April 18, 2012 8:07 pm

ASML: doubly cyclical

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Good omens for the largest maker of semiconductor chip equipment

Making the equipment that makes the components that make the gadgets consumers may or may not buy demands a mystic ability to see into the future. No wonder the runes of ASML, the world’s largest maker of semiconductor chip equipment, are followed closely. Its first-quarter results on Wednesday – earnings per share down a quarter from a year earlier, with first-half sales forecast to be down a fifth – suggest troubles ahead. But things are not crystal clear.

ASML’s clients – chipmakers – buy more capital equipment in anticipation of higher spending on discretionary items such as computers, tablets and smartphones. So poor ASML’s industry is doubly cyclical. When sales at the world’s largest chipmaker and a crucial ASML client, Taiwan Semiconductor Manufacturing, fell 10 per cent in 2009, ASML’s sales plummeted by a half as chipmakers slashed equipment spending. Equally, in the three years that have followed the crisis, ASML’s sales have grown an average four times faster than TSM’s. This year, the group hopes, is about getting back to normal. ASML’s first-half revenue target of €2.4bn, therefore, does not look so bad at a quarter above pre-crisis levels.

Looking deeper into ASML’s crystal ball, demand for smartphones is set to grow by a further third this year, according to Gartner estimates. Tablet demand remains strong too. That is part of the reason Intel and TSM, which make up more of ASML’s business than ever, are both boosting capital spending. Intel is rushing to develop advanced mobile chips, prompting a boost in capital expenditure to $12.5bn this year. That is up a sixth from 2011, which was already double the average during the previous five years. TSM, afraid of getting too behind, will also boost capex this year. Good omens for ASML.

Email the Lex team in confidence at lex@ft.com

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