ASML Q1 Sales Weaken Slightly, but Market Share Remains Strong

Aaron Hand, Executive Editor, Electronic Media -- Semiconductor International, 4/16/2008 12:13:00 PM

ASML (Veldhoven, Netherlands) announced its 2008 first-quarter results this morning. Although the lithography toolmaker highlighted what was the eighth straight quarter of net sales of more than 900 million euros, it did nonetheless turn out to be a somewhat weaker quarter, given the current global economic weakness and delays in fab capacity expansions. But ASML’s executives pointed to ramps in 45 and 32 nm technologies, as well as growing use of immersion, double patterning and EUV, as cause for optimism in the coming months and years.

1Q08 net sales of 919 million euros ($1.47B) compared with net sales of 955 million euros ($1.52B) in 4Q07 and 949 million euros ($1.51B) in 1Q07. The quarter’s net bookings were valued at 312 million euros ($498.23M) with 26 systems, leading to an order backlog valued at 1.17 billion euros ($1.86B) as of March 30.

The reasons for this relatively low order intake are threefold, according to Peter Wennink, executive vice president and CFO at ASML. He cited the healthy order book at the beginning of the quarter, noting that customers simply did not need to order more systems for first-half delivery. He also cited bookings delays for two flash memory fabs as a result of investment pushbacks in that sector, and a bookings delay from a DRAM customer that is discussing new strategic alliances.

Wennink argues that the current market is less impacted by the global economy than it is by the supply and demand situation in the memory market, in particular. “You could talk about a downturn, but we have to put everything into perspective,” he said in a video interview. Besides starting the quarter with a high backlog, he pointed to the overcapacity in the memory chip market, which has led to low prices, and in turn the pushback of fab investments.

“Orders booked in the first quarter came in large part from our stable logic customer base, as they added incremental capacity to meet growing demand at their most advanced process nodes,” Wennink said during this morning’s conference call.

In fact, it is the advanced process nodes that will drive revenues up – gradually in the second quarter, but more so in the remainder of the year. “We do remain cautious with the backdrop of global economic uncertainty, and uncertainty in the memory demand,” Wennink said. “However, we expect that, ultimately, lithography demand will in particular be driven by the ramps of the new 45 nm flash memory node, which are required in the second half of 2008, the firming up of DRAM prices, and the conclusion of new strategic alignments between DRAM makers.”

Immersion and double patterning

ASML expects to see the ramp of 45 nm technology in the second half of the year, and also anticipates the introduction of 38 nm technology using double patterning in early 2008, according to Eric Meurice, ASML’s president and CEO.

The industry is nearing certainty on which double patterning/double exposure techniques they will pursue, according to Meurice. “There were a certain number of competing technologies that were being looked at. And I believe at this very moment in the flash sector, the technologies are being frozen, and they are looking like a mixture of what we call spacer technology and double patterning. So this is now clarified, which is good.” The clarification will help to strengthen the possibility of ordering, he added, for ramping at 32 nm around the first or second quarter of 2009. “We already have a picture of the needs, and we believe that it will be still requiring more capacity in terms of litho machines than the current 45 nm nodes.”

Logic chips, however, cannot use spacer technology, which requires less immersion than what is considered pure double patterning, where two immersion layers will be needed. “This technology is also now being frozen in the logic sector, and we are going to see certain numbers of customers buying in the first half of ’09,” Meurice said. “But we would still expect logic to not represent a very large part of immersion. It will still be dwarfed by the flash ramp and by the new immersion ramp of DRAM, which will…be in production in Q3 of this year, and more customers will come from Q4, Q1, Q2 of ’09.”

Meanwhile, ASML has been making great strides with its immersion tool orders, and predicts that revenue from immersion systems will nearly double in 2008 over last year. A further 14 immersion systems shipped in the first quarter, according to Meurice. That brings the company’s total immersion installed base to 86 tools, 53 of which are in Asia, 16 of which are in Japan.

It is in Japan, of course, where ASML’s two main competitors reside – Nikon and Canon. However, according to ASML’s figures, ASML held a 65% market share in 2007, expected to rise further in 2008. Asked whether there was enough market left over for ASML’s competitors to share, Meurice replied, “It is true that if lithography is a good business and a growing business, it is possible that a second player at 30% market share could make a good business, and we suppose that will happen.” He added, however, that both competitors were lucky to have another business in LCDs.

For ASML’s part, there may come a time when the company will need to rely less heavily on the semiconductor market, but Meurice does not see that coming soon. “We believe that there is enough growth in this business that we should not defocus our attention from there,” he said. “But it is true that, in the year 2015 or so, we probably would reach a level of maturity which would make sense for us to think about something a bit different than semiconductors.” Although ASML has been working on a diversification plan for the past two years or so, at this moment there is nothing like solar that the company is ready to announce, Meurice quipped.

For several reasons, ASML has no plans to scale back its R&D spending, with spending slated for 130 million euros ($207.38M) in the second quarter. “The thinking behind this is that, in R&D, we have a few major projects that we are executing on, that we think are vital for the medium-term future of the company,” Wennink said. Those projects include maintaining a lead in the immersion market, developing a next-generation architecture for double patterning, extreme ultraviolet (EUV) lithography development, and extending optical lithography.

Also, ASML believes that it will see an uptick in Q4, Wennink added. “And that means that we are looking at two quarters that will be weaker in terms of sales against previous ones, but that is not enough for us to start cutting in R&D,” he said. “If you say, ‘When do you start cutting R&D?,’ we would have to see a very sustained, long downturn with a severe pressure on the capacity additions and on the technology needs of our customers. We aren’t seeing that, and by the time we see it, we’ll communicate that, and you’ll see our actions in the R&D line, but not earlier.”