Chip Gear-Maker ASML Forecasts Sales Below Analyst Estimates

(Bloomberg) -- ASML Holding NV, Europe’s largest semiconductor equipment maker, forecast first-quarter sales well below analyst expectations, mainly due to a fire at a strategic supplier.

  • Shares fell as much as 4.9 percent to 134.50 euros at the market open. ASML Chief Executive Officer Peter Wennink said in Bloomberg TV interview that the mobile phone market “is not where I believe the biggest growth areas of the semiconductor market is," saying he instead sees growth in server parks, cloud and data processing in the cloud.

Key Insights

  • The Veldhoven, Netherlands-based company predicts sales of 2.1 billion euros ($2.4 billion) for the first quarter, compared with an average analyst estimate of 2.73 billion euros.
  • A fire at a key supplier of electronics components and modules, Prodrive, damaged inventory. ASML expects first-quarter sales to be adversely impacted by roughly 300 million euros.
    • This should be largely recovered in the second quarter, with the remainder expected to be recovered in the second half of 2019, ASML said.
  • ASML forecasts a gross margin of about 40 percent in the first quarter of the year, trailing the average estimate for 47.3 percent.
  • Over Q4 there were five new orders for its latest lithography machines.
  • It reached an initial settlement on a yearlong infringement court case with Nikon Corp. over patents for lithography equipment and digital cameras, costing the company 131 million euros on gross margin in 2018.

Market Reaction

  • The market may initially be surprised by ASML’s first indication on a slowing semiconductor market, with deliveries of systems delayed to the second half of 2019 from the first half, InsingerGilissen Bankiers analyst Jos Versteeg said by phone.
  • But ASML struggles much less than others in the industry, Versteeg said. “ASML sees in its order portfolio it looks well for overall 2019, for a major part because it moves into EUV, in which they are the only player. The future for the coming seven years looks very bright.”
  • Apple Inc. is struggling with a slowing Chinese economy leading to weakness in high-end smartphones, with ASML customers including chip makers as Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co.feeling the pain.

Know More

  • “Our customers responded late in the 4Q to slowing demand in their end-markets by delaying deliveries of some of our litho systems from the first half of 2019 into the second half, in order to balance supply and demand,” said Wennink in the statement.
  • The chip industry bellwether locked in five new orders in the fourth quarter for its newest machines, called extreme ultraviolet lithography systems, which the gear-maker has been pushing to clients including Intel Corp. and Samsung. The machines, about the size of a bus, cost more than 100 million euros each.
  • Fourth-quarter sales came in at 3.1 billion euros, beating the average analyst estimate of 2.99 billion euros.
  • The chip maker raised its revenue guidance at the end of last year, expecting net sales to grow to 13 billion euros by 2020, up from a previous forecast of 11 billion euros. Revenue over 2018 was 10.9 billion euros.
  • “Despite some uncertainty in the current environment, we remain confident about our sales and profit targets for 2020 and beyond, underlined by a proposal of a 50 percent increase in our dividend," said Wennink.

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