Continued Lack of Foundry Capacity
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
ASML, which manufactures lithography equipment, recorded solid 3Q20 results thanks to strong IT demand. The foundry industry continues to boom, with demand outstripping supply. Recent foundry orders are unlikely to be met until 2Q21.
ASML announces sound 3Q20 results
Thanks to strong IT demand, ASML, which manufactures lithography equipment, recorded sound 3Q20 results, including sales of EUR3.96bn (+19% q-q, +33% y-y), OP of EUR1.22bn (+34% q-q, +77% y-y), and NP of EUR1.06bn (+41% q-q, +69% y-y). Sales and OP exceeded consensus by 6% and 13%, respectively. The firm booked revenue for 14 EUV units. Among the 14 units, 4 were shipped in 2Q20, but the revenue was deferred to 3Q20. Of note, revenue for 7 EUV units was recognized in 2Q20.
The company expects annual EUV shipments to fall short of its target of 35 units due to delayed node transitions at its clients. Still, the firm should reach its EUV sales target of EUR4.5bn, and EUV-related sales are expected to grow by 20% y-y in 2021.
Continued lack of foundry capacity
Recently, a Taiwanese foundry player advised its fabless clients to reserve their required capacity for 1H21. We believe that there is a notable lack of foundry capacity compared to demand. Most foundry fabs are operating at full capacity. From 4Q20, due to US trade sanctions, companies are placing orders with Taiwanese foundries instead of Chinese foundry SMIC, which has intensified the capacity shortage.
Against this backdrop, certain foundries no longer provide price discounts to large customers. Currently, orders from fabless players cannot be met until 2Q21. As a result, the prices of display-related chipsets, such as LCD driver ICs, have risen more than 10% in 4Q20. We expect this trend to continue until 1H21. The strong foundry market is also benefiting domestic players such as DB HiTek and SEC’s foundry division.