Running a monopoly chip business has its advantages, especially as the rest of the industry is pushed into turmoil — the result of a rapid, significant reversal in demand for consumer chips and U.S. efforts to block semiconductor tech sales to China.
For Dutch semiconductor manufacturing equipment maker ASML, things are not so bad. The company is the exclusive manufacturer of tools that use extreme ultraviolet lithography tech, which is necessary to print-cutting edge chips.
ASML said early Wednesday when it held an earnings conference call with investors that some of its customers — Intel, Samsung, and TSMC, for example — had delayed equipment delivery dates. But, according to CEO Peter Wennink, customers “never cancel,” even amid a recession.
“What we've always seen in recession or downturn — that I've seen in the last 25 years — customers never cancel,” Wennink said on the earnings call, according to a Sentieo transcript. “They ask for a rescheduling of the shipment. And that's basically depending on their capex plans and on the depth of the recession, about the ability to finance it depends whether it's a few months out or a few quarters out.”
What does tend to happen, Wennink said, is that customers ask ASML to delay the delivery of the tools, pushing them out a certain period of time to more favorably suit whatever adjustments the chip manufacturers have had to make to their expansion plans.
Reading between the lines, it appears Wennink is talking about the fact TSMC recently downgraded its factory and tool spending plans to $36 billion from $40 billion to $44 billion earlier this year; Micron made cuts to its capital spending plans, as did Intel.
ASML is in an enviable position compared with some of the other tool makers. Located in the Netherlands, it can operate outside of the increasingly hawkish U.S. view of China and its ability to buy American chip technology.
Sales of the advanced EUV machines are blocked to Chinese customers, but only because one of the crucial submodules is manufactured by a San Diego subsidiary of ASML, and without that submodule the EUV machines would be unable to operate. The U.S. muscled the Dutch into themselves blocking the exports of the EUV systems to China as a result.
Other chip equipment makers are not likely to fare as well as ASML. At the same time as some consumer end markets for chips have dropped off sharply, the U.S. has introduced sweeping new restrictions on chip tech exports, ranging from blocking chips with specific computational throughput to preventing U.S. citizens and companies from servicing or supporting chip equipment machines already in China.
The fresh export restrictions caused Applied Materials to issue a revenue warning last week, cautioning investors that the damage would extend into the next quarter too. For American chip equipment makers, China represents roughly a third of their sales, though some of that revenue is tied to equipment or services that aren’t covered by the new restrictions.
But a lot of tools are subject to the new rules and — perhaps more importantly — so are the personnel needed to service and support existing equipment. The expensive, complex machines needed to perform the various aspects of chip manufacturing require consistent monitoring and upkeep, which has morphed into a lucrative business for the equipment makers.
To put a fine point on it, according to The Economist, Goldman Sachs now estimates that overall the new U.S. export restrictions could cost Applied, Lam Research, and KLA $6 billion this year, or nearly 10% of their projected sales.