Analysis: New ASML boss Fouquet must navigate US/China chip war
26/04/2024 08:18
(Repeats APRIL 25 story, no change to text)
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Fouquet takes helm at Europe's biggest tech firm
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Appointment approved at annual meeting Wednesday
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Export restrictions affect half of product range
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New CEO must manage AI-driven boom and prepare for bust
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Fouquet must also oversee major product rollout
By Toby Sterling
AMSTERDAM, April 25 (Reuters) - ASML's ASML.AS new
boss Christophe Fouquet faces a tricky balancing act in helping
to steer Europe's biggest tech company through the US/China
"chip war", while maintaining the group's lead over rivals and
managing the current AI boom.
Fouquet, whose appointment as CEO was approved at the
semiconductor equipment maker's annual meeting on Wednesday,
inherits a company that is profitable and dominant in its field,
but potential pitfalls abound.
Export restrictions imposed by the United States and the
Netherlands mean the upper half of ASML's product range cannot
be sold in China, one of its biggest markets.
As Fouquet takes over, ASML is riding high with a lofty
stock market valuation, reflecting optimistic expectations but
there are risks of disappointment amid a product rollout and
capacity expansion.
Outgoing CEO Peter Wennink, who presided over a more than
tenfold rise in the company's market valuation to 320 billion
euros ($340 billion) over the past decade, said in a farewell
address ASML's expansion will continue under Fouquet.
The global semiconductor industry has grown to $600 billion
in annual sales in a 50-year history, but, Wennink said, "in the
next six to eight years, we need to almost double that. This is
why we need to build capacity. This is why our customers will
grow ... and that's why ASML will grow."
Fouquet will have to maintain ASML's position as the
dominant vendor of its lithography systems, which use beams of
light to create the circuitry of chips, to the likes of Taiwan's
TSMC 2330.TW , Intel INTC.O , and Samsung 005930.KS .
Lithography makes up about a third of the $100 million chip
equipment market, and ASML has a market share above 90%,
analysts say, as it is the only company with "EUV" lithography,
used to make all of the world's most advanced chips.
Competitors for older generations of "DUV" lithography
include Japan's Nikon 7731.T and Canon 7751.T , but Fouquet
will also have to watch Chinese lithography company SMEE and
others that may emerge.
CHINA RESTRICTIONS
Chinese chipmakers have big incentives to develop
alternatives to ASML machines they cannot buy under U.S.-led
restrictions. These have become a headache for ASML since 2018,
as Washington seeks to limit Beijing's ability to make its own
advanced chips.
Chinese chipmakers are expanding capacity to make older
chips that do not fall under restrictions, agitating Washington
and Brussels. China was ASML's second-largest market by sales in
2023.
In addition, China's chipmakers will continue to improve the
quality of chips they can make using ASML's DUV equipment. ASML
cannot sell EUV tools in China.
Fouquet explained to shareholders Wednesday that using DUV
instead of EUV tools becomes more and more inefficient as chips
get more advanced, until it is prohibitively expensive.
So "technically you can, economically you can't. I think
that's the short answer," Fouquet said, an argument he must also
make to governments seeking further restrictions.
Fouquet oversaw ASML's EUV programmes in 2018-2022,
including the development of the new $375 million "High NA" EUV
machine currently being tested by Intel expected to support
sales growth into the 2030s.
A source who has worked with Fouquet described him as able
to keep people talking even when pressure on a key supplier to
improve its technology and triple its output at the same time
led to fierce arguments.
"He understands the technology, he understands the business
and then also he understands how to make things work" across
U.S. designers, European suppliers, and Asian customers, the
source said.
Fouquet, a trained physicist, will need his diplomatic
skills, especially if Donald Trump wins the U.S. presidency in
November with an unpredictable impact on China policy.
ASML'S RISE
ASML grew from 13,000 employees in 2014 to 43,000 at present
- and on Monday the company unveiled plans for a new facility in
Eindhoven to house another 20,000 staff.
The company's stock is priced at 40 times 2023 earnings,
slightly ahead of other top chip equipment suppliers such as
Applied Materials AMAT.O and KLA KLAC.O . Fouquet worked at
both earlier in his career.
Investor Nick Rossolillo, who hosts the Chip Stock Investor
podcast and has owned ASML shares since 2022, said one concern
is that governments are supporting construction of new chip
plants in U.S., Japan, Europe, China, South Korea and Taiwan.
"Government subsidies are fantastic for ... equipment
providers like ASML during this construction boom. But what
happens in 2028-30 when all that extra capacity comes online?"
Rossolillo said.
($1 = 0.9349 euros)
(Reporting by Toby Sterling; Editing by Matt Scuffham and Jane
Merriman)
((toby.sterling@thomsonreuters.com;))