What Do Slumping EUV Equipment Orders Mean for the Rest of 2023?

ASML saw its largest customer, TSMC cut its orders for the first time. Despite a challenging short-term outlook, future demand for advanced chips remains high due in large part to rapid developments in AI.

Global economic and geopolitical uncertainty continues to put pressure on chipmakers and the upstream market is feeling the effects. Leading EUV equipment manufacturer ASML shouldered the brunt of this pressure during its recent earnings call. Its largest customer, Taiwan Semiconductor Manufacturing Co. (TSMC) cut its EUV equipment orders for the first time. The move led to a sharp 13% drop in share prices for the Dutch equipment maker—its largest since March 2020.

Now, experts fear the growth of the wider chip industry may experience a decline as both interest rates and inflation continue to soar. Amid intense economic pressure and wavering demand, semiconductor equipment manufacturers appear to be facing a difficult second half of 2023.

ASML’s Strength Wavers

As Europe’s most valuable technology company, ASML has hedged its future on the demand for EUV manufacturing equipment. Until now, this stance has led to nothing but success as the company posted result after result of strong earnings while establishing itself as the sole provider of this cutting-edge tech. Indeed, as the semiconductor industry boomed in the wake of the pandemic and major players sought to increase their EUV capacity, ASML was poised to ride the wave.

Now, the Dutch equipment maker’s position has been shaken ever so slightly. ASML’s reliance on EUV equipment orders from a small subset of clients could spell trouble if major chipmakers continue to scale back their orders.

Indeed, TSMC’s recent cutback may not be all from the company. Digitimes reports that the Taiwanese firm could slash its EUV orders by as much as 40% by the end of the year or significantly delay its incoming shipments. While this dramatic action seems unlikely, the company points to “slowing fab capacity expansions in Taiwan” as a key reason behind the current cuts. Whether or not TSMC will move to cut its orders even further remains unknown.

ASML also supplies EUV machines to both Intel and Samsung as major buyers. Considering recent industry trends, those firms may follow TSMC’s lead in reducing orders. Of course, they could also take advantage of the cutback and attempt to bolster their positions with more EUV production slots.

For ASML, this development significantly complicates the company’s near- and mid-term plans. The manufacturer posted a 46% decline in first-quarter bookings compared to the previous year. CEO Peter Wennick also warned of “mixed signals on demand from the different end-market segments.”

Challenging Second Half

ASM International CEO Benjamin Loh forecasted that the latter half of 2023 is expected to remain unkind. The firm predicts spending on wafer fab equipment to drop by “a high teens percentage” with sales decreasing by 10% or more in the second half of the year. Leading this decline is the memory segment, which the company sees experiencing a “significant double-digit percentage” drop. The company also cites softer end-market conditions and fab readiness delays as contributors to the stale second half.

Elsewhere, other chip equipment makers have also experienced sliding demand. BE Semiconductor saw its shares drop 3% in April before correcting the loss. Texas Instruments also projected a disappointing sales forecast for the current quarter.

The Impact of AI

Despite recent setbacks for ASML, the long-term forecast for EUV equipment is still positive. Growing demand for artificial intelligence (AI) offerings, IoT devices, and autonomous vehicles will continue to generate demand for advanced chips.

Much of the global discussion will likely stay centered around AI and the advanced chips required to develop and operate this technology. As demand for AI skyrockets around the world, chipmakers and governments alike are vying to create the most effective systems. With applications ranging from research to entertainment and defense to automation, it’s likely the chip industry’s future will be closely tied to AI in the coming years.

For ASML, its unique EUV capabilities mean it will surely weather the present storm of declining orders. Other equipment manufacturers may have a steeper hill to climb without the ability to offer cutting-edge solutions but should also be bolstered by continued demand for advanced chips.

‍

Author