Semiconductor Equipment Manufacturers Driving the Digital Revolution
July 24, 2023
Read Time 2 MIN
The semiconductor industry, a cornerstone of modern digital technology, is heavily reliant on semiconductor equipment manufacturing. These companies provide the machinery that enables the creation of integrated devices, often housed within fabrication facilities or ‘fabs’. The diverse range of equipment includes wafer manufacturing and processing, mask/reticle equipment, thermal processing equipment, inspection measurement, as well as assembly and packaging equipment.
These manufacturers are important due to their large contribution to industry growth. Global semiconductor equipment billings have recently reached an industry record of $107.6 billion in 2022, demonstrating a 9% growth year-over-year in Q1 20231.This growth is driven by demand for more advanced and efficient integrated circuits, with companies like ASML leading the charge.
ASML (ASML),2 a Dutch-based company, is renowned for producing machines that are essential in creating the world's most advanced chips. ASML's sales rose on average over 19% annually from 2020 through 20223. Despite economic uncertainties and chip export restrictions, ASML forecasts a promising jump in revenue for 2023.
ASML system sales revenue worldwide 2017-2022, by technology
Source: ASML. Data as of February 2023.
Intel (INTC)4 and Taiwan Semiconductor Manufacturing Co. (TSM)5 are just two of the many companies that purchase ASML's machines to manufacture the chips found in end products such as laptops and smartphones. Even with fluctuating consumer demand, these companies remain confident in the value and necessity of ASML's offerings, with no cancellations of orders reported.
ASML has a unique position as the sole producer of the extreme ultraviolet (EUV) lithography machine, a critical tool for making the most advanced chips globally. These chips find their way into products like Apple's iPhones and have significant implications for military and advanced artificial intelligence applications.
Two additional prominent players in the equipment space are Applied Materials (AMAT)6 and Lam Research Corp. (LRCX).7 They are known for their advanced technology and expertise and play a vital role in the semiconductor equipment manufacturing industry. Applied Materials offers a wide range of equipment, including wafer fabrication systems and inspection systems, while Lam Research Corp. specializes in wafer fabrication equipment and services. Both companies have seen over a 20% increase in sales on average over the last three years.
The success of semiconductor equipment manufacturers like ASML is essential to the continuation of Moore's law. This law, proposed by Intel executive David House, suggests that the number of transistors on integrated circuits doubles about every two years, leading to a doubling in chip performance. It's the innovation and continual improvement of manufacturing equipment that allows this trend to persist, enabling increasingly powerful and efficient devices.
Source: CircuitBread as of 2023.
Overall, the importance of semiconductor equipment manufacturing companies to the sector and the broader digital world cannot be overstated. The contributions of companies like ASML enable the ongoing march of digital progress, pushing the limits of what's possible in technology. Investing in the VanEck Semiconductor ETF (SMH) is one way to access this opportunity. SMH offers broad exposure to the semiconductor industry, helping to diversify risk while capitalizing on the industry's overall growth potential.
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IMPORTANT DISCLOSURES
1 Semis.org.
2 ASML is 4.85% of net assets as of 7/21/2023.
3 FactSet.
4 INTC is 4.60% of net assets as of 7/21/2023.
5 TSM is 10.82% of net assets as of 7/21/2023.
6 AMAT is 4.27% of net assets as of 7/21/2023
7 LRCX is 4.32% of net assets as of 7/21/2023.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
An investment in the VanEck Semiconductor ETF (SMH) may be subject to risks which include, among others, risks related to investing in the semiconductor industry, equity securities, special risk considerations of investing in Asian, European and Taiwanese issuers, foreign securities, emerging market issuers, foreign currency, depositary receipts, medium-capitalization companies, issuer-specific changes, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and industry concentration risks, all of which may adversely affect the Fund. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Related Funds
IMPORTANT DISCLOSURES
1 Semis.org.
2 ASML is 4.85% of net assets as of 7/21/2023.
3 FactSet.
4 INTC is 4.60% of net assets as of 7/21/2023.
5 TSM is 10.82% of net assets as of 7/21/2023.
6 AMAT is 4.27% of net assets as of 7/21/2023
7 LRCX is 4.32% of net assets as of 7/21/2023.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
An investment in the VanEck Semiconductor ETF (SMH) may be subject to risks which include, among others, risks related to investing in the semiconductor industry, equity securities, special risk considerations of investing in Asian, European and Taiwanese issuers, foreign securities, emerging market issuers, foreign currency, depositary receipts, medium-capitalization companies, issuer-specific changes, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and industry concentration risks, all of which may adversely affect the Fund. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.