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In a Technology War, It Helps to Be the Arms Dealer

Dutch semiconductor ASML Holding NV could see an 18% revenue boost from US-Chinese trade feud.

By Tim Culpan

In case you haven’t heard, there’s a trade war going on. 

Despite all the talk about protectionism and trade balances, what’s really driving the angst between the U.S. and China is a rivalry over geopolitical power and technology.

So while a disturbance in the international trade continuum could be bad for the global economy, like in any war, the real winners will be the weapons makers. 

ASML Holding NV becomes one of the world’s premier arms brokers in this new type of battle.

The Dutch manufacturer of semiconductor equipment on Thursday boosted its 2020 revenue guidance by 18% to 13 billion euros ($14.85 billion), “which is supported by a scenario of moderate market growth.”

New technologies such as 5G, AI, autonomous driving, and big data were cited as the main contributors.

It’s no coincidence that while China has been a laggard in technology, these categories that ASML lists are also the ones in which the world’s second-largest economy has a real chance to pull ahead of the U.S. and other advanced countries.

In fact China is expected to lead the world in the number of new semiconductor factories that start construction between 2017 and 2020, coming in second to South Korea in terms of spending, according to industry group SEMI.

It generally takes one and a half to two years to install equipment in a new factory, which means there’s plenty of runway for further spending beyond 2020. Looking into its crystal ball, ASML guesses revenue in 2025 could range between 15 billion euros and 24 billion euros. At the top end that’s an average growth rate of 13%, roughly in line with what it expects to achieve in the five years through 2020.

On the surface, that doesn’t sound great. But this is a highly cyclical industry, so the fact that ASML is predicting a decade of continuous growth is quite unusual.

Chinese President Xi Jinping is determined to lead his country toward technological independence, with massive funds being made available to achieve it. At the same time, old foes Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co., Intel Corp. and Micron Technology Inc. are going hammer and tongs to stay ahead.

That makes now a good time to be in the chip-equipment business.


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