Despite the challenging market environment, ASML ended fiscal 2022 with net sales of €21.2 billion, up 13.8 percent year-over-year, and net income of €5.6 billion, down 4.4 percent year-over-year. ASML expects to grow net sales by more than 25 percent in 2023.
In the fourth quarter of 2022, the Veldhoven, Netherlands-based company reported net sales of €6.4 billion, at the midpoint of its guidance range, and net income of €1.8 billion. "Bookings are good," said ASML CEO Peter Wennink in a video interview posted on the company's website following the release of quarterly and annual results. "We booked more than €6 billion in bookings, resulting in a record backlog of more than €40 billion by the end of 2022. That's something [we've] never seen before, so the backlog sets a core record."
Gross margin was 51.5 percent in the fourth quarter and 50.5 percent for the full year.
"It was a pretty good year with good performance in some challenging circumstances," Wennink continued.
Wennink said there are concerns about a recession going into 2023 due to high inflation, high-interest rates, geopolitical confrontations and discussions about export controls. He noted that weakening demand for consumer-related products (such as smartphones and PCs and some lower growth rates in the data center sector) could have a negative impact on the industry. On the bright side, however, Wennink has identified strong demand from the industrial and automotive sectors.
ASML is the only manufacturer of key extreme ultraviolet (EUV) lithography machines, and demand remains higher than its supply capacity.
Wennink commented, "The expectations in the minds of our customers for the duration of a potential downturn are much shorter than the average lead times for our machines, as they want to be - due to the strategic nature of our machines - ready for the economy to be ready for the upturn. This means that demand remains higher than our production capacity."
For the first quarter of 2023, ASML expects net sales in the range of €6.1 billion to €6.5 billion and a gross margin in the range of 49% to 50%. For the full year 2023, ASML expects net sales to increase by more than 25 percent year-on-year.
"The medium- to long-term outlook for the company is very bright," Winning said.
According to McKinsey forecasts, the global semiconductor industry will experience a decade of growth and is expected to become a trillion-dollar industry by 2030. However, to achieve these goals, ASML must be able to provide lithography systems and services to its customers.
Wennink confirmed that ASML is targeting a capacity of 90 EUV systems and 600 deep ultraviolet (DUV) systems by the 2025-2026 timeframe, and 20 high NA systems by 2027-2028.
Depending on whether we are at the high end or the low end of the market, we could have sales of between 30 and 40 billion euros by 2025," he commented. And depending on whether we are in the lower or higher end of the market by 2030, we think we will be in the range of €44 billion to €60 billion by then."
ASML CEO: Excessive export controls cut off chip manufacturing
Just a few years ago, major media outlets referred to ASML as a "relatively obscure Dutch company" (BBC), a "little-known tech giant" (CNBC) and a "low-profile Dutch company" (The Economist). " (The Economist). Today, it is a leader in the semiconductor industry. Unlike Applied Materials and Lam Research, which have also been hit by export restrictions to China, ASML has always been in the spotlight.
It doesn't have to be that way. The government measures affecting its business obviously need to be addressed, but ASML can easily ignore them and repeat its claim about the EUV ban: If Chinese customers can't buy the equipment, someone else will. The incentives offered by the government to build fabs would lead to more equipment sales.
Instead, CEO Peter Wennink has been tirelessly pointing out the consequences of political interference, and an inconsistency or two. winning said at last week's fourth-quarter and full-year earnings call that he wasn't doing this to guide decisions. It's to ensure that decision-makers understand the full complexity of the semiconductor supply chain before they fiddle with it. "Our role is to provide information and insight into the consequences of certain situations," he told the press audience.
In an interview with Bits&Chips, ASML CFO Roger Dassen added that the European industry is more fragmented and less well organized than its U.S. counterparts, and Dassen said someone needs to be a voice for ASML's pan-European supply network, customers and end-customers, such as automakers, all of which can be affected by political interference.
What dangers does ASML want politicians to be aware of? After decades of globalization, "it is perhaps incredible that it is only now that governments seem to realize that we have become unilaterally dependent on certain countries that essentially own 80 percent of the world's manufacturing capacity," Winnink analyzes. Now, various countries and regions are scrambling to regain their relevance in the semiconductor sector. Their Chip Act and U.S.-led export controls have led to "the bifurcation of the world into new socio-economic segments.
This conflicts with the reality of today's fluid semiconductor ecosystem, where all stakeholders - manufacturers, suppliers, researchers and customers - work together to streamline the innovation and supply of components that underpin so many industries today. "This borderless ecosystem now faces obstacles. The future will not be as seamless as it is today," Wennink said.
"Chip availability could be reduced due to excessive export controls and cutting off certain parts of chip manufacturing capacity, which would have an impact on important industries such as the automotive industry, such as the energy transition, such as medical technology. I think export controls are a legitimate tool, but is that how you want to use them?"
Government incentives for fabs also spell trouble for semiconductor equipment. "Countries will double their investment in their own industries, whether in the U.S., China, Korea or Europe. It also means we will have the less efficient infrastructure. Costs are likely to go up." Wennink acknowledges that the advantage for ASML and other equipment manufacturers is that these companies will sell more systems. "You could say that's positive. [But] it's a little selfish."
There's a downside for equipment makers, too. If the U.S. and its allies cut off China from certain semiconductors and semiconductor manufacturing technologies, China will be forced to redouble its efforts to develop its own technology. "You can't be naive about that. It's going to happen," Winning said.
He does point out that ASML's machines are more complex than those of its peers. "A lot of the equipment industry focuses on very complex processes, but the machines themselves aren't very complex. Photolithography is a very simple process. But we're doing it on a very complex machine," built from a network of hundreds of suppliers, "each of which is world-class." Wennink asserts that this will not be easily matched by the Chinese.
"It took us forty years. I wouldn't say the laws of physics are different in China, the U.S., Korea or Russia on this. The laws of physics are the same. But [generating] the expertise that hundreds of companies have accumulated, and ASML as a systems integrator putting it all together, it's a little bit of a challenge."
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