ASML sharply boosts order guidance:: Macquarie Research,

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MacqTech Express - SPE
ASML sharply boosts order guidance
Event
 Top lithography exposure tool (IC stepper) vendor ASML has increased
its 4Q CY2010 bookings guidance due to “stronger than expected demand
for lithography equipment, coming from most semiconductor market
segments.” ASML notes that even as “DRAM lithography demand is
weakening less than originally planned, NAND Flash memory investments for
the high volume ramp of new technologies and Foundry/Logic commitments
for new strategic fab projects are driving brisk lithography demand for 2011.”

Impact
 ASML has increased its 4Q CY11 bookings expectation by 50–55% to
>€2bn, well above the previous indication of >€1.3bn (the guidance had been
for a slight QoQ order increase vs CY3Q). This would be the highest quarterly
bookings intake in ASML’s history, driven by robust demand for its ArF
immersion lithography tools – notably the new NXT platform, which will
account for the majority of ASML’s immersion tool shipments in CY11. The
bookings indication excludes orders for EUV lithography tools. As ASML
affirmed to us in a recent meeting, the company is tracking to a record ~80%
market share in CY10, far eclipsing Nikon. The strong order intake in CY4Q
looks set to give a strong head-start to ASML for CY11 as well.

 We believe this is positive for the SPE sector overall. Lithography tools
have the longest order lead times of all semiconductor production equipment
(SPE), and we believe ASML’s strong orders signal confidence by chipmakers
in the outlook. We believe ASML’s strong order intake affirms our expectation
that orders to SPE vendors like Tokyo Electron and Dainippon Screen are
likely to come in strong in 1H CY11 after a relatively weak 4Q CY10 and that
chip industry capex in CY11 is likely to surprise vs overly negative consensus
expectations. We expect Tokyo Electron to specifically benefit from strong
demand for coater/developers and etchers, while Dainippon Screen should
benefit from solid demand for wafer cleaning equipment.

 We believe that the world semiconductor industry will achieve a soft
landing in 1Q CY11, as also affirmed by our Taiwan colleague Michael Liu
(Taiwan semiconductor industry: Looks like a soft landing, 9 December 2010).
As highlighted in the November edition of The Japan Chip Set (24 November
2010), we expect the down-cycle to trough in 1Q CY2011.

Outlook
 We are positive on the SPE sector. We upgraded Dainippon Screen (7735
JP, ¥572, Outperform, TP: ¥660) to Outperform on 26 November, and lifted
our rating on Tokyo Electron (8035 JP, ¥5,250, Outperform, TP: ¥6,350) to
Outperform on 14 October. Macquarie analyst Yukihiro Goto remains cautious
on Nikon (7731 JP, ¥1,666, Neutral, TP: ¥1,700) in part due to sustained
pressure on the firm’s market share in ArF immersion steppers from ASML.
ASML indicated to us that it will have capacity in CY11 for 140 immersion
tools (35/quarter), which looks enough to satisfy essentially all of the market
demand if necessary. ASML also has orders on hand for 15 EUV lithography
tools, putting it firmly in the lead in next-generation lithography equipment.