TSMC temporarily halts the purchase of ASML's new lithography machines. The considerations behind it: cost reduction and profit enhancement or concerns over AI demand?
Taiwan Semiconductor has temporarily suspended the purchase of ASML's new high numerical aperture extreme ultraviolet lithography machines due to high prices. Analysts believe this move may enhance profit margins but also reflects concerns about the long-term development prospects of artificial intelligence. ASML's latest equipment is priced at up to $400 million, and Taiwan Semiconductor plans to delay the purchase until 2029. Nevertheless, analysts point out that this decision has limited impact on ASML, as it holds a monopoly position in the market, and demand from other companies continues to grow
According to reports, Taiwan Semiconductor (TSMC.US) has postponed the procurement of ASML's (ASML.US) new high numerical aperture extreme ultraviolet lithography machines (high-NA EUV) due to high prices. Some analysts believe that this move by TSMC is expected to enhance profit margins, while others argue that there are hidden concerns about the long-term development prospects of artificial intelligence behind this decision.
Seeking Alpha analyst Julia Ostian stated regarding TSMC: "The company's ability to achieve such substantial performance and profit margins every quarter stems from its willingness and ability to maintain efficient operations. If TSMC decides to maximize profits from existing EUV equipment while deploying new technology, its profit margins will be higher. On the other hand, this also means multiple exposures, meaning they need to send wafers into the lithography machine for exposure multiple times. If demand is strong, repeated processes can easily lead to production redundancy and even bottlenecks."
ASML's latest extreme ultraviolet lithography machines are priced at $400 million each, about twice that of older models. It is reported that TSMC plans to delay the procurement of such new equipment until 2029.
Meanwhile, Ostian believes that even if TSMC delays the procurement of the next-generation equipment, it will not have a fatal impact on the Dutch lithography giant ASML.
She pointed out: "This news has limited impact on ASML because the company is essentially in a monopoly position in this field, and demand from companies like Intel (INTC.US), Samsung, and SK Hynix is surging. However, this will affect Wall Street analysts' forecasts. TSMC currently has no plans for mass production of advanced processes A13 and N2U in the next two years, during which the company can reassess the economic implications behind this decision. Therefore, I believe there is no need to rush to reflect this bad news in the stock price."
At the same time, Seeking Alpha analyst Sandeep G. Rao stated that TSMC's decision to postpone procurement may be related to uncertainties regarding the long-term momentum of artificial intelligence.
Rao stated: "Currently, TSMC's capacity is operating at nearly full load, its industry position is solid, and it is likely to continue to receive favorable financing conditions. Therefore, TSMC's decision to postpone equipment procurement may stem more from the overall operating environment rather than equipment cost issues. The United States is arguably the largest artificial intelligence market in the world. By 2026, about 45% of data center projects in the U.S. are expected to be delayed or canceled due to strong public opposition and ongoing doubts about the demand and actual application scale of artificial intelligence. If chip demand collapses completely, supply contracts will also be reduced, and the cash flow impact of these new devices specifically for artificial intelligence wafer design will become a long-term burden for the company."
Rao added: "Overall, this seems to send a very clear signal to investors eager to speculate on artificial intelligence: proceed with caution and gather more relevant information."
