Lehman's on ASML and DUV in general (commentary only; strong good news):
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* Sizeable order for I-line and DUV machines from Samsung received.
* Encouraging reflection of improvement in demand and financing in Korea.
* ASML now #2 in the market and will continue to take share in 1998.
* Outlook for Taiwan remains positive. Strong growth continues lead by DUV.
* Maintaining estimates for 1998-99 with EPS of NLG 6.37 and 9.00 respectively
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ASM Lithography yesterday (25/02/98) announced a sizeable order for I-line and deep-UV machines from its major customer, Samsung, for delivery in 1Q99. The machines are all destined for South Korea and as such represent a very positive note coming from a region which has until now been the focus of the most bearish of comments with regard to both the Asian region and the outlook for the company. We view ASML's announcement very positively as an indication that both the demand for stepper machines and the finances to support this demand are available in South Korea and consequently maintain our estimates
and 1-Buy rating on the company.
Financial details or the exact number of machines involved in the order have not been revealed by ASML as yet, however it is thought to be sizeable. Moreover, with 24% of revenue and 20% of the company's backlog in 1997 originating in Korea, the ability of Samsung to find available finance to place new orders is important to both the prospects of ASML and as an indicator to the general health of the semiconductor industry in the area. As we have noted before, both Samsung and Hyundai, the latter a new customer in 1997, desperately need the company's DUV machines to transition their existing 16Mbit DRAM lines to 64Mbit lines in order to remain competitive in the industry over the next couple of years. Concerns that there is insufficient financing to meet this requirement have been somewhat obviated by the current announcement.
We consequently expect that further necessary financing will be obtained by Korean companies throughout the coming year and that ASML will be able to expand its market share in the region as planned. As such, our estimations remain unchanged at NLG 6.37 per share in 1998 and NLG 9.00 per share in 1999, however despite the above announcement we recognise that 1H98 EPS could be somewhat uncertain due to the timing of shipments to Korea. Demand from Taiwan continues to be strong and is expected to remain so as the main foundry customers move to 0.25 micron processing.
Long-Term Positives For ASML And Photolithography
Photolithography continues to be the single biggest enabler of the future of semiconductor development (Technology Roadmap) and the one area in which semiconductor companies must continue to invest in if they expect to remain competitive in the industry. In the recently upgraded Technology Roadmap published by the SIA (Semiconductor Industry Association) for the 1997-2012 timeframe, replacing its previous Roadmap introduced in 1994. The new Roadmap calls for linewidths to decrease from the current 0.25 micron to 0.18 micron in 1999, 0.15 micron in 2001 and eventually reach 0.05 micron by 2012.
TheRoadmap also states that die shrinks will continue to be the most important single factor in reducing semiconductor manufacturing costs. Moreover, feature sizes that have historically been reduced every 3 years, but beginning this year, they are projected to drop every 2 years through 2001. Furthermore, DUV lithography is expected to be able to get down to 0.10 micron linewidths. [Old, outdated news now!--PD]
We believe photolithography equipment and ASML will continue to outperform the rest of the semiconductor equipment industry over the next several years as industry moves to 0.25 micron and below linewidths. Despite the fact that the timing of some shipments to Korea could be delayed due to the economic and currency crisis, we are still estimating strong growth in 1998-1999 (significantly outpacing the industry). We expect the shares to continue to be quite volatile in the near-term as additional news regarding the Asian crisis continues to materialize but expect ASML to continue to report very strong growth as the industry makes strategic investments in DUV lithography and as the company continues to take market share. Our one year price target remains NLG 225 per share. |
