EUR 850.00 For Business Accounts Only

Morningstar | ASML Overcomes Industry Weakness with Solid 2Q Results; Shares Remain Overvalued

ASML reported second-quarter results driven by healthy lithography demand from logic and foundry customers. While the semiconductor capital equipment space has been negatively impacted by the pause in equipment spending by memory customers, ASML has been somewhat insulated due to the ongoing ramp of its extreme ultraviolet, or EUV, lithography tools that will enable the next-generation process technologies at the likes of Intel and TSMC. Management maintained their call for overall top-line growth in 2019 as weaker memory demand for ASML’s tools (down 30% versus the 20% disclosed last quarter) is offset by stronger logic demand. Meanwhile, ASML is on track to ship 30 EUV systems in 2019. We are maintaining our $160 fair value estimate for narrow-moat ASML, and view shares as overvalued at current levels due to our skepticism on long-term EUV penetration.

Second-quarter revenue was EUR 2.57 billion, down 6.3% year over year but up 15.2% sequentially. Equipment revenue came in at EUR 1.85 billion, down 11.3% versus the prior year, with EUV tools representing 41% of system sales. System sales to Taiwan and Korea rose 17% and 14% sequentially, respectively, underscoring TSMC and Samsung’s commitment to EUV for future processes. Memory revenue fell 36% year over year, as customers have lowered utilization rates and slowed capacity expansion plans in reaction to the softer environment. Based on recent commentary from Micron, it appears the memory market will have a weaker appetite for equipment for the foreseeable future. Gross margins for the quarter were 43%, slightly above the firm’s guidance due to better-than-expected EUV manufacturing efficiencies. We expect incremental margin expansion over the course of the year as ASML benefits from greater tool volume, field upgrades, and shipments of higher margin, newer NXT 3400C EUV systems. Management expects third-quarter sales to be at a midpoint of EUR 3 billion, which implies a 17% sequential increase.