Dec 12 - Fitch Ratings has revised the Outlook on Netherlands-based ASML
Holding N.V.'s (ASML) Long-term Issuer Default Rating (IDR) to
Positive from Stable and affirmed the IDR and senior unsecured ratings
The Positive Outlook reflects Fitch's view of the degree to which ASML has
consolidated its position as one of the semiconductor capital equipment
industry's most important suppliers. This position has been both validated and
strengthened by recent strategic events; namely a customer co-investment
programme (CCIP) that has seen the semiconductor industry's three most advanced
manufacturers - Intel ('A+'/Stable), Samsung ('A+'/Stable) and TSMC - take a
combined 23% ownership stake and commit to R&D funding aggregating EUR1.4bn over
the next five years.
This funding will specifically be used to share the risk of developing 450mm and
extreme ultraviolet (EUV); production processes expected to underpin lithography
(litho) developments for the next 10 years. Both are key to ensuring the
continuation of "Moores Law," the principle whereby chip capacity and the unit
cost of production roughly doubles/halves respectively every 18 months. The
customers participating in the CCIP are the industry's largest and most advanced
manufacturers, and the chip manufacturers most dependent on the advancement of
these technologies, although the whole of the industry can expect to benefit
from any acceleration in the delivery of these technologies that are enabled by
their support of ASML's R&D programmes.
Fitch views the CCIP along with ASML's subsequent acquisition of Cymer Inc. the
industry's leading light source provider, a component that is key to the
advancement of EUV, as solidifying ASML's market position - which, at an
estimated 80%, was already extremely strong. The agency expects ASML to continue
to maintain this position and potentially strengthen its position with leading
edge customers, including those involved in the CCIP. The developments underline
ASML's strong technology leadership, while its market position looks
Lithography is now effectively a two player market; with Nikon Corporation not
expecting to deliver commercial EUV before 2018. ASML have already delivered
pre-production tools to its customers and expects EUV to become a reality in a
production environment in 2014. The customer R&D funding should help the
industry keep to this timetable and potentially accelerate the rate at which
both EUV and 450mm production (the migration to 450mm wafer diameter production)
enter mainstream production.
RATING SENSITIVITY GUIDANCE
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- Operating margins materially outside company targets: 13%-18% in downturn;
25%-30% at the peak of the up-cycle. Operating losses will be incurred in
periods of extreme stress.
- Gross cash consistently below EUR1.5bn - company's stated commitment is to a
strong cash balance. (Gross Cash of EUR2.3bn at 3Q12 pro forma for the company's
proposed synthetic share buyback).
- Major loss of market share - revenue market share is currently estimated at
around 80%. A decline to 55%, albeit still strong, would signify a rapid shift
in market position and one that would likely reflect an on-going negative trend.
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- Evidence that EUV technology as a mainstream production tool, is close to
being delivered and that the delivery of volume EUV tools will not be dilutive
to overall gross margins. Gross margin in 2012 is expected to be around 42% with
Fitch modelling a 2 to 3 percentage point dilution in 2013 due to the dilutive
effect of the EUV tools currently in the order book. Subject to prevailing
conditions Fitch would expect this effect to have largely dissipated before
upgrading the rating.
- The successful integration of the Cymer acquisition would also be considered
important before an upgrade is likely