Ahead of TSMC's quarterly earnings release on January 16, 2025, the pure-play foundry is holding year-end meetings with key suppliers. ASML, a critical partner of TSMC, is showing exceptional commitment. CEO Christophe Fouquet will lead a delegation of senior executives to Taiwan next week to engage in discussions with TSMC chairman and CEO C.C. Wei, co-COO Y.P. Chyn, and other high-level executives in Taipei.
Industry sources indicate the discussions will focus on the potential political landscape following the inauguration of US President-elect Donald Trump. ASML aims to gain a deeper understanding of TSMC's process technology roadmap and procurement strategy for the upcoming years.
The visit by Fouquet and other ASML officials also aims to encourage TSMC to accelerate and increase its orders for the costly extreme ultraviolet (High NA EUV) equipment, priced at about US$380 million, according to sources.
Strategic outlook and market dynamics
ASML recently disclosed updated order data and revised its financial prediction for 2025, indicating that China's revenue contribution would fall to approximately 20%. Notably, ASML's revenue from the Chinese market did not exceed 20% between 2017 and 2022. The percentage only surpassed 30% in 2023 and 2024, driven by China's robust ordering and stockpiling efforts.
ASML projects that the flourishing AI sector will generate substantial demand for its advanced lithography machines and metrology tools, resulting in revenue growth of 8-14% over the next five years. Revenue is expected to reach EUR44 billion (US$46.4 billion) to EUR60 billion by 2030, with a gross margin of 56% to 60%.
Fouquet has previously stated that he expects to expand the company's diverse lithography product line and extend EUV technology into the next decade. This expansion would enable ASML to fully capitalize on AI opportunities, driving substantial revenue and profit growth.
Supply chain dependencies
Supply chain insights suggest ASML's dependence on TSMC will increase. Export sanctions affecting China, combined with downturns at Samsung Electronics and Intel, as well as a slowdown in process technology improvements, have negatively impacted ASML's EUV equipment shipments.
Despite Japan's Rapidus initiating orders, its progress remains under scrutiny. ASML considers TSMC its most crucial and stable major client, both currently and in the future, necessitating greater efforts to maintain their relationship. The executives' visit to meet with Wei and other TSMC executives is likely aimed at negotiating rates for the High NA EUV equipment.
TSMC deputy co-COO Kevin Zhang has previously confirmed that the A16 process will not use High NA EUV. According to TSMC's internal preliminary plans, implementation might begin as early as the enhanced A14P generation, with subsequent generations such as A10 and more advanced nodes fully integrating it, significantly improving cost and efficiency in advanced process technologies.
Meanwhile, the US government continues to pressure ASML to cease providing maintenance and repair services for advanced DUV systems to Chinese customers. While the Dutch government has not yet agreed to this proposal, concerns persist about ASML's future operational growth pace.
In a recent media interview, Fouquet emphasized that due to the ban on selling EUV equipment to China, the country's chip manufacturing capabilities are likely to lag behind the West by 10-15 years, demonstrating the effectiveness of EUV export restrictions.