Japan.. Its in the heads of people. Chip technology is becoming so widespread that we don't just need more advanced chips we need more chips in general. 6-minute read - By Kate Brunton, May 24, 2023. In its 2021 Investor Day, the company has highlighted its profitability target in 2025 with gross margins between 54% to 56%. Carl Zeiss, a German optics firm, fashions its lenses. With its monopoly over EUV, we believe that it has high bargaining power over its customers who rely on their systems to produce leading-edge chips. Intel and Samsung are integrated device manufacturers (IDMs), which design and manufacture their own chips. You have to build an alternative Zeiss etc. The mirrors guiding this light, made of sandwiched layers of silicon and molybdenum, are ground so precisely that, if scaled to the size of Germany, they would have no bumps bigger than a millimetre. Its next contraption, about the size of an Amsterdam studio apartment, is set to hit markets in 2025. We forecasted its gross margins to increase to 57.16% in 2025 as we expect its margins to continue to improve with scale. (Bloomberg) -- In 1984, Martin van den Brink, a young Dutch engineer, joined a newly created venture in a quiet corner of the Netherlands. Based on its competitors in the semicon equipment market, it has an industry average EV/EBITDA of 18.47x. Finally, supporting the process all the way from design to customer support are our Sourcing and Supply Chain colleagues, who make sure our machines have the right parts at the right time and in the right quantities. I/we have a beneficial long position in the shares of ASML either through stock ownership, options, or other derivatives. You can withdraw your consent at any time on our cookie consent page. And ASML has made clear that its expansion plans mainly rest on its suppliers, so that minimizes ASML's risk if it has to curtail its own capacity expansion. In this interactive section you will hear from our employees. The Portfolio allocations as of the end of 2022 Q1: In addition to closing positions in ASML, TSMC, and Teradyne (TER), I've reduced positions in Apple (AAPL), II-VI (IIVI), and Nvidia (NVDA): One of the interesting features of the semiconductor shortage is that it has mostly impacted semiconductors that use so-called "legacy nodes", typically 20 nm and larger, whereas advanced semiconductors such as processors by AMD (AMD), Nvidia, and Apple use processes in the range of 5-7 nm. Unlocking the potential of semiconductor technology. I'm not saying that this was always the best strategy, but it worked well for me and the Portfolio. In 2018 ASML received an order for an EUV machine from a Chinese customer, widely thought to be the Semiconductor Manufacturing International Corporation, Chinas biggest chipmaker, whose factories are currently a couple of generations behind the state of the art. Because EUV light is absorbed by almost anything, including air, the process must take place in a vacuum. To add on, from its annual report, the company has partnerships with suppliers. Youre not talking about months or years. I have estimated that crypto mining contributed as much as 23% of Nvidia's Gaming segment revenue as of its fiscal 2022 Q3 (ending October 31, 2021). Then, a moonshot development took it to a whole new level: EUV lithography. (b/13.4), Calculated the incremental wafer capacity growth/capex (D = B/C), Estimated the wafer capacity CAGR from their planned investments based on the incremental capacity/capex. Opportunities abound as well for people with technical backgrounds to use their knowledge in non-technical roles, such as in marketing and sales. The company counts some of the biggest tech companies as its customers. At ASML, we challenge ourselves daily to attempt seemingly impossible technology developments. It will probably exceed the low end of that forecast this year since analysts expect its revenue to rise 32% to 18.5 billion euros ($22.1 billion). With neither Canon nor Nikon pursuing EUV technology, investors have concluded that ASML will enjoy its nanoscopic monopoly for a while. Additionally, we calculated the incremental FCF from the increase of its margins. The case prompted ASML to protect its intellectual property more fiercely than even before. Our investment approach takes both a top-down and bottom-up approach encompassing macro-economic, fundamental, and quantitative analysis. ASML's vs. Customers, Data (Revenue and Income for Trailing 12 Months, in Millions of $, except Employees) Sandeep, I mean, you've been around a long time and you asked the million-dollar question. High-NA systems will be used to manufacturing the smallest 3- and 2-nanometer chips between 2022 and 2025. But the Dutch firms market share has nearly doubled, to 62%, since 2005. The worlds three leading chipmakersIntel in America, Samsung in South Korea and the Taiwan Semiconductor Manufacturing Company (TSMC)have become as reliant on ASMLs wares as the rest of the technology industry is on theirs. As of the end of 2022, ASML had delivered 180 EUV systems. We have the largest ASML manufacturing site in Asia as well as two training centers, play an essential role in the rapidly growing e-beam market, and work closely with TSMC and major semiconductor fabs. ; Taiwan Copyright 2019-2022 (ASML) All Rights Reserved. I/we have a beneficial long position in the shares of AAPL, IIVI, MSFT, NVDA, QS either through stock ownership, options, or other derivatives. Some functional cookies are required in order to visit this website. Industry, Customers in Communications Equipment Normally, production on legacy nodes declines over time, so there's no need to expand production capacity. - Roger Dassen, ASML Chief Financial Officer. Analysts Disclosure: I/we have a beneficial long position in the shares of AAPL, IIVI, MSFT, NVDA, QS either through stock ownership, options, or other derivatives. In terms of margins, we see very high bargaining power over its customers due to its dominance in EUV technology which could lead to margins growth. This would leave NATO with having to decide how to respond. Even if the People's Republic refrained from invading Taiwan, it could still inflict severe damage to infrastructure through missile attacks. It struggled in the 1980s to find buyers for its equipment. It plans to ship 60 EUVs this year, and wants . Together with our partners, we provide leading patterning solutions that drive the advancement of microchips. Currently only five chipmakers can afford ASML's EUV machines - Micron, SK Hynix, Samsung, Intel and Taiwan's TSMC. Questions about the global semiconductor shortage. To make the world smarter, happier, and richer. ASML's gross margin also consistently expanded and suffered only a slight dip in 2019 amid the cyclical slump in memory chip sales, and its ongoing buybacks boosted its earnings per share. Even with all that, I'm not going to pull completely out of equities. The semiconductor industry covers the globe, bringing together people from many nations, cultures and backgrounds. If you have an ad-blocker enabled you may be blocked from proceeding. Samsung also acts as a 'foundry', along with TSMC these companies manufacture chips designed by other, 'fabless' semiconductor firms such as Qualcomm, NVIDIA and AMD. I am not receiving compensation for it (other than from Seeking Alpha). Its a natural monopoly with secular growth winds. With 14 customer support sites, two factories, and three R&D centers, our US locations service Intel and other customers and contribute to our holistic product portfolio. Yes, there will be some of it. The second-biggest group of customers are based in Taiwan, at 26 per cent. We based our EUV projections on our demand forecasts by customers. China accounts for around 16.4% of its total revenues based on its annual report. Its 1995 initial public offering gave it the funds it needed for research, and a breakthrough in DUV lithography machines boosted its market share to nearly 50% in the early 2000s. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. I can't begin to assess what the probability is of Russia using nuclear weapons, but I can easily imagine the consequences. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Some ASML staff have speculated it may be too difficult to mass-produce., Twitters Unpaid Bills Threaten to Be an Even Bigger Problem for Elon Musk, Europes Golden Visa Programs Are Dying Out as Housing Costs Rise, Cadillacs Lyriq EV Might Be a Winner If GM Can Build Enough of Them, The Company Behind Ben Shapiro Is Trying to Build a Right-Wing Magic Kingdom, Why Chinese Banks Arent Worried About Depositors Fleeing. Bit Info Charts tracks the collective mining capacity of various crypto currencies, and their data on Ethereum supports this trend: I have speculated that Russia might also have contributed to the semiconductor shortage: Putin seems to be a chess player, who plans many moves in advance, and who spends a great deal of effort trying to anticipate the moves of his opponent. In fact, were probably a part of the electronic device youre using right now. In our previous analysis of ASML Holding N.V. (NASDAQ:ASML), we identified ASML's strengths as the market leader in the photolithography equipment market with a 62% market share. TSMC has the highest incremental capacity/capex which could be due to their sole focus on foundry while Samsung and Intel have other business segments. As the worlds only maker of such machines, ASML has left its rivals in the dust and shown how difficult it would be for a potential Chinese competitor to emerge. Moreover, we believe that with partnerships and interest in its key suppliers, it could provide it with an advantage to maintain its competitive position. Unfortunately, ASML, as a European company, looks particularly vulnerable, both from the standpoint of investor reaction, as well as direct impacts to the company should the war widen beyond Ukraine's borders. Weighing 180 metric tons, it consists of more than 100,000 parts, 3,000 cables and 40,000 screws, and requires more than 2 kilometers of hoses. We looked at various sources of key customers including SK Hynix, Samsung and Micron and collected information regarding planned investments in dollar figures. And like many other companies, ASML is hiring fast and furiously. Times were not always so good. Of all the suppliers required for an advanced chip factory of the sort its authorities want built, ASMLs technology is the most difficult to replicate, says Pierre Ferragu, a technology analyst at New Street Research. To value the company, we used a DCF analysis as we expect the company to maintain its strong cash flow generation abilities. The gigantic EUV machine, about the size of a school bus when fully assembled at a customers site, takes three to four Boeing 747s to deliver. Additionally, we forecasted its other systems and the service segment revenues to grow based on its 10-year historical average growth rate. Tech ASML And Taiwan Semiconductor: Why I Sold These Dominant, Highly Profitable Companies May 20, 2022 8:37 AM ET ASML Holding N.V. (ASML), TSM AAPL, MSFT, NVDA 76 Comments 36 Likes Mark. From a leaky wooden shed to a global force, ASML recently marked 35 years of ingenuity and perseverance. In an industry where devices typically cost $10 million, ASML commands about $180 million for its current top-end machine. Michael Vi/iStock Editorial via Getty Images. ASML's stock might look pricey at nearly 40 times forward earnings, but I believe its near-monopoly in lithography systems, its sticky customer base, and its clear roadmap all justify that slight premium. Its first products were obsolete as soon as they were released, he says, and the firm struggled to find customers. According to management, it seems cautiously optimistic to maintain its sales from the country in 2022. Few would point to a nondescript suburb of Eindhoven, the Netherlands fifth-biggest city. From its latest earnings call for Q4 2021, the company's management highlighted its positive outlook for the year in both logic and memory in 2022. But there doesn't appear to be consensus within NATO to draw this line in the sand, and Biden doesn't appear to be willing to act unilaterally. For example, it has had a partnership for more than 3 decades with Carl Zeiss AG, its sole supplier of lenses, mirrors, and critical optical components for the EUV systems. But I am refocusing on what I consider core assets. EUV lithography uses light of a shorter wavelength to allow chipmakers to cram exponentially higher numbers of transistors into integrated circuits to make powerful chips. However, we determined the risk of ASML losing its China-based revenue (12%) as the Dutch government had imposed restrictions to ship its EUV systems to SMIC. It easily surpassed that goal in 2018, and it generated 14 billion euros ($16.7 billion) in 2020. But less risk is not zero risk. Politicians share it, too. Our headquarters is home to more than half of all our employees. The most likely target would be Kiev. Chart 1 shows that TSMC's global foundry share has been above 50% since 2014, when the company started increasing production at the 16/20nm node, increasing its share at that node to 21% of. But even he admitted that he hadn't "connected the dots". ASML's margin is expanding as it sells a higher mix of these EUV systems. A takeover by China would . Please disable your ad-blocker and refresh. 01 / 05. ASK PEOPLE to pinpoint the centre of the digital economy and many will finger Silicon Valley, populated by Apple, Google, Facebook and too many sexy startups to count. Please. Our investment managers have decades of investment experience between them, with research expertise in emerging technologies such as Artificial Intelligence, Cloud Computing, 5G, Autonomous & ElectricVehicles, FinTech, Augmented & Virtual Reality and the Internet of Things.www.khaveen.com. Innovation is never a straight line. Preparations for the invasion of Ukraine this year probably began in earnest at least a year ago. Some functional cookies are required in order to visit this website. With 5,000 suppliers of everything from software to tin and tungsten and strategic partnerships with companies like Carl Zeiss AG, which makes its critical multilayer mirrors, ASML runs a global ecosystem that would be difficult to match, he notes. Most people in industry and government believe that lithography tools are the strongest of the choke points that Western governments have put in place, said Chris Miller, an associate professor of international history at Tufts University and the author of Chip War. Still, we find the company fairly valued, given its high EV/EBITDA multiple relative to its peers. Yu now runs Dongfang in Beijing with ample support from the Chinese government, according to company statements and other Chinese documents. With it, the worlds top chipmakers are creating microchips that are more powerful, faster and energy efficient. For ASML's "large customer" read TSMC. As part of this market, ASML is one of the top five semiconductor capital equipment vendors, or 'semicap' for short we make the tools required by chipmakers. Portfolio Value - Portfolio Cost) / Portfolio Cost. We have a strong focus on R&D, and we of course need to make the machines we design, so manufacturing (which includes prototyping and testing) is also a big part of the company. *Average returns of all recommendations since inception. Incremental FCF From Margins Upside ($ mln), FCF Margins (With no margin upside) ('c'). In this scenario, Putin achieves "victory". Advanced chips are also being used in low-emission homes built on smart energy grids, helping farmers optimize their crop yield and helping reduce the energy use of data centers. The recent improvement in GPU supply seems to correlate with factors that would reduce mining GPU demand. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. and dominant positions in the semiconductor industry. Another takeaway, and perhaps the most important, is that investors, especially tech investors, are now living in a world of unprecedented risk. Moreover, we highlighted the transition of the DRAM players using EUV technology and planned investments which we expect to benefit ASML. And after we ship our machines to customers and install them in their factories (or 'fabs'), we need to make sure that they're able to keep them running 24/7. Many sources predict that experts in technical fields related to semiconductors are likely to have their pick of roles in the coming few years. World markets would go into freefall. However, its net margins have remained stable at 27.5% in 2021 with a 10-year average of 24.9%. We serve accredited investors throughout the globe, which include HNW individuals, SMEs, associations, and institutions. ASML is a Dutch company and one of the world's leading manufacturers of chip-making equipment. So were ASMLs shareholders, as the company discovered that EUV light is frustratingly difficult to work with. Most of these legacy node semiconductors are for power regulation, mixed signal devices that include digital and analog sections, microcontrollers for industrial applications and automotive, and radio frequency (RF) devices. Watch the English version, the full Dutch or shortened Dutch version (20 mins). NATO and the U.S. have threatened "severe consequences" if Russia were to use nuclear weapons, but haven't specified what those consequences would be. . It's these advanced chips (as well as improvements in earlier-generation chips) that the world needs in order to keep making progress. In this analysis, we analyzed the company's logic and memory customers planned investments for expansion and projection of the increased demand for ASML's EUV equipment as well as its high bargaining power over these customers which we expect could lead to margin upside. This Supercharged Nasdaq Growth Stock Is a Magnificent Buy Right Now, 3 Things You Need to Know From ASML Earnings. Prada hires Raf Simons as co-creative director, A journalist offers an inside look at Facebooks rise, California: Do Not Sell My Personal Information, Go Firsts insolvency tests Indias bankruptcy regime, Australia and Canada are one economywith one set of flaws. Lately I feel like I can't escape this headline on social media and when scrolling through the news: 'Where are the chips?' CFO Dassen also points to the futility of attempts to steal the companys technology. According to the company, it had only shipped around 100 EUV systems with an average price per system of EUR145 mln based on its EUV revenue per shipment in its annual report. The firms first prototype machines were sent to IMEC, a research institute in Belgium, in 2006. Copyright The Economist Newspaper Limited 2023. Besides logic customers, the company caters to memory chipmakers which accounts for 30% of its system revenues in 2021.The company's customers include Micron (MU), Samsung and SK Hynix in the semiconductor memory market which happens to be the world's 3 largest memory makers. Well, that's what I'm going to try to explain. I believe that Putin has always known where he was going on Ukraine since the Crimean invasion of 2014. With its market dominance and high bargaining power over its customers, we expect its gross margins to continue rising through 2025. And why are we still -- there are such big supply chain bottleneck, including for yourselves and for many others in the -- and particularly related to the semiconductor industry? Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Through 10:05 a.m. They were to be disappointedrepeatedly.

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