Semiconductor equipment, lithography machines stand out

The raging semiconductor cold wind came to an abrupt end at ASML's Investor Day meeting, with successively revised revenue outlooks, continued production capacity expansion plans, and strong future demand. Even Morgan Stanley analyst Lee Simpson also Recently, ASML has been shouting about overweighting, and the surroundings of ASML are filled with the vitality of spring. Compared with the equipment manufacturers shivering in the cold semiconductor winter, it seems particularly "out of place".

This leader in lithography machines always seems to have a magical power. Even in October, when the stock prices of all semiconductor equipment manufacturers were at a low point, ASML still allowed investment institutions to give extraordinary valuations. In a report on October 11, Khaveen Investments gave ASML an enterprise valuation data of 24.29x, and they believed that the semiconductor equipment industry average EV/EBITDA (EV/EBITDA, also known as enterprise value multiple, is a widely used The company's valuation indicator) is only 12.37 x, which is half of ASML. The valuations of several other equipment giants such as KLA, Lam Research, Applied Materials, Tokyo Electron (TEL), etc. do not even reach the average.

Source: Khaveen Investments

Since 2018, the popularity of lithography machines has been rising, but among many semiconductor equipments, what stands out about lithography machines is far more than just its high topicality...

Although the semiconductor industry chain is often known as the "shovel seller", semiconductor equipment manufacturers are not having an easy time this year. The previous article "Semiconductor Equipment Giants with Plummeting Market Value" pointed out that since the beginning of this year, demand has declined, market value has halved, and enthusiasm has faded. , reduced capital have put semiconductor equipment manufacturers in dire straits. Even though the stock prices of equipment manufacturers have rebounded in the past month, the haze hanging over their future prospects has not dissipated.

TEL even lowered its financial forecast for the first time in four years. On November 10, TEL issued a press release stating that due to concerns about the overall economic slowdown and geopolitical risks, semiconductor manufacturers' equipment investments have tended to be suspended/suppressed, resulting in revenue estimates that will be lower than originally expected. Therefore, this year (2022) From April 2020 to March 2023), the consolidated revenue target was reduced by 250 billion yen from the original estimate of 2.35 trillion yen to 2.1 trillion yen, and the consolidated profit target was revised down by 170 billion yen from 716 billion yen to 546 billion yen. The net profit target was also revised down by 123 billion yen from 523 billion yen to 400 billion yen.

In addition, Lam Research previously estimated a revenue loss of US$2 billion to US$2.5 billion next year; KLA initially estimated a revenue loss of US$900 million next year; although AMAT has not released its quarterly financial report, analysts have been bearish in the past few months. Their earnings outlook has been revised downward nine times, with investment institution Zacks forecasting earnings per share of $1.73, indicating a year-over-year decline in earnings of approximately 10%.

However, in this "sorrow, worry, worry" atmosphere, the two photolithography machine manufacturers ASML and Canon have shown unprecedented industrial vitality.

Due to optimism about the strong market demand for advanced chip production equipment, ASML raised its revenue outlook for 2025 on November 10, estimating that revenue will reach 30 billion to 40 billion euros (approximately 30.9 to 41.2 billion U.S. dollars) by 2025 ), higher than the previous estimate of 24 billion to 30 billion euros, and better than the average analyst estimate of 32 billion euros. ASML also pointed out that its performance will continue to grow in the next ten years, with a sales target of 44 billion to 60 billion euros by 2030, and will continue to increase production capacity.

According to ASML's revenue estimate of 18.6 billion euros in 2021, ASML's revenue growth rate will be 61.3%-115% in 2025, and its revenue growth rate in 2030 will be 136.6%-222.6%. Although this data looks scary, it may just be normal growth for ASML, because it has grown like this in the past ten years. In 2012, ASML's revenue was only 4.732 billion euros, and by 2016 it had grown to 6.875 billion euros. From this point of view, in the ten years from 2012 to 2021, ASML's revenue growth rate was as high as 295.7%, and in the five years from 2016 to 2021, The growth rate was 169.6%. As it turns out, the real-world data is only more alarming.

Source: "Ten Years of Changes in Lithography Giant ASML"

To achieve such revenue expectations, the expansion of production capacity is naturally essential. ASML's lithography machines have always been in short supply. The more production capacity, the more revenue can be generated, especially those EUV and High NA EUV equipment suitable for advanced processes. Although the production difficulty has increased, the relative price has also increased. . Judging from ASML's production expansion plan, the annual EUV production capacity will increase to 90 units by 2025-2026. In the past ten years, ASML EUV shipments have increased from 1 unit in 2012 to 42 units in 2021. With the increase in production capacity , EUV shipments will definitely grow significantly in the next five/ten years.

By 2027-2028, ASML also plans to increase High-NA EUV production capacity to 20 systems. According to previous reports from Reuters, the new generation of High-NA EUV equipment is priced at approximately US$400 million, and the previous generation EUV lithography machine is priced at approximately 120 million US dollars, which means that the price of High-NA EUV equipment has more than doubled. At the beginning of this year, ASML received the first order for the latest High-NA EUV "EXE:5200" from Intel. Intel expects to enter mass production of this equipment by 2025. In addition to Intel, first-tier fabs such as TSMC and Samsung have also Pre-ordered High-NA EUV.

Compared with EUV/High-NA EUV, DUV is much cheaper, with an average price of about 28 million euros per unit, but this does not prevent it from becoming the main force in this expansion. ASML plans to increase the annual production capacity of DUV systems to 600 by 2025-2026, which is almost the total DUV shipments of ASML in 2019-2021. Data shows that ASML shipped a total of 234 DUV lithography machines in 2021 , a total of 193 units were shipped in 2020, a total of 169 units were shipped in 2019, and a total of 596 units in three years. It can be seen that ASML’s production expansion efforts this time cannot be underestimated.

When it comes to expanding the production of lithography machines, ASML is not the only one taking action. Canon, the "down-and-out" lithography machine aristocrat, actually announced a production expansion plan after 21 years. The reason why I say "down and out" is that everyone must know that Canon lithography machines were also the dominant player in the last century. However, after the battle between dry and wet routes, Canon has been unable to keep up with ASML, especially in the field of EUV equipment. It's hard to compare.

In the past, cameras were Canon's main business. However, in recent years, the global digital camera business has continued to decline, and Canon has inevitably been affected. However, the photolithography machine business has gradually become a growth driver. After all, according to the Wall Street Journal at the end of last year, manufacturing in 1995 The second-hand photolithography machine Canon FPA3000i4 was only worth US$100,000 in October 2014. Today it is worth US$1.7 million, a price increase of 17 times. Second-hand ones are so popular, not to mention first-hand ones.

Currently, Canon mainly produces semiconductor lithography equipment at two Japanese factories including Utsunomiya Office (Utsunomiya City) and Ami Office (Ami Town, Ibaraki Prefecture), focusing on low-end lithography machines from i-line to KrF. series. Canon's financial report shows that Canon's photolithography machine business will continue to grow as investment in semiconductor equipment increases in the future.

Maybe it’s because I feel that “it’s better to let me make it myself than to let scalpers make this money”, or maybe it’s influenced by geopolitics, or maybe it’s because the NIL (Nano Imprint Lithography) technology that I’m competing against has made breakthrough progress. In short, This former leader in lithography machines announced its production expansion after 21 years.

According to a report by Nikkei in early October, Canon will build a new factory for semiconductor lithography equipment on an open space of about 70,000 square meters in the Utsunomiya office. The total investment, including factory construction costs and production equipment, is expected to reach 540~ It will cost about 56 billion yen. Construction will start in 2023, and the production capacity will be increased to twice the current level, striving to be put into operation in the spring of 2025.

Source: Nikkei Chinese website

It is worth noting that Nikkei also pointed out that the new factory also plans to develop a new generation of equipment. This new generation of equipment is the above-mentioned NIL equipment. NIL is an effective technology for replicating nanoscale features and was added in 2003. In the ITRS roadmap, as a supporter of NIL technology, Canon began research and development of this technology as early as 2004, and has now made significant progress in the storage field (Kiaoxia, which jointly developed NIL technology with Canon, has mastered NIL 15nm The process mass production technology is currently undergoing technology research and development below 15nm and is expected to be further achieved in 2025). It is reported that in order to achieve rapid upgrade of the NIL system, Canon also applies machine learning and AI technology to further improve system performance, increase productivity, and achieve more autonomous control. Perhaps, the mass production of Canon NIL equipment is just around the corner.

I have to admit that Canon has a lot of plans in the field of lithography machines in the near future. In early April this year, Nikkei also reported that Canon was developing a lithography machine for semiconductor 3D technology. The new product will improve the lens on the original basis. and optical components such as mirror stages to improve exposure accuracy, with the exposure area reaching 4 times that of the original product. In order to increase the wiring density, the new product also improves the resolution and supports a line width of 1 micron. However, this new product will be launched in the first half of 2023 at the earliest. Judging from the time, it may still be manufactured in the original factory.

In terms of production capacity, Canon predicts that the sales of semiconductor lithography equipment will increase by 29% from the previous year to 180 units in 2022, which has surged to 4 times in the past 10 years. After the construction of the new factory, the total production capacity of the two bases will increase to approximately 2 times. . We will also wait and see whether Canon, which focuses on both production capacity and R&D, can expand its market share of lithography machines in the future.

Although Nikon has not yet reported any news of production expansion, Nikkei reported in August that Nikon expects to increase annual sales of its main semiconductor lithography machine models in fiscal year 2025 (ending March 2026) to fiscal year ending 2021 ( As of March 2022), it will more than double the average sales volume in the three years. Focusing on new products supporting 3D semiconductors to be launched in 2023, it will develop customers in Japan, mainland China, and Taiwan other than Intel. Although it is not a cutting-edge photolithography machine, Nikon believes that by supporting 3D to achieve added value, it can increase its influence in the industry.

As both indispensable equipment for semiconductor manufacturing, why are photolithography machines so "resistant"? According to the author's analysis, there are three main reasons:

Photolithography technology is the most critical step in the chip manufacturing process. The reason why chip technology has developed step by step from hundreds of microns to 3nm today in the past 60 years is due to the lithography machine. Without the lithography machine, Moore's Law may not be possible. extends to the present. In the chip manufacturing process, the photolithography machine is at the forefront. Only by transferring the circuit diagram on the mask plate to the resist film on the wafer surface through the photolithography machine can subsequent chemical development, fixing, cleaning and inspection be carried out. And other processes, without a photolithography machine, no matter how excellent the chip design is, it will only be "a flower in the mirror, a moon in the water" and cannot be converted into a chip that is useful to us.

For first-line wafer foundries such as TSMC, Samsung, and Intel, if they want to be the first to achieve breakthroughs in advanced processes ahead of their competitors, they cannot avoid lithography machines. After all, "it is difficult for a clever woman to make a meal without rice." Without advanced lithography It is impossible to manufacture chips using advanced manufacturing techniques without machines, so major manufacturers began to rush to place orders for ASML High-NA EUV at the end of last year. High-NA EUV serves as a ticket to enter the future 2nm, or even the "Ami Era". Only with it can players be qualified to participate in the next round of advanced process struggles.

This is also the reason why Lee Simpson called for overweighting ASML in the sluggish market situation at the beginning. Lee Simpson believes that ASML has better conditions to survive than most of its peers, because orders for advanced tools are often more sticky than production capacity expansion plans. He pointed out that although ASML knows that demand in the broader chip industry is somewhat weak, it can prove that it is deeply resilient, with a large backlog of orders that can support it until 2023, when improved supply chain conditions can improve gross margins, and ASML's EUV has strategic nature.

The biggest key reason why equipment manufacturers have been treading on thin ice recently is that due to the short-term slowdown in demand for personal computers and smartphones, chip manufacturers such as TSMC, SK Hynix, Micron, and Intel are all slowing down capital expenditures. Among them, the capital expenditure reduction of storage manufacturers has been the most serious. Memory chips are an industry with relatively large market cycle volatility. Facing the current sluggish end market, many storage manufacturers including SK Hynix, Micron, Kioxia, and Nanya have Manufacturers have significantly reduced capital expenditures, and the turbulent downstream market has naturally had a great impact on equipment manufacturers, because among manufacturers' capital reductions, equipment investment has been the first to be reduced.

Khaveen Investments data shows that storage business is Lam Research’s largest business, with 61% of revenue coming from this; TEL’s storage revenue accounts for 51.3%. Among the reasons for TEL’s recent revision of its financial forecast include changes or delays in memory manufacturers Equipment investment; AMAT's storage revenue accounts for 40%; in comparison, ASML's 29.8% storage revenue is much lower than that of several other equipment manufacturers, so it is relatively less affected by capital reductions.

Source: Khaveen Investments

On the other hand, although the capital expenditure of wafer foundries has also been reduced, in the long term, competition in chip manufacturing will intensify. The United States, Europe, Japan, South Korea and many other regions are working hard to support local chip production, which will contribute to the production capacity required by the chip industry. improvement. According to information disclosed by major manufacturers, Khaveen Investments expects capital expenditures by memory chip manufacturers to decline in 2023, while capital expenditures by logic chip manufacturers will pick up in 2023.

TrendForce also pointed out that the growth in wafer foundry output value in 2022 will come from market demand. The weak market will cause inventory adjustments, which will impact the output value in 2023 by only 2.7%. Even so, the output value of the wafer foundry industry will continue to grow in 2023, as TSMC is expected to account for close to 60% of the market. Coupled with strong price increases and the injection of high unit price 3 nm process wafers, TSMC will have high single-digit growth, driving Wafer foundry output value will grow in 2023. This undoubtedly adds confidence to lithography machine manufacturers, which account for the majority of logic chips.

Currently, the world's three largest lithography machine manufacturers are ASML, Canon and Nikon. Among them, ASML is a European manufacturer, while Canon and Nikon are both Japanese manufacturers. This can be seen from Bloomberg's previous chart showing that the fortunes of chip equipment manufacturers vary by location. It can be reflected.

Source: Bloomberg

According to Bloomberg, analysts expect that the revenue decline of three American companies, Lam Research, KAL, and AMAT, will be greater than that of their Japanese counterparts next year. Lam Research has already estimated that its revenue in China will decrease by US$2 billion to US$2.5 billion in 2023. KAL has also initially estimated that due to the US ban, its revenue loss next year will reach US$900 million. Although Japan's TEL revenue has also been affected, compared with the above three companies , less impact.

Judging from ASML's financial report, mainland China is not ASML's largest sales market in 2021, with sales of only 16%. According to Reuters, ASML CEO Peter Wennink told investors on Friday that ASML would not change its 2030 revenue forecast if Chinese chipmakers are unable to expand production capacity beyond current levels. Wennink said: "As much as I hate to see it, if the geopolitical situation is like this, if China is excluded from any growth, but the chip demand is still there, the fabs will be built elsewhere. Although this may There are temporary issues, but ultimately we still need to make these chips."

In a sense, there is a certain chance that ASML's vacated share in the Chinese market will be filled by Canon and Nikon. After all, at present, the photolithography machines of these two manufacturers mainly belong to the mid-to-low-end series and are subject to the US ban. The impact is smaller.

Everyone knows that the semiconductor industry is cyclical. Although the industry as a whole is currently in a downward cycle, one day it will reach a turning point and usher in new opportunities. However, those are all things in the future. Without the present, how can we talk about the future?

Therefore, what we need to consider now is how to survive the downturn. In summary, the reason why lithography machines are "resistant" is because they are strong enough. Because the technology is strong enough, it can play a decisive role in semiconductor manufacturing; because ASML is strong enough, its customers are more sticky. Of course, in addition to diligently improving their internal skills and striving to become stronger, local manufacturers also need to diversify their layouts. Even equipment giants with dual layouts of storage and logic have been greatly affected by the proportion problem, not to mention other manufacturers with a single layout. Yes, in special times, the impact will only be greater.