A Dutch maker of photolithography machines that "print" the microscopic circuits of computer chips onto silicon wafers, ASML is the world's sole supplier of the extreme ultraviolet (EUV) systems used to build the most advanced microchips found in smartphones, laptops, and cars. It was founded in 1984 as a joint venture between electronics giant Philips and equipment maker ASM International, starting with a few dozen employees in a leaky wooden shed in Eindhoven. The founders nearly named it "ALS" but changed course when they realized that spelled the same as the motor-neuron disease.
20-F · Fiscal year ended Dec 31, 2016 · SEC filing ↗
ASML reported record 2016 revenue of €6.8B, up 8.1%, as EUV system sales rose to 4 units from 1.
EUV system sales moved from 1 to 4 units and drove ASML's record year. rose 8.1% to €6.8B while dipped to 44.8% from 46.1% as lower-margin EUV systems made up more of the mix. The company closed the year having acquired HMI and deepened its Zeiss partnership, with EUV still not contributing to .
Key takeaways
Record 2016 rose 8.1% to €6,794.8M, with net system sales up 7.9% on higher EUV unit recognition (4 vs. 1) and net service/field option sales up 8.5% on productivity upgrades.
declined to 44.8% from 46.1%, primarily due to higher sales of lower-margin EUV systems, partly offset by a favorable shift toward more high-end DUV systems.
ASML acquired HMI in November 2016 to add e-beam metrology, extending process control to Pattern Fidelity.
R&D costs increased 3.5% to €1,105.8M focused on EUV productivity, the NXE:3400B, next-gen immersion NXT:2000i, and Holistic Lithography.
Liquidity included €2,906.9M cash and €1,150.0M short-term investments; the company issued €2.25B in across three tranches during 2016.
A 10% strengthening of foreign currencies vs. the euro would have lowered 2016 by €23.1M, with hedging via forwards and swaps.
What changed
Q1 2016 was ~€1.3B and ~42% ; the year closed at €6.8B revenue and 44.8% margin, above that early read.
EUV adoption progressed from 2 NXE:3350B systems shipped and over 1,250 wafers-per-day in 2015 to 4 EUV units recognized in 2016, but EUV systems still did not contribute to .
No infringement action by Nikon was reported after the 2015 cross-license standstill expired, leaving that exposure open but unused.
What to watch
Q1 2017 of ~€1.8B and ~47% , including ~1pp HMI impact.
EUV high-volume adoption progress — whether source power and system availability milestones move EUV systems toward gross-profit contribution.
Carl Zeiss SMT relationship: EUR 1B investment for 24.9% stake and EUR 760M High-NA R&D support, with Zeiss at 27.6% of system sales cost.
Section summaries
Quantitative and Qualitative Disclosures About Market Risk
ASML faces mainly EUR/USD, EUR/TWD, and EUR/JPY currency risk plus interest-rate risk, using forwards and swaps to hedge.
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Sales are predominantly in euros while costs include USD, TWD, and JPY, creating foreign-exchange exposure.
A 10% strengthening of foreign currencies vs. the euro would have lowered 2016 by €23.1M and equity by €6.3M.
The negative net-income impact in 2016 is mainly attributed to timing differences between exposures arising and being hedged.
Service sales growth cooled from 27.1% in 2015 to 8.5% in 2016 even as total rose 8.1%.
A 1-percentage-point rise in interest rates would have increased 2016 by €7.5M and equity by €0.3M, largely from cash and short-term investments.
The company uses forward foreign-exchange contracts and interest-rate swaps with highly rated counterparties and does not trade or speculate.
Notional amounts of forwards rose to €1.31B and interest-rate swaps to €3.26B at year-end 2016, with fair values of -€63.5M and +€83.7M respectively.
Key risks include semiconductor cyclicality, EUV technology challenges, customer/supplier concentration, and geopolitical exposure.
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A semiconductor industry downturn could materially reduce by our customers, harming sales and profitability, especially given our increased fixed costs from recent growth and acquisitions.
The success of our EUV technology is critical but depends on unresolved technical advances (e.g., source power, availability) and supplier R&D; delays in high-volume adoption could prevent recouping significant investments.
We depend on a single supplier, Carl Zeiss SMT, for critical optical components, and any disruption in its production or our relationship could halt our ability to conduct business.
Customer concentration is high, with our largest customer accounting for 24.2% of 2016 , and geopolitical tensions in key markets like Taiwan and South Korea pose operational and financial risks.
The expiration of a patent standstill with Nikon in 2015 exposes us to potential costly litigation that could result in significant damages or restrictions on product sales.
ASML is a leading lithography system supplier for semiconductor manufacturing, expanding into metrology and software through its Holistic Lithography portfolio.
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are reported across Memory (21.7%), Foundry (31.7%), IDM (13.9%), and net service/field options (32.7%) end-use markets for 2016.
The core TWINSCAN platform includes DUV immersion systems like the NXT:1980Di (275 wafers per hour) and EUV systems like the NXE:3350B targeting sub-16nm nodes.
Holistic Lithography combines computational lithography software and YieldStar metrology tools; the new YieldStar 350E generates up to 70% more data for advanced nodes.
ASML acquired HMI in November 2016 to add e-beam metrology, aiming to extend process control to Pattern Fidelity.
Carl Zeiss SMT is the sole supplier of optical components, representing 27.6% of aggregate cost of system sales in 2016.
A strengthened partnership with Zeiss includes a EUR 1 billion investment for a 24.9% stake in Carl Zeiss SMT and EUR 760 million in High-NA R&D support.
Record 2016 revenue of €6.8B (+8.1%) driven by EUV and service growth, while gross margin dipped to 44.8% on higher EUV mix.
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Total rose 8.1% to €6,794.8M, with net system sales up 7.9% on higher EUV unit recognition (4 vs. 1) and net service/field option sales up 8.5% on productivity upgrades.
declined to 44.8% from 46.1%, primarily due to higher sales of lower-margin EUV systems, partly offset by a favorable shift toward more high-end DUV systems.
R&D costs increased 3.5% to €1,105.8M, focused on EUV productivity, the NXE:3400B, next-gen immersion NXT:2000i, and Holistic Lithography.
SG&A rose 8.4% to €374.8M, driven by HMI acquisition expenses, headcount growth, and US dollar exchange rate impacts.
Liquidity remained strong with €2,906.9M in cash and €1,150.0M in short-term investments; the company issued €2.25B in senior notes across three tranches during 2016.
Q1 2017 includes of ~€1.8B, a of ~47% (including ~1pp HMI impact), and an of 13-14%.