ASML - Lunar Capital

Gearing Up – A Semiconductor Story

Semiconductors or chips regulate electrical flow in electronic devices. They are vital for various products like computers, artificial intelligence (AI) systems, smartphones, automotive vehicles, and military equipment. Taiwan Semiconductor Manufacturing Company (TSMC) manufactures roughly 90% of the world’s cutting-edge chips, while ASML crafts lithography machinery essential for making these chips smaller and more energy-efficient.

Last week, TSMC and ASML released their Q1 2024 results. TSMC saw a 16.5% increase in revenue to NT$592 billion (with an average USD/NTD exchange rate of 31.4) compared to the same quarter last year. While ASML reported €5.29 billion in revenue for the quarter, marking a 21.5% decline from the same period last year. Due to the recent interest around AI, high performance computing chips accounted for 46% of TSMC’s revenue for the quarter.

ASML believes that the semiconductor industry is going to go through a transitory year this year. Orders for its machinery for Q1 2024 dipped nearly 4% compared to the same quarter last year and decreased by 60% compared to the previous quarter. Some of ASML’s latest extreme ultraviolet (EUV) machines go for around €350 million each. Consequently, manufacturers must be certain about their timing for acquiring lithography equipment. ASML anticipates its revenue for the year to remain consistent with 2023 levels. Subsequently, it’s positioning itself to escalate production for 2025.

The US Chips Act aims to encourage semiconductor manufacturers to establish plants within the United States. TSMC and Samsung have each secured approximately $6.5 billion in grants and subsidies to construct facilities in the US. ASML stands to benefit significantly from the Chips Act, given its near monopoly on the sale of EUV lithography machinery worldwide. However, due to the scale of these projects, there is an elevated risk of delays. Consequently, ASML faces the challenge of potentially building up inventory without the ability to deliver products, whilst these new facilities are being constructed. This could impact their near-term financial performance. However, when these new facilities are ready, they would need to be furbished with ASML’s lithography machines, which will likely be very positive for ASML.

The demand for more and more computing power to process the growing demand for AI, smartphones, EV’s and larger and more complex cloud service providers; is adding strain to energy grids. This is driving both the design and manufacture of more energy efficient semiconductors, as well as alternative energy solutions.

ASML is held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

188.33

Last Week

203.47

This Week

199.38

% Change YTD

5.87%

Index / Fund / Rate

JSE ALSI

Start of Year

76 893

Last Week

75 312

This Week

73 364

% Change YTD

-4.59%

Index / Fund / Rate

NASDAQ Composite

Start of Year

15 011

Last Week

16 175

This Week

15 282

% Change YTD

1.80%

Index / Fund / Rate

S&P 500

Start of Year

4 770

Last Week

5 123

This Week

4 967

% Change YTD

4.14%

Index / Fund / Rate

Prime Lending Rate

Start of Year

11.75%

Last Week

11.75%

This Week

11.75%

% Change YTD

0.00%

Index / Fund / Rate

USD/ZAR

Start of Year

18.30

Last Week

18.84

This Week

19.14

% Change YTD

4.59%

Index / Fund / Rate

EUR/ZAR

Start of Year

20.17

Last Week

20.09

This Week

20.41

% Change YTD

1.19%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

76.97

Last Week

90.18

This Week

87.14

% Change YTD

13.21%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Gearing Up – A Semiconductor Story Read More »

ASML: Cycle Up

Weekly Stocktake / By VCS Agency

ASML, the Dutch firm behind the production of lithography equipment essential for semiconductor manufacturing, released their 2023 full year financial results last week. In the semiconductor production process, lithography employs light to intricately design patterns on silicon. Semiconductors serve as foundational components (basically the brain) in all electronic devices: ranging from everyday appliances to the smartphones, and the high-powered Graphic Processing Units (GPUs) crucial for training and operating Large Language Models (LLMs) like ChatGPT.

Semiconductors vary widely in transistor count, with some containing tens of billions of transistors. The smaller the transistor, the greater the number that can be accommodated on a semiconductor, resulting in enhanced performance and energy efficiency. ASML’s cutting-edge lithography machines can create patterns with transistor sizes as small as 3nm (nano meters, i.e. one thousandth millionth of a meter), and they are currently building the capacity for their 2nm technology. Some argue that the technology they have developed is the most intricate ever devised by humankind.

ASML reported €27.6 billion in revenue for the past year, marking a 30% increase compared to the previous year. The net profit for the company increased 39%, reaching €7.8 billion for FY2023. ASML noted that the current fiscal year will yield results similar to FY2023, emphasizing the ongoing recovery of the semiconductor industry from the trough of its economic cycle. ASML’s primary clientele comprises major fabrication plants in the semiconductor sector, including TSMC, Samsung, and Intel. Notably, ASML’s clients have given them indications that they want to increase capacity for 2025. This is evidenced by a significant growth in their order book.

ASML holds a virtual global monopoly in the sale of lithography equipment. Due to this dominance and the fact that semiconductors play a vital role in military applications, companies dealing in such equipment require licenses to sell their products. The United States and several allied nations, including the Netherlands, have imposed trade restrictions, restricting the sale of their most equipment to China. ASML anticipates that this will result in a 10-15% decline of their sales to the Chinese market.

ASML is held in the Lunar BCI Worldwide Flexible fund. It is also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

188.33

Last Week

191.75

This Week

195.25

% Change YTD

3.67%

Index / Fund / Rate

JSE ALSI

Start of Year

76 893

Last Week

72 661

This Week

75 084

% Change YTD

-2.35%

Index / Fund / Rate

NASDAQ Composite

Start of Year

15 011

Last Week

15 311

This Week

15 455

% Change YTD

2.96%

Index / Fund / Rate

S&P 500

Start of Year

4 770

Last Week

4 840

This Week

4 891

% Change YTD

2.54%

Index / Fund / Rate

Prime Lending Rate

Start of Year

11.75%

Last Week

11.75%

This Week

11.75%

% Change YTD

0.00%

Index / Fund / Rate

USD/ZAR

Start of Year

18.30

Last Week

19.01

This Week

18.79

% Change YTD

2.68%

Index / Fund / Rate

EUR/ZAR

Start of Year

20.17

Last Week

20.71

This Week

20.38

% Change YTD

1.04%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

76.97

Last Week

78.63

This Week

83.09

% Change YTD

7.95%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

ASML: Cycle Up Read More »

ASML – Riding the Cycle

Weekly Stocktake / By VCS Agency

Advanced Semiconductor Materials Lithography (now renamed simply ASML), is based in cycling country, The Netherlands and released their FY2023 Q3 results on Wednesday last week.

ASML manufactures the lithography equipment to mass produce semiconductor or more commonly called computer chips. Lithography allows one to “print” complex circuits onto silicone wafers creating a semiconductor chip. The process and materials used is highly complex and requires a very high level of precision.

In this last quarter, AMSL experienced a slowdown in new orders, after the significant growth post the Covid-19 slump and the significant take-up following the AI hype. However, ASML expects a significant increase their revenues in 2025.

Let’s look at ASML’s FY2023 Q3 results:

Sales

€6,673bn

Decreased by 3.33% since the last quarter.

No. of Units sold

105 new units
7 used units

Lower by 2 new and 1 used unit since the last quarter.

Gross Profit

€3,462bn

Decreased by 2.31% since the last quarter.

Gross Margin

51.9%

Up from 51.3% since the last quarter.

Net Income

€1,893bn

Decreased by 2.52% since the last quarter.

Net Margin

28.4%

Up from 28.14% since the last quarter.

Despite the slowdown in sales and profits, ASML is still highly profitable and still earns high margins. ASML is almost a monopoly in developing Extreme Ultraviolet Lithography (EUV) technology required to develop smaller (very, very tiny) but more powerful semiconductors or chips.

ASML’s largest client is TSMC (Taiwan Semiconductor Manufacturing Company) who is currently building new factories (or fabs as they are called) in the USA and Germany. This is to mitigate the tensions between the USA and China. In fact, just last week the Biden administration introduced stricter curbs on exporting advanced semiconductor to China. These new fabs will require AMML’s EUV and DUV (Deep Ultraviolet) lithography equipment to mass produce chips at these fabs. Hence, ASML’s positive view of significant increase in sales and profits in 2025.

The semiconductor industry is cyclical and subject to export restrictions.

ASML is held by Lunar Capital’s Offshore Portfolio clients and in the Lunar BCI Worldwide Flexible Fund.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

Last Week

176.11

This Week

175.19

% Change YTD

23.87%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

Last Week

72 920

This Week

70 198

% Change YTD

-3.90%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

Last Week

13 407

This Week

12 984

% Change YTD

24.05%

Index / Fund / Rate

S&P 500

Start of Year

3 840

Last Week

4 328

This Week

4224

% Change YTD

10.0%

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

Last Week

11.75%

This Week

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

Last Week

19.01

This Week

19.03

% Change YTD

12.07%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

Last Week

19.98

This Week

20.15

% Change YTD

9.27%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

Last Week

91.12

This Week

92.16

% Change YTD

7.23%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

ASML – Riding the Cycle Read More »