What recession? Chipmaking kit supplier ASML hits record orders

But supply issues are forcing the lithography system giant to defer revenue past 2022

While sales are starting to wane for certain chips like GPUs, Dutch semiconductor equipment supplier ASML is seeing extraordinary demand for its chipmaking machines, even as the company deals with its own supply constraints that are delaying shipments.  

ASML, the world's largest supplier of lithography systems for chip manufacturers, reported Wednesday that it saw a record €8.5 billion ($8.7 billion) in orders in the second quarter. The company's net sales, representing revenue recorded in the period, was €5.4 billion ($5.5 billion).

Peter Wennink, ASML's CEO, said while the PC and smartphone markets are experiencing a downturn, demand remains strong for chips used in high-performance computing and automotive applications.

"It's also evidenced by the utilization rates of our machines that are in the installed base," he said in an interview transcript [PDF] posted by ASML.

However, there have been challenges for ASML, which has a monopoly over ultraviolet light (EUV) machines used to make advanced chips.

For one, the semiconductor supplier is dealing with shortages of parts needed for its systems, which is slowing down its ability to send machines to chipmakers.

The issue is, these chipmakers still need the machines, so ASML is increasingly opting to ship the systems without performing final tests at its facilities. This means the company has to defer revenue in cases where it makes so-called fast shipments, because the revenue isn't recorded until the machine is properly inspected at the customer site.

As a result, Wennink said, the company now expects to see €2.8 billion ($2.9 billion) in revenue deferred beyond 2022, which is about €1.8 billion ($1.8 billion) more than what ASML expected a few months ago. This prompted the company to slash its forecast for annual revenue growth in 2022 from 20 percent to 10 percent.

While ASML plans to ship 55 EUV systems this year, it only expects to book revenue for 40 of them this year because of 15 machines whose shipments are being expedited. As for deep ultraviolet lithography (DUV) systems, which are used for less advanced chips, ASML expects to ship a "significant number" of them, though revenue will be deferred for some, Wennink said, without offering specific numbers.

As for other challenges, the company is dealing with the impact of inflation like many others, which has resulted in a lower-than-expected gross margin of 49.1 percent for the second quarter.

"I mean we have seen an acceleration of inflationary pressure on labor, on freight specifically, on parts," said Wennink.

One potential issue Wennink didn't address in the interview is a push by the US government to convince officials in the Netherlands to block ASML from selling DUV systems to Chinese customers.

In ASML's breakdown of sales by region [PDF], China made up 10 percent of revenue for the second quarter, down from the 34 percent in sales the country commanded in the first quarter. Taiwan and South Korea represented ASML's largest regions for the second quarter, making up 41 percent and 22 percent of sales, respectively. The United States was tied with China at 10 percent for the period.

Despite supply chain and inflation issues, Wennink offered an optimistic assessment of how ASML will fare in a global economy some fear is on the verge of a recession. Beyond ongoing demand in the automotive and HPC markets, the CEO expects the semiconductor industry will get a boost from the rise in renewable energy and Internet of Things-related trends.

"If it's a moderate recession, I think the impact will be very limited. For the simple reason that we have such a big backlog, that our customers are coming to us and say, 'listen, if we see a slowdown, sure, but one thing is certain: we want your machines,'" he said. ®