ASML: RBC Cuts to Sell; ‘EUV’ Years Away, If At All

Shares of chip equipment maker ASML Holding N.V. (ASML) today closed down 63 cents, or 0.9%, at $71, after RBC Capital‘s Mahesh Sanganeria cut his rating on the stock to Underperform from market Perform, and cut his price target to $52 from $59, writing that the “extreme ultraviolet,” or EUV, technology on which the company is banking is “several years out” in terms of deployment at chip makers, and may see only limited use.

Share of the lithography market may actually pass to competitor Nikon (NINOY), Sanganeria thinks, as chip makers find alternative means reaching the next reductions in feature sizes, through things such as double-patterning:

Absent EUV, we believe the current stock price discounts inflection in earnings driven by rising Litho intensity from Litho-Etch-Litho-Etch (LELE) Multiple Patterning (MP) which is overly optimistic, in our opinion. We expect the industry to move to increasing adoption of Self-Aligned-Double-Patterning (SADP), new materials and structures which will have an offsetting impact.

Nikon is likely “shipping close to 10 (7 immersion and 3 dry) scanner to Intel (INTC) for 14nm technology ramp whereas ASML is shipping primarily to [Taiwan Semiconductor (TSM)] TSMC,” writes Sanganeria.

Sanganeria explains that while most of the industry produces chips at 28 nanometers, and Intel is moving to 14 nanometers in its factories, companies may not use EUV, if at all, until they start semiconductor production requiring 7-nanometer dimensions:

However, NXE3300 is not expected to meet Half-Pitch (HP) requirements for this node due to limited Numerical Aperture (NA) using Single Exposure (SE) as seen in Exhibit 1. Multiple patterning using EUV might prove to be exorbitantly expensive even if it were to meet exacting requirements of overlay and Line Edge Roughness (LER). We remain concerned that progress on EUV might continue to significantly lag accelerating requirements. We would like to note that Common Platform Alliance (IBM, Samsung and GlobalFoundries) have announced their intension to investigate EUV only at 7nm and beyond. Intel has indicated interest in using EUV at 7nm; however, we do not expect EUV to be production ready to intercept Intel�s 7nm timeline.

Moreover, despite billions invested in ASML last year by Intel and Taiwan Semi to help fund EUV, nevertheless, “we expect EUV expenses to weigh on earnings.” For that reason, Sanganeria doesn’t see ASML approaching prior peak earnings of �3.41 (back in 2011) anytime soon. He modesl ASML making �2 per share in net profit this year.