The semiconductor industry continues to evolve, with Taiwan Semiconductor Manufacturing Company (TSMC) and ASML Holding NV (AS:ASML) playing pivotal roles. The symbiotic relationship between the two companies has been instrumental in driving efficiency and miniaturization in chip production.
ASML, the sole manufacturer of high-end EUV lithography systems, experienced a 33% revenue surge in 2021 due to the global chip shortage. However, this growth slowed to 14% in 2022 due to chip overproduction and a cooling market. Analysts predict a 28% rise in ASML's revenue this year, with top customers like TSMC, Samsung (KS:005930), and Intel (NASDAQ:INTC) expanding their EUV capabilities. Despite this, ASML has cautioned investors of nearly flat sales growth in 2024, a "transition year," due to declining sales to China and sector recovery uncertainty. The company anticipates significant growth in 2025 with the introduction of its high-NA EUV systems for sub-2nm chips and projects €44 billion ($46 billion) to €60 billion ($63 billion) in revenue by 2030.
TSMC, the largest contract chipmaker and ASML's biggest client, also saw substantial growth with a 25% increase in USD terms in 2021 and another 34% in 2022. Nevertheless, it expects a 9% drop in revenue in 2023 due to slowing PC and smartphone markets. Despite this, TSMC's revenue witnessed sequential growth for the first time in four quarters during Q3 of 2023, indicating a potential cyclical recovery in the semiconductor market. As it ramps up production of 3nm chips and prepares for the launch of its 2nm chips in 2025, TSMC is bracing for margin pressures.
Both companies have been significantly impacted by the U.S.-China tech war. ASML has been barred from exporting its EUV systems to China since 2019, and TSMC was compelled to stop chip production for Huawei in 2020. Further export restrictions will hamper ASML's shipment of its advanced DUV systems to China.
Despite geopolitical challenges and market headwinds, both TSMC and ASML remain strong long-term investments banking on the secular growth of the semiconductor market. However, TSMC currently offers a more attractive investment opportunity than ASML due to its lower forward multiple and stronger near-term outlook.
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