Inundated by demand from the world’s leading chipmakers, ASML is making money so fast from the sale of its semiconductor manufacturing equipment it seemingly can’t spend it fast enough.
Even after investments to expand production amid a global chip crunch, the euro area’s second-largest company by market capitalization said its coffers are so flush with excess cash it will still have a cool €9 billion ($10.6 billion) left over to shower on shareholders through 2023.
“All in all, significant growth is expected in the next couple of years,” chief executive Peter Wennink said in prepared remarks.
Estimating the chip industry should double its sales to $1 trillion by the end of this decade, he added, “Looking at the forecast, our growth profile, the profitability profile, the company will be generating a sufficient amount of cash.”
On the back of record new orders in the second quarter, the CEO hiked his forecast on Wednesday for full-year revenue growth to 35% over last year’s €14 billion, from a previous target of 30%.
For 2021, he reaffirmed ASML expects to achieve an impressive 51% minimum gross margin, the profit left over after accounting for the cost of goods sold but before operating expenses.
Following the quarterly results, shares gained over 3.2% in trading in Amsterdam. Its stock has a hit a series of all-time highs in the past year.
BofA Securities reaffirmed the company as its top European semiconductor pick, advising clients there was further upside potential for earnings estimates.
“We like the strength across the board and come away with increased confidence in ASML’s medium-term outlook,” it wrote in a research note.
Making profits amid the crisis
Along with smaller rivals Canon and Nikon, ASML is one of the chief benefactors of the global shortage for logic circuits.
Chipmakers like Taiwan Semiconductor Manufacturing Company (TSMC) cannot print the billions of nanoscopic-size transistors that go into an Apple iPhone 12 without the help of the photolithography machines manufactured by the Dutch company.
Wennink attributed demand to an ever-growing need for more chips used in edge computing, also known as the Internet of Things (IoT). Both terms broadly refer to intelligent devices enabled by next-generation mobile networks: from industrial equipment to home appliances.
“It’s all driven by basically what we are seeing today, which is the digital revolution. It’s the further rollout of 5G and 6G,” Wennink said. “It’s the progress we’re making on artificial intelligence and self-driving cars.”
The company’s latest development is the all-new Twinscan NXE:3600D, an extreme ultraviolet (EUV) photolithography machine capable of printing the kind of 4-nanometer-long transistors that power the Apple M1 chip. Next year it pledged to deliver 55 such machines.
The U.S. government considers them so advanced that President Biden is reportedly expected to uphold a ban stopping their sale to China.
“When you look at the order book, around 80% is already booked at the end of Q2,” said Wennink.
Capacity constrained
Growth stretches across the company’s entire portfolio of products, not just EUV machines, though. Equipment needed to print memory chips is in just as much demand, for example, as are those used to make less advanced logic circuits.
This more mature technology is exactly the kind currently in great demand by carmakers. Volkswagen CEO Herbert Diess said earlier this year his company is in competition with IoT device manufacturers for the supply of older, comparatively larger transistors between 45nm and 90nm in length.
As a result of the projected chip super cycle, ASML is investing in new production capacity at its own company and that of its suppliers to maintain its dominant market share through the next few years.
““We strongly believe that growth cannot be supported by the capacity we currently have,” Wennink said.
In particular it aims to increase its ability to churn out more of its less advanced deep ultraviolet (DUV) machines by a significant double-digit percentage figure. The precise figure will still depend on the final confirmation from its supply chain.
Even after the Dutch equipment maker exhausts all of its funding needed to fuel research, development, and growth, it will still have too much excess liquidity riding on its balance sheet.
From this week, it will begin returning some of that to shareholders, committing a further €8.2 billion to the remaining €800 million from the previous buyback program it replaces.
Subscribe to Fortune Daily to get essential business stories straight to your inbox each morning.
