ASML Outlook Starting to Improve

ASML Holding N.V. (ASML - Snapshot Report) was the first of the capital equipment companies to report second quarter results.

Judging from the 50.7% increase in revenue and the company’s growing market share, we feel more optimistic about Applied Materials (AMAT - Analyst Report), KLA Tencor (KLAC - Analyst Report), Lam Research (LRCX - Snapshot Report) and Tokyo Electron, the other big players in the space. Although the year-over-year decline of 67.2% indicates that sales are still quite weak, technology purchases toward the end of this year and in 2010 are likely to benefit the company.



ASML Holding shipped 10 systems in the last quarter at an average selling price (ASP) of €18.3 million. While this is not such a significant number, it does indicate a slowdown in the rate of decline.

What is particularly encouraging is the increase in bookings from 8 systems in the March quarter to 15 systems in June. The ASP increased 98.9% sequentially, after three quarters of decline. The ASP of systems in backlog is even higher, indicating pricing power.

We can surmise the reasons for the underlying strength in prices. The first is related to the ongoing capacity shrink, where most of the 200mm fabs have been shut down. The focus on 300mm to drive cost savings is beneficial for the company since these fabs are more capital intensive and require investment in leading edge technology.

The second reason is tied to production cycles and technology transitions. In the memory segment, DRAM/NAND manufacturers require more advanced systems to ramp production of DDR3 memory devices. In the foundry and logic segment, the transition to smaller chip geometries drive demand for advanced systems.


 
As a result of the increase in sales volumes, the pro forma gross margin, excluding share based payments and inventory provisions, increased 804 basis points. Operating expenses were flattish sequentially at around €159 million, with the operating loss excluding loss on sale of property, plant and equipment coming in at -31.9%. Loss per diluted share was -€0.34 compared to loss of -€0.41 in the March quarter and earnings of €0.25 in the year-ago quarter.


 
Management expects sales of around €450 million in the third quarter, a sequential increase of around 62.7%. The year-over-year decline will therefore be much lower than in the second quarter, at around 35.4%.

The GAAP gross margin is expected to be around 30%, driven mainly be a richer mix of products. However, both R&D and SG&A will be lower at €115 million and €39 million, respectively.

Over the next few quarters, management expects the cash balance to fall below the targeted €1 billion. This is mainly due to the fact that initial lead times on the new NXT platforms (scheduled for launch next quarter) and the EUV platforms (scheduled for launch in the second half of 2010) are much longer.

Read the full analyst report on ASML

Read the full analyst report on AMAT

Read the full analyst report on KLAC

Read the full analyst report on LRCX