ASML guidance dispels chip sector gloom

ASML, the Dutch chip equipment maker, helped dispel some of the gloom surrounding the semiconductor sector on Tuesday after it unexpectedly raised its second-quarter bookings outlook.

The group said order entries - a key indicator of industry demand for chip-using consumer devices such as mobile phones and computers - were expected to rise by at least 40 per cent as industry-wide demand continues to pick up steam.

“Our higher than expected second quarter bookings intake further confirms the steady capacity increase need of the semiconductor industry, and the growing market acceptance of ASML technology,” said Eric Meurice, ASML chief executive.

The upward revision comes after sector-wide sales fell 9 per cent last year and Intel, the world’s biggest semiconductor maker and an ASML customer, saw first-quarter profits dropped by a third as a result of slowing PC sales growth.

The new guidance set off a flurry of upgrades.

Delta Lloyd Securities raised its rating on the stock from “reduce” to “accumulate”. noting that ASML’s order intake is much more positive than that given by rivals Nikon and Canon in the past few weeks.

Merrill Lynch also bumped the company up a notch from “sell” to “neutral”, citing attractive valuation and strong demand for the group’s new immersion technology, which uses a water-based process to shrink the dimensions of circuits.

“We think ASML will post a strong second quarter, possibly better than our forecasts,” said analyst Andrew Griffin. “Orders will likely be down but still at historically high levels, and should rise again in the third quarter due to initial XT1900i orders.” Analysts estimate that the fledging immersion market could be worth up to $4.3bn by 2010 or 40 per cent of the total lithography market.

Lehman Brothers, however, kept its downgrade of the stock at “underweight” and stood by the view that ASML’s bookings will peak in the first half of 2006.

“Equipment stocks have historically traded on bookings, and the irony is that the bookings peak tends to lead the earnings peak,” analyst Navdeep Sheera said in a note.

ASML shares surged 8.2 per cent to €15.68 in afternoon trading in Amsterdam.