ASML early signs of an order Tsunami – Managing the ramp

Taiwan and Korea represented 43% and 44% respectively with China at 15% and Japan and the US in the far distance.

ASML a tidal wave of orders

On the call management talked about logic potentially being up 30% in 2021 and memory being up potentially 50%. While we thing foundry/logic will clearly be on fir we think memory will lag a bit.

Given that litho has the longest lead times of any semiconductor equipment tool, especially EUV, customers are clearly securing their place in line as quickly as they can. Litho systems are typically much of the bottleneck in a fab.

Capacity constrained

As we have previously mentioned, litho tools are a bit like 15 year old scotch in that the production pipeline is both very long and very limited.

Perhaps the biggest limitation to increasing capacity remains the lens systems which take a very long lead time from partner Zeiss.

Not only are the raw materials in short supply but there are just so many lenses that can be polished at the same time.

At one point, years ago, there were a limited number of young east Germans who wanted to apprentice to learn how to polish glass for the rest of their lives. Now that the process is more automated the limitation is the number of custom built polishing machines which management pointed to on the call.

Much like Scotch, there is not a lot that management can do to increase supply in the short term, the next 2-3 years, given the time and cost it would take to build out infrastructure. The other problem is that if you start spending on capacity infrastructure now, the shortage will likely be long over by the time it comes on line thereby creating and excess supply or wasted capacity spending.

Basically you have to make calculated smaller increases in order to not overshoot the target (remembering that this is a cyclical industry no matter how much everyone tries to forget that)

Software “quick fixes”

Management did point to increased sales of software upgrades which do provide a painless quick hit to increase capacity somewhat.

These are also important in that they do not take the tool down for long periods which would further exacerbate the capacity issue.

The problem is that software is little more than a band aid and nothing replaces more litho tools.

We could see similar software upticks at companies like KLA that offer multiple menus of upgrade options and additions to their tools that could help the yield curve and thus capacity.

Positive collateral impact

Its pretty clear that everyone in the semiconductor equipment food chain will see a lot more business in 2021.

As usual, Litho leads the way, followed by process control followed by fabrication tools.

We expect similarly positive outlooks fro Applied, Lam and KLA as well as TEL.
The back end is already seeing an order jump with BESI showing a strong uptick.

The stocks

As we write this, ASML is up 3.5% along with most of the group up a similar amount.

The stocks have recently had a bit of a pullback after a rip roaring run.
Applied analyst meeting seemed to be the high water mark with things falling off after that.

Earnings season with associated strong guidance may likely get us back on track if others follow ASML’s lead as I expect will be the case.

Also Read:

It’s not a Semiconductor Shortage It’s Demand Delirium & Poor Planning

Foundry Fantasy- Deja Vu or IDM 2?

Micron- Optane runs out of Octane- Bye Bye Lehi- US chip effort takes a hit

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