ASML: Arms Dealer in Epic Battle of Taiwan Semi vs. Samsung, Says Credit Suisse
Chip equipment vendor ASML Holding (ASML) is doing better than most think, as its cutting-edge chip-making equipment is a key armament in the battle for supremacy between contract chipmaker Taiwan Semiconductor Manufacturing (TSM) and competitor Samsung Electronics (005930KS), writes Credit Suisse’s Farhan Ahmad this morning.
Ahmad, who upgraded ASML stock to Outperform back in mid-January, thinks investors are wringing their hands about slowing equipment orders for ASML that are not actually the case.
He writes, “there has been recent noise suggesting that there could be pushouts of EUV tools at TSMC,” referring to the company’s machines that direct beams of “extreme ultraviolet,” or EUV, light to etch circuits in silicon.
"Our checks, however, suggest that rather than weakening, the outlook for EUV has strengthened,” writes Ahmad. “And ASML is on track to be completely booked out for 2019 EUV production capacity."
He notes that Taiwan Semi "placed orders of ~$1bn with ASML and Lasertec on Apr 2” and adds that "we see strong possibility that this may show up as orders for 6-8 tools in Q1."
Behind Taiwan Semi’s need to buy the machines is an aggressive push by Samsung for the new equipment:
Samsung is continuing to be the most aggressive on EUV. Recent checks suggest that in addition to 7nm, the The company may adopt EUV for at least part of production on 1y nm DRAM (~1 layer), and DRAM production could actually come earlier than 7nm Foundry/Logic as Samsung plans to uses less risky DRAM to prepare for broad adoption of EUV at 7nm production. Samsung is marketing design flexibility, shorter cycle times, and smaller dies as differentiators on 7nm Foundry. The company is building a dedicated EUV fab to be shared between DRAM and Logic with capacity of 38 EUV tools.
He thinks Taiwan Semi “may need to accelerate their 5nm to ensure they stay competitive with Samsung,” referring to chips made with their smallest feature measuring 5 nanometers, or billionths of an inch.
5-nano, as it’s known, is the real primetime for Taiwan Semi with ASML’s EUV, he writes:
There have been reports out of Taiwan that 7nm+ interest from TSMC customers is low. This is understandable as 7nm+ was not expected to offer the design flexibility that is associated with EUV single patterning and EUV was expected to be used for only cut mask as vias (no change in design needed). 7nm+ was expected to be primarily a node to wrinkle out the challenges associated with EUV adoption, ahead of the broader adoption of EUV at the 5nm node (true 7nm node). We have been consistent in stating that 7nm+ adoption is likely to be limited to few layers and to only a portion of capacity. We expect TSMC to start production on 7nm+ by early 2019, and prepare for volume production of 5nm in 2020. In order to meet the production capacity requirement, the the company will need to start installing tools in 2019. We believe the recent tool orders are from TSMC are an indication that the the company is trying to step up its plans for 5nm.
ASML shares today are up $6.95, or 3.6%, at $201.58.
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