IMO, the issue isn't whether China will compete with ASML in the near future, but whether ASML will lose China as a customer due to a complete shift to domestic providers. Will ASML's multiples remain the same, or will they rerate?
Multiples will likely rerate downwards. However, based on my discussions with senior executives of a semicon hardware company, the shift completely towards domestic providers is still highly unlikely given that none of these machines have undergone sufficient testing & we still have no visibility on the yields of the china-produced machines yet. However this does raise the terminal value risks of ASML’s china business.
However, we could get a situation where the upper end DUVs (NXT:2000 series) get deregulated and permitted for sale to China once china has proven that they are capable of producing the NXT:1900i series. There could be a case to be made.
- in defense, computation is <100-1000X weight of munitions, batteries, sensors. and the trend is towards disposable.
- in consumer, china wants to sell 20% lower trailing edge for 60% lower price.
not to mention branding $ saved vs apple, samsung.
- in analog\power , its not clear they are behind, only that already cheaper.
relative to biz above, competing for leading edge fab with ASML is a pittance. its given they continue to steal ip when\where they can, as the most efficient way for 'r&d'.
Very interesting analysis, many thanks! How do you look at the capacity and delivery times of these machines? Are these not also important factors in buyer decisions? ASML can only prosuce and deliver a limited numer of new machines every year.
Management has stated plans to ramp capacity for both DUV and EUV machines by 30% in 2027 and potentially 2028. Production volume will reach mid 200s by 2028 for DUV machines.
As for delivery times, there is currently a 1.5 year backlog for these machines but it will likely be cleared quickly. Christophe (CEO) and roger (CFO) has had a great track record operationally and ASML has quite alot of inventory that I believe will enable the company to fulfil the demands relatively quickly before the Chinese DUVs can ramp up volumes
IMO, the issue isn't whether China will compete with ASML in the near future, but whether ASML will lose China as a customer due to a complete shift to domestic providers. Will ASML's multiples remain the same, or will they rerate?
Multiples will likely rerate downwards. However, based on my discussions with senior executives of a semicon hardware company, the shift completely towards domestic providers is still highly unlikely given that none of these machines have undergone sufficient testing & we still have no visibility on the yields of the china-produced machines yet. However this does raise the terminal value risks of ASML’s china business.
However, we could get a situation where the upper end DUVs (NXT:2000 series) get deregulated and permitted for sale to China once china has proven that they are capable of producing the NXT:1900i series. There could be a case to be made.
Great write-up as always
Excellent report - thank you so much for sharing.
Good to hear, thanks for the reaction. Happy to have ASML in my top10 largest positions for dividend growth.
A Chinese competitor is inevitable!
asking since 2023 :
why does china NEED leading edge?
- in defense, computation is <100-1000X weight of munitions, batteries, sensors. and the trend is towards disposable.
- in consumer, china wants to sell 20% lower trailing edge for 60% lower price.
not to mention branding $ saved vs apple, samsung.
- in analog\power , its not clear they are behind, only that already cheaper.
relative to biz above, competing for leading edge fab with ASML is a pittance. its given they continue to steal ip when\where they can, as the most efficient way for 'r&d'.
Very interesting analysis, many thanks! How do you look at the capacity and delivery times of these machines? Are these not also important factors in buyer decisions? ASML can only prosuce and deliver a limited numer of new machines every year.
Management has stated plans to ramp capacity for both DUV and EUV machines by 30% in 2027 and potentially 2028. Production volume will reach mid 200s by 2028 for DUV machines.
As for delivery times, there is currently a 1.5 year backlog for these machines but it will likely be cleared quickly. Christophe (CEO) and roger (CFO) has had a great track record operationally and ASML has quite alot of inventory that I believe will enable the company to fulfil the demands relatively quickly before the Chinese DUVs can ramp up volumes
Good to hear and thanks for your reaction. Happy to have ASML in my top10 largest positions and as a driver of dividend growth.