EUR 850.00 For Business Accounts Only

Morningstar | ASML Updated Forecasts and Estimates from 24 Jul 2018

ASML saw torrid top-line growth in its second quarter thanks to node migration that has led to robust demand in logic and memory markets. The narrow-moat company continues to prep to meet its near-term EUV shipments goal via wafer capacity. Despite the company’s recent sales success and considerable progress toward ambitious goals, we expect the company’s top-line growth to decelerate in 2019. We are maintaining our $150 fair value estimate for narrow-moat ASML, and therefore view ASML shares at current prices as overvalued.

Second-quarter net sales came in at EUR 2.74 billion, a 30% increase year over year, and 20% increase sequentially. Overall, revenue exceeded our top-line estimates by 40 million and the high end of management’s former guidance by 200 million. Memory accounted for 54% of sales, with logic at 46%.

An overall gross margin of 43.3% came in slightly above guidance, but more than 150 basis points lower than ASML's second quarter in 2017. Margins were upheld largely by EUV profitability and strength in DUV and holistic lithography as DUV had an extra shipment this past quarter than what was guided, totaling to four.

Geographically, ASML had strong performance in both the U.S. and Asia Pacific, the latter region accounting for more than 75% of sales during the second quarter. China alone accounted for 19% of sales and CEO Peter Wennink claims that the trade war between the U.S. and China has had little impact on its customer composition.

Management is maintaining its goal of 30 EUV shipments in 2019 and is making headway toward achieving it. ASML has progressed on wafers per hour, with four-week availability over 85%. We expect DUV strength to lead into 2019, given client visibility. Overall, second-half sales and profitability are expected to be even more favorable than the first half of fiscal year 2018.

For upcoming third-quarter results, management guides sales to be within the EUR 2.7 billion-EUR 2.8 billion range, with approximately EUR 500 million in EUV system sales. We think this is achievable given the continuing migration to the 7-nanometer node, which has driven EUV demand. On the memory side, however, we continue to believe that ASML runs the risk of oversupply in 2019, which would reduce prices and equipment spend.

A previous version of this note contained an incorrect moat rating.