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Stock Highlight: ASML Holding NV
Headquartered in Veldhoven, The Netherlands, ASML (ASML) was founded in 1984 as a venture between Royal Philips Electronics and Advanced Semiconductor Materials International called ASM Lithography Holding. It was later renamed ASML Holding. The company has about 8,500 regular employees and more than 55 locations in 16 countries. ASML’s customers include the top 10 semiconductor manufacturers worldwide. Its main competitors are Nikon and Canon (CAJ). The stock is traded on the Euronext Amsterdam and NASDAQ.
The computer chips that power increasingly sophisticated electronic devices, like tablet computers and advanced game consoles, have been getting smaller but more complex, with a growing number of functions. ASML’s lithography equipment is needed to make these smaller chips with finer circuitry. A lithography tool uses light to project a circuitry pattern through a mask onto a silicon wafer coated with light-sensitive material. The mask is placed on a scanner and light passing through the mask produces the pattern. The process can entail applying over 30 layers of pattern onto a single wafer.
ASML’s product mix includes older types of lithography equipment that are employed in high-volume manufacturing, as well as newer systems that use immersion lithography and cutting edge extreme ultraviolet (EUV) lithography. The newer systems have average selling prices well over EUR $20 million. The company planned to start shipping a new third-generation EUV scanner machine in the June quarter of 2013, and aims to ship 8 to 12 of these systems in 2014. It is pouring considerable investment into raising the power of the EUV systems, from production of about 43 wafers per hour to about 70 per hour by mid-2014. By mid-2013, it expects to complete the acquisition of Cymer (CYMI), a U.S.-based company that makes laser light sources for lithography equipment. Cymer has worked closely with ASML on EUV development.
To help fund the considerable investment in research, ASML launched a co-investment program with major customers, including integrated circuit maker Intel (INTC - Free Intel Stock Report), in mid-2012. The participating customers agreed to fund EUR $1.38 billion (about 1.8 billion U.S. dollars) of ASML’s research projects from 2013 to 2017 and to invest in ASML ordinary shares. Customers owned about 21% of ASML shares at the end of 2012. Investment management companies, like BlackRock (BLK), held another 27%.
ASML’s sales and earnings, like those of its semiconductor manufacturer customers, are volatile, as they depend on chipmakers’ capital spending plans, which in turn are influenced by demand for electronic devices and technological advances. In 2012, the company’s sales declined 16%, with a 22% falloff in systems sales (hurt by last year’s decline in the personal computer sector) partly offset by a 21% increase in services sales. Profits also fell, mainly reflecting the volume decrease.
Although the company also started 2013 on a weak note, it expects sales to strengthen during the course of the year, with sales to foundry customers supporting a pickup in the second half. There are also signs that demand from memory chip makers may be strengthening.
ASML raised the annual dividend on its ordinary shares recently, to EUR $0.53 in 2012, from $0.46 in 2011, and announced plans to repurchase up to EUR $1 million of its shares over the 2013-2014 period.
The company’s lead in the development of EUV lithography should position it well to benefit as semiconductor manufacturers replace aging production equipment and as electronic devices get ever smaller. It is working to resolve technical problems and ready EUV for high volume semiconductor production. ASML also should realize synergies in the next few years from the acquisition of Cymer. So despite the decline in sales and earnings in 2012, ASML’s long-term prospects look reasonably bright.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.