Dutch semiconductor equipment giant ASML has released its Q3 2023 financial report, showing a significant decline in orders for the third quarter, far below expectations. This suggests signs of weakened demand for ASML’s chip manufacturing equipment in the semiconductor industry during a lackluster economic climate. In its financial statement on the 18th, ASML revealed that the total value of orders received in the third quarter from July to September decreased by 42% compared to the previous quarter, amounting to 2.6 billion euros (approximately 2.8 billion USD). In contrast, analysts surveyed by Bloomberg had estimated an average order value of 4.5 billion euros.

ASML is the sole manufacturer of the cutting-edge semiconductor lithography equipment required for semiconductor production. Earlier this year, they experienced significant revenue growth as Chinese semiconductor firms rushed to place substantial orders before the U.S. export control measures came into effect.

During the video interview when announcing the financial results, ASML’s CFO Roger Dassen, stated that the overall economic situation has not improved,” There’s still pockets of inflation. We still see interest rates at pretty elevated levels. We still see GDP growth in some economies that is not where people expected that to be. Then I think there are quite some geopolitical tensions.”

ASML’s Q3: China Sales at 46% with Mature Process Clients

China accounted for 46% of ASML’s Q3 sales, higher than 24% in the second quarter and 8% in the first quarter. Taiwan accounted for 24% of sales, while South Korea accounted for 20%. As ASML’s CFO, Roger Dasse explained, the sales in China were notably high due to shipments serving mid-critical and mature nodes based on earlier purchase orders. Shifts in demand timing from other customers have raised our Chinese customers’ order-fill rate, resulting in increased sales in China. All shipments complied with export regulations.

In terms of equipment type sales in the third quarter, ASML sold a total of 105 new lithography machines, including 7 second-hand machines, categorized by product type as follows: 11 EUV machines, 32 ArFi (immersion DUV lithography machines), 9 ArF dry (dry DUV lithography machines), 44 KrF machines, and 16 I-Line machines.

Regarding terminal applications, lithography machines for manufacturing logic chips represented 76% of sales, while those for manufacturing memory chips accounted for 24% of sales. In terms of revenue, ArFi immersion lithography machines accounted for a substantial 48%, with EUV lithography machines at 35%.

“Our Chinese customers say: We are happy to take the machines that others don’t want,” Peter Wennink, ASML’s CEO said. “Because their fabs are ready. They can take the tools.”.

U.S. Export Rules Impact on ASML’s 1980Di Tool and Sales

ASML is targeted by U.S. efforts to curb the export of advanced technology to China. Earlier this year, the Biden administration convinced the Dutch government not to allow ASML to ship some immersion DUV equipment to China without a permit. These Dutch restrictions are scheduled to take effect on January 1st of the following year. Currently, ASML has already been prohibited from selling its most advanced EUV machines to China.

During the press conference after the financial report, Peter Wennink mentioned that despite the expanded export control lists implemented by the U.S. and Dutch governments, he expects strong demand from Chinese semiconductor manufacturers. Additionally, another ASML product not covered by the Dutch export permit rules for this year, the 1980Di deep ultraviolet exposure machine (DUV), has now been restricted according to the new export regulations announced by the U.S. on the 17th of the month.

1980Di is used to assist in the production of relatively advanced computer chips, as well as mid-range and older chips. Wennink stated, “In principle, the 1980 series will be subject to export control regulations, but only when… (they are) used in advanced semiconductor manufacturing.” He also mentioned that only a few Chinese semiconductor factories are considered “advanced.”

ASML anticipates steady operations in 2024

According to a report by Money DJ, ASML also announced its financial forecast for the fourth quarter of 2023, estimating net sales of approximately 6.7 billion to 7.1 billion euros, with a gross margin ranging from 50% to 51%. Research and development costs are estimated at around 1.03 billion euros, while selling and administrative expenses (SG&A) are estimated at 285 million euros. ASML confirms that, as previously anticipated, 2023 has seen robust growth, with a projected increase in net sales approaching 30% and a slight improvement in gross margin, compared to 2022.

ASML stated that the semiconductor industry is currently experiencing a cyclical downturn, with customers anticipating a turnaround in demand by the end of the year. Since customers remain uncertain about the strength and pace of the industry demand recovery, 2024 is expected to be a transitional year. The company is adopting a more conservative estimate, with 2024 revenue expected to be similar to 2023. Preparations are being made for significant growth in 2025.

Explore more:

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(Image: ASML)

TrendForce’s investigations find that DRAM suppliers and major PC OEMs are currently participating in the critical period of negotiating with each other over contract prices for 2Q21. Although these negotiations have yet to be finalized, the ASP of mainstream DDR4 1G*8 2666Mbps modules has already increased by nearly 25% QoQ as of now, according to data on ongoing transactions.

This represents a higher price hike than TrendForce’s prior forecast of “nearly 20%”. On the other hand, prices are likewise rising across various DRAM product categories in 2Q21, including DDR3/4 specialty DRAM, mobile DRAM, graphics DRAM, and in particular server DRAM, which is highly related to PC DRAM and is therefore also undergoing a higher price hike than previously expected. TrendForce is therefore revising up its forecast of overall DRAM price hike for 2Q21 from 13-18% QoQ to 18-23% QoQ instead. However, the actual increase in prices of various DRAM product categories will depend on the production capacities allocated to the respective products by DRAM suppliers.

PC DRAM prices are now expected to undergo a 23-28% QoQ growth in 2Q21 due to the increased production of notebook computers

PC DRAM contract prices are rising by a higher margin than previously expected for 2Q21 primarily because major PC OEMs are now aggressively expanding their production targets. Furthermore, as second quarters are generally peak seasons for notebook production, PC ODMs are now estimated to increase their quarterly production of notebook computers by about 7.9% QoQ in 2Q21. Finally, with regards to the COVID-19 pandemic, vaccination rates remain relatively low across the globe, meaning WFH and distance education are likely to persist and create continued demand for notebook computers, thereby further expanding the hike in PC DRAM prices.

DRAM Suppliers will enjoy increased bargaining power in price negotiations as server DRAM prices are expected to increase by 20-25% QoQ in 2Q21

Apart from the issue of short DRAM supply, server DRAM procurement in 2Q21 has benefitted from the positive turn in the view of enterprises toward IT investments as well as the stronger-than-expected demand related to cloud migration. There was already a supply gap in 1Q21, and these developments will further drive up demand in 2Q21. Hence, difficulty has increased for buyers and suppliers in reaching an agreement on price. Suppliers are in a more advantageous position in contract negotiations since the DRAM market is an oligopoly. Therefore, compared to the previous forecast of nearly 20%, TrendForce is now expecting server DRAM contract prices to increase by 20-25% QoQ in 2Q21.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com