ASML beats forecasts at bottom of the cycle

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ASML, the Dutch manufacturer of chip-making equipment, will extend its market share lead over Japanese rivals Nikon and Canon as state-of-the-art technology allows it to outpace lacklustre semiconductor sector growth, it said yesterday.

Peter Wennink, chief financial officer, said: "We expect market share [by value] to increase this year by a reasonable number of percentage points - from the low fifties to the upper fifties. And we expect it to grow further in 2006."

ASML which numbers Intel, the world’s largest chip-maker, among customers but does most business with chip-makers in Korea and Taiwan, said it had lured a fifth Japanese client who had ordered a state-of-the-art immersion system.

It has sold nine such systems, that are as yet unavailable to rivals and allow the manufacture of thinner circuits and smaller chips. It has orders for ten more.

Eric Meurice, chief executive, said that while its “baseline scenario” was for flat sales next year, "we clearly expect a significant impact from market share growth and increasing confidence in immersion technology”.

"This leads us to believe that the first-half of 2006 will be strong,” he said, adding however that the year could mirror 2005, with a strong start followed by a weaker second-half.

Nonetheless it expects to exceed industry estimates of single digit revenue growth in 2006, he said, given the opportunities of technological and market share leadership.

Mr Wennick said it would come close to achieving its goal of [euro]1bn in net cash by the year-end. That money would be used to scout "business opportunities that support growth". Only if it failed to find targets would it consider returning cash to investors, probably via a share buy-back programme, he said.

ASML results suggested the sector has not entirely shaken off the caution resulting from over-confident estimates of end-demand for computors and phones that use chips late last year.

ASML third-quarter sales of [euro]533m were below [euro]610m of last year - although well above analysts’ estimates - with net profit of [euro]48m. The company shipped 39 systems, with an average selling price of [euro]11.8m. Average prices were 11 per cent down on the previous three months, as product mix favoured refurbished systems.

However bookings for 46 systems, with a value of [euro]728m, in the third-quarter were better than expected and well above the 24 booked a quarter earlier when orders dipped on a sector uncertainty. Furthermore the average selling price of [euro]15.8m showed the orders were weighted towards new technology.

Fourth-quarter orders would be at a similar level although at lower prices. That was an incidental event rather than a trend, said Mr Wennink.

Eric Meurice, chief executive, described the results as “robust” and “solid” rather than sparklling and said the semiconductor equipment cycle was at its low point.

Third-quarter sales were down 13 per cent year-on-year at €533m, but net profits of €48m were up from the €41m reported last time, equating to 9 per cent of sales rather than the 6.7 per cent last time.

The company – ASML is the biggest provider of lithographic systems to semiconductor manufacturers – managed to hold the average selling price for new systems at €15m, near to the previous quarter’s average. But a customer switch towards refurbished systems pulled the average selling price of all equipment down 11 per cent to €13.3m. The average selling price for the fourth quarter is seen falling back.

Looking ahead, the company said it had established a clear lead over rivals in the race to market 45 nanometer node technology and was building its position in Japan.

Net bookings of 46 systems, worth €728m, made during the quarter achieved a record average selling price of €15.8m, compared with something over €10m for the same quarter last year (although then 80 systems were booked). The order backlog was also higher.

The Dutch-based company forecast that fourth-quarter order intake would be around the same level as for the third quarter. It expects to ship 40 systems in the fourth quarter.

The share price opened 0.9 per cent higher at €13.70.

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