ASML (Nasdaq: ASML) and Applied materials (NASDAQ:AMAT) They are two of the largest manufacturers of semiconductor equipment in the world. ASML is the world’s leading producer of lithography systems, which are used to optically etch circuit patterns onto silicon wafers. It is the only supplier of advanced UV (EUV) lithography systems used to manufacture the smallest, densest and most energy-efficient chips in the world.
Applied Materials provides a broad range of semiconductor manufacturing equipment, services and software for the foundry, logic and memory chip markets. It also sells LCD and OLED screen manufacturing equipment. Both companies are staples of Semiconductor sector.
But over the past three years, ASML stock has fallen 5% while Applied Materials stock has risen 15%. Let’s see why this happened, and whether Applied Materials remains ASML’s strongest semiconductor equipment.
ASML, headquartered in the Netherlands, has a monopoly on a key supply chain link in the semiconductor market through its UV systems. All the world’s leading foundries – incl Taiwan Semiconductor Manufacturing Co., LtdSamsung, and Intel – The need to continue purchasing ASML EUV systems to produce the best chips in the world.
These massive systems cost more than $150 million each and require multiple aircraft to be shipped. The cost of its next-generation high-NA EUV systems, which are required to produce smaller chips, is currently about $380 million. It has taken decades to develop ASML’s UV technology, so it will not face any real competitors for the foreseeable future.
However, ASML’s growth continues to ebb and flow with the cyclical semiconductor market. It is also highly exposed to the technology and trade war between the United States and China, which has already prevented it from selling its UV and some older deep-UV lithography systems to Chinese chipmakers. It still generates 26% of its revenue from mainland China in 2023.
ASML’s revenues rose 33% in 2021, 14% in 2022, and another 30% in 2023. This growth was driven by strong sales of new PCs during the pandemic (2020-2021), the 5G upgrade cycle in the smartphone market, and Artificial intelligence market.
But for 2024, analysts expect its revenue to rise just 2% as it faces tougher export restrictions against China and sees the AI market’s initial growth spurt. It is gradually shipping its first high-NA EUV systems, but its largest customers won’t be using this cutting-edge technology to mass-produce their latest chips just yet. Earnings per share are expected to decline by 4%.
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