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【Text/Observer.com Lv Dong】

At noon on July 17th, Beijing time, the financial report released by ASML, a Dutch lithography machine giant, showed that in the second quarter of this year, the net system sales in mainland China accounted for 49% of the world's total sales. This means that mainland China has contributed half of ASML's revenue for two consecutive quarters.

In response to Observer.com's inquiry, ASML stated that, as mentioned last quarter, China's demand for mature process chip production equipment remains strong, and the distribution of actual sales in various regions is based on the recovery of different markets.

The financial report shows that ASML's net sales in the second quarter of this year were 6.2 billion euros (about 49.1 billion yuan), a year-on-year decrease of 10.1%; net profit was 1.6 billion euros (about 12.7 billion yuan), a year-on-year decrease of 15.8%; gross profit margin was 51.5%, an increase of 0.2 percentage points year-on-year.

This shows that the performance of the lithography machine giant is still affected by the downward cycle of semiconductors, but the decline has narrowed compared with the previous quarter.

Among different regions, ASML's net sales from mainland China accounted for 49%, the same as in the first quarter of this year. ASML's traditional large markets, South Korea and Taiwan, accounted for 28% and 11% of sales respectively. By sorting out previous data, it can be found that as of the second quarter of this year, mainland China has been ASML's largest market for four consecutive quarters, and its share has always been 40% or more.

A similar situation also appeared in the financial reports of American semiconductor equipment giants.

From February to April this year, mainland China contributed 43% of Applied Materials' revenue, up 22 percentage points year-on-year. From January to March, Lam Research's sales in mainland China accounted for 42%, up 20 percentage points year-on-year; in contrast, South Korea and Taiwan accounted for only 24% and 9% of revenue respectively.

"Despite the U.S.'s efforts to build a semiconductor supply chain, chip equipment makers have not been able to break away from their dependence on China, their largest market, which seems to run counter to the U.S. export control plans against China," Japanese media said in a report.

ASML Financial Report ASML

One important reason for this phenomenon is that mainland China continues to expand production of mature chips against the backdrop of obstacles in advanced processes. Last quarter, ASML told Observer.com that mainland Chinese customers continue to invest in mature technologies for producing mainstream chips, and demand from mainland Chinese customers has been strong, so mainland China's system net sales account for a high proportion by region.

This can also be confirmed from the financial reports of domestic chip manufacturing giants. In the first quarter of this year, SMIC's capital expenditure reached 15.9 billion yuan, an increase of 83% year-on-year. In the past two years, despite the downturn in the semiconductor market, SMIC has continued to expand production in Beijing, Shanghai, Shenzhen and other places. As of the end of the period, the company's monthly production capacity converted into 8-inch wafers was 815,000 pieces, an increase of 11.3% year-on-year.

Wafer factories such as Huahong and Jinghe Integrated Circuit are also expanding production. For example, Huahong mentioned in its first quarter report this year that the company's second 12-inch production line is under construction and is expected to be completed and put into production by the end of the year. Jinghe Integrated Circuit stated in its 2023 annual report that the company has actively expanded its production capacity in recent years to seize the development opportunities of the industry, and the scale of fixed asset investment is relatively large.

According to statistics from the Semiconductor Industry International (SEMI), global semiconductor production capacity is expected to grow by 6.4% in 2024 after growing by 5.5% in 2023, and mainland China's wafer production capacity will rank first in the world with a growth rate of 13%. As mainland China continues to expand production, its share of global revenue will continue to grow.

Pan Gongyu, a researcher at the Observer.com Mind Observation Institute, analyzed that mature chips and low-end chips are two different concepts. Mature processes, that is, special process platforms above 28nm, are still divided into high-end and mid-to-low-end. 5G mobile phone CIS, automotive CIS, RF front-end modules, MCUs responsible for vehicle drive and domain control, etc. do not require processes below 14nm. These chips have high thresholds, either because of system integration capabilities and packaging area, or because of complex vehicle regulation threshold verification or long-term customer verification. At present, the localization rate of RF front-end modules in my country is less than 25%, the localization rate of automotive CIS is less than 15%, and the overall localization rate of automotive MCU is less than 10%, which just shows that there is still a lot of room for domestic substitution of high-end mature process chips.

Mature chips such as MCU will be used in cars techradar

In fact, not only China is expanding production, but Taiwan and South Korea are also showing signs of expansion. In the second quarter of this year, Taiwan and South Korea's revenue share in ASML's financial report increased by 5 and 9 percentage points respectively. According to the financial report, ASML's revenue in the second quarter increased by 17.0% month-on-month, and its net profit increased by 33.3% month-on-month. These are all signs that the semiconductor market is recovering.

ASML CEO Christophe Fouquet said in a second-quarter video interview that the overall inventory level of the semiconductor industry will continue to improve. The utilization rate of lithography equipment for current logic chip and memory chip customers is further improving. Although uncertainties mainly in the macro environment still exist, the semiconductor industry is expected to continue to recover in the second half of 2024.

The lithography giant estimates that net sales in the third quarter of this year are expected to be between 6.7 billion and 7.3 billion euros, and gross profit margin is expected to be between 50% and 51%. "Our expectations for the full year 2024 remain unchanged, and overall revenue is expected to be roughly the same as in 2023. The performance in the second half of this year will be significantly stronger than the first half, which is consistent with the semiconductor industry's continued recovery from the downward cycle."

"The semiconductor industry is expected to enter an upward cycle in 2025. There will be many wafer fabs under construction and put into use around the world, and we need to be prepared for this because they all plan to purchase our systems. Our net sales are expected to be 30 billion to 40 billion euros by 2025 and 44 billion to 60 billion euros by 2030," said Fu Keli.

This time, ASML also mentioned the company's advanced and expensive high numerical aperture EUV lithography machine. "For the 0.55 high numerical aperture (High NA) EUV lithography system, we shipped the second device to the customer in the second quarter. The first device is performing wafer qualification testing in the customer's factory. The second device is currently being assembled and is progressing smoothly."

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