ASML Beats Estimates, Grapples With Chip Supply Shortage

(Bloomberg) -- ASML Holding NV, a crucial supplier to Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co, beat analyst expectations for the first quarter and is planning a significant share buyback in the first quarter, with U.S.-China tensions doing little to disrupt strong demand.

• Chief Executive Officer Peter Wennink said the chip industry needs to deal with the global chip supply shortage that’s crippling automakers around the world. “This engine needs to start running again,” Wennink said in an interview with Bloomberg. “We start from an undercapacity view today. So we’ll just have to step up and ship more tools and more machines to get more semiconductor capacity out there.”
• ASML shares hit a record high in Amsterdam trading at 449.65 euros, a 2.2% increase from the previous close.

Key Insights

• The Dutch supplier of machines to make semiconductors expects revenue in the first quarter of between 3.9 billion euros ($4.7 billion) to 4.1 billion euros, with a gross margin of up to 51%, it said in a statement Wednesday. Analysts had expected sales of 3.52 billion euros and a gross margin of 49.3%.
• ASML is insulated from the pandemic-induced economic downturn as customers like Intel Corp., Samsung and TSMC need its latest machines to make chips that are faster, cheaper and more efficient.
• In the fourth quarter, ASML shipped 9 of its newest EUV machines and won orders for 6 EUV systems representing 1.1 billion euro, which etch smaller circuits while increasing capacity and speed. “The build out of the digital infrastructure and the continued technology innovation is relevant to the consumer, automotive and industrial markets and drives demand across our entire product portfolio,” Wennink said.
• The company has struck an upbeat tone on future demand, underpinned by developments in artificial intelligence, high-performance computing and 5G wireless networks.
• It’s dismissed the long-term impact of U.S. sanctions on Chinese companies, which bring ASML around 800 million euros in revenue a year. The company has suggested underlying demand will endure, even if it switches to other customers in the semiconductor supply chain.

Market Context

• ASML stock had risen 62.6 in the past 12 months, far out-pacing a 12.4 gain in the Stoxx Europe technology index.

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• ASML kept its guidance for low double-digit growth for 2021, and annual revenue at 15-24 billion euros through 2025.
• To date, the Dutch company repurchased 1.2 billion euros worth of shares under the current 6 billion euro share buy back program running through 2022.
• “EUV demand is developing very, very strongly,” said CFO Roger Dassen in a video transcript. “We expect total EUV system sales this year of 5.8 billion euros, which is 30% up in comparison to the 4.5 billion euros that we had for 2020.”

(Updates with shares.)