ASML Holding NV’s orders rose in the second quarter on demand for chip-making machines in China, defying a slump in the semiconductor industry.
Europe’s most valuable technology company reported order bookings of €4.5 billion ($5 billion) in April to June, ASML said in a statement on Wednesday. That is 20% higher from the previous quarter and beat an average estimate of €3.98 billion among analysts polled by Bloomberg.
A recent surge in orders from China, driven by customers seeking to avoid looming export controls, helped offset a wider chip industry slowdown for ASML, which is the only producer of the lithography equipment needed to produce most advanced semiconductors. The company said demand for its deep ultraviolet, or DUV, lithography machines outstripped supply.
“Chinese customers say: We are happy to take the machines that others don’t want,” Chief Executive Officer Peter Wennink said in a video released together with earnings. “Because their fabs are ready. They can take the tools.”
The company raised its full year guidance, and now expects net sales in 2023 to grow toward 30%, Wennick said.
The Veldhoven-based lithography giant’s shares rose as much as 1.8% to €676 after the report. They were trading up 0.5% as of 10:50 a.m. in Amsterdam.
While ASML maintains an order backlog of around €38 billion, the semiconductor industry has slowed as inflation and recession fears last year triggered a rapid pullback on consumer and business spending that’s hammered sales of electronics worldwide. Earlier this month, Samsung Electronics Co. reported its worst decline in quarterly revenue since at least 2009. ASML’s backlog dropped by around €900 million from the previous quarter.
Last week, ASML said it plans to slow hiring this year amid the downturn in the chip industry, after it added 10,000 employees in 2022.
The extreme ultraviolet business, which is the company’s most advanced product line, is going through “some shift in demand timing” largely driven by fab readiness, Wennink said. “There is also some element in there of course of the macroeconomic situation, where people have some concerns about the duration of this downcycle.”
Revenue is on track for €6.5 billion to €7 billion in the third quarter, compared to net sales of €6.9 billion in the previous period, the Dutch company said. The forecast compares to analysts’ average estimate of €6.51 billion, according to a Bloomberg survey.
“Overall this is a reassuring set of results given market caution,” Jefferies analysts including Janardan Menon said in an emailed note. “We continue to expect steadily improving sentiment in the industry” through the second half of the year, leading to a stronger 2024, they said.
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ASML has been impacted by the US bid to curb exports of cutting-edge technology to China, its third-biggest market. Pressure from President Joe Biden’s administration pushed the Dutch government last month to announce plans to prohibit ASML from shipping some so-called immersion DUV lithography machines, its second-most capable machinery, to China without a license.
ASML is already prohibited from selling its most sophisticated EUV technology to Chinese companies.
What Bloomberg Intelligence Says
ASML could still achieve 30% sales growth in 2023 despite macro headwinds. Demand for lithography tools for mature-node chips might stay strong, including in China. 3Q order booking improved sequentially and the backlog remained high at €38 billion, which is greater than 2024 consensus estimates of €29.7 billion for sales and might relieve investors’ concerns.
— Masahiro Wakasugi, BI senior industry analyst
China accounted for 24% of ASML’s sales in the second quarter, up from 8% in the January to March period. Geopolitical tensions are fueling strategic investments made by Chinese semiconductor firms, according to Wennink.
“They do not want to rely on supply that comes out of China,” Wennink said on an investor call. “China without any exception is leading” the market for mid-critical and mature semiconductors, he said. “They want to hedge against any negative geopolitical repercussions that could come.”
In addition to the Dutch controls, the US is expected to bar ASML from selling DUV lithography gear to about half a dozen of Chinese plants without approval from Washington.
Wennink called US plans to tighten restrictions on more of its DUV sales “speculative.” “But what we understand, it will not have a major impact on what we said before,” he said.
--With assistance from Debby Wu.
(Updates with CEO comments on investor call.)
