Though ASML (ASML -3.5%) slightly missed Q3 EPS estimates and fell short of a Q3 revenue consensus of $1.81B by $120M, the company also forecast Q4 sales of €1.3B ($1.68B), above a $1.52B consensus.
The lithography equipment giant also expects "a solid start to 2015," aided by strong demand from memory manufacturers (Samsung?). Logic IC-related orders for advanced processes (14/16/20nm) are expected to keep growing, but "the timing and volume depends on the business allocations by [ASML's] customers' customers."
Q3 bookings totaled €1.4B, above revenue of €1.32B. But bookings for next-gen EUV lithography systems (previous) only totaled €47M. Moreover, ASML suggests it will only ship 9 EUV systems next year, less than the 12-15 previously forecast.
Nonetheless, ASML says its EUV program made "substantial progress" on a technical level in Q3. The company is "working with a customer towards a mid-node insertion of EUV at the 10 nanometer logic node expected in late 2016" (possibly TSMC), and says other clients are "preparing for initial learning in a manufacturing environment."
Like many other stocks, shares are having a rough day.
An ASML EUV lithography system at an IBM site reached a throughput of 637 processed chip wafers over 24 hours. That's well above the 500-wafer target ASML previously gave for the end of 2014 (though still well below a 2016 target of 1,500 wafers), and is fueling hopes the adoption of costly EUV systems will happen faster than expected.
Intel, TSMC, and Samsung have all made big investments in ASML to help it commercialize EUV, considered necessary to extend Moore's Law over the long-term. The company has seen delays in reaching EUV targets, and has forecast EUV systems will achieve the stability needed by chip manufacturers in 2H16 or 2017.
ASML mentioned on its Q2 CC (transcript) the delivery of some early EUV orders have been pushed out to 2015. The company expects to recognize revenue from 5 EUV systems in 2014.
KLA-Tencor (KLAC -1.9%) guided on its FQ4 CC (transcript) for FQ1 revenue of $590M-$650M (-6% Y/Y at the midpoint) and EPS of $0.34-$0.54, well below a consensus of $740M and $0.88. Bookings are expected to drop to $600M-$800M from an FQ4 level of $898M (topped guidance of $625M-$825M).
Several chip equipment peers underperformed following the numbers on a weak day for stocks. AMAT -2.4%. ASML -2%. RTEC -3.5%. UCTT -3.2%. MTSN -2.3%. The group has had a good run this year on optimism about industry consolidation and a strong up-cycle.
Discussing its guidance, KLA observed delivery for major FQ4 orders for 14nm equipment from a foundry client (likely Samsung or Globalfoundries) isn't expected to start until FQ2. The company added it's generally cautious about 2014 foundry revenue.
But KLA expects revenue growth to resume in FQ2, and is optimistic about 2015 demand, as foundry clients (responsible for 68% of FQ4 orders) invest heavily to ramp 16nm and 14nm production. Samsung and Globalfoundries have big 14nm plans for 2015; TSMC is attempting to counter with its 16nm FinFET+ process.
FQ4 gross margin was 56%, missing KLA's guidance midpoint by 150 bps and contributing to an EPS miss. KLA blames product mix and higher-than-expected services costs. GM is expected to fall to 54%-55% in FQ1 due to lower revenue.
Applied Materials (AMAT) "made a compelling case that technology inflections could become tailwinds [for chip equipment demand] at the FinFET and 3D NAND transitions," writes Credit Suisse's John Pitzer after taking in the firm's analyst day (held at the Semicon West conference).
Pitzer adds AMAT sees $10B+ in cumulative revenue opportunities from the deposition and etching markets related to 3D NAND flash investments. However, he thinks Lam Research (LRCX), which just offered a bullish analyst day outlook of its own, is a better 3D NAND play.
Cowen's Timothy Arcuri argues strong FinFET (3D transistor) and 3D NAND capacity targets, together with healthy maintenance spend, "argues more re-rating for AMAT and the sector in general." At the same time, he's worried about the impact of 3D NAND growth on NAND supply, and thus the multiples afforded to SanDisk (SNDK), which has rallied strongly this year.
AMAT remains confident the Tokyo Electron (TOELF) merger will close this year. The post-merger company will call itself Eteris. Analyst Robert Maire thinks AMAT/Tokyo will buy Entegris (ENTG) once the deal closes.
KLA-Tencor (KLAC), though hiking its June quarter guidance, is a little cautious about near-term demand. "This is a quarter where we believe we're in a bit of a pause right now in the industry ... Bookings that we got, while strong, were really for foundry, and more for delivery and revenues that we'll see in calendar '15." Berenberg issued a cautious note last week.
Trade group SEMI now expects total chip equipment spend to grow 20.8% in 2014 to $38.4B, and 10.8% in 2015 to $42.6B.
Lam Research (LRCX +11%) beat FQ3 estimates and guided on its CC (transcript) for FQ4 revenue of $1.19B-$1.29B and EPS of $1.14-$1.28, above a consensus of $1.16B and $1.09. Ultratech (UTEK +3.6%) missed Q1 estimates, but has reiterated guidance for 25%-30% 2014 revenue growth (above a 23.5% consensus).
Just as importantly for the industry, Lam has forecast the global wafer fab equipment market will be worth $32B in 2014 - $1B more than what Gartner previously forecast.
Lam also mentioned it has "seen some strengthening" in DRAM equipment orders - clients have been conservative with their capex following industry consolidation - and a "sustained commitment" among logic/foundry clients (Intel and TSMC?) to advanced processes (20nm, 3D transistors, etc.). However, there have been "some slight delays" in 3D NAND flash investments.
Chip equipment peers are also up: AMAT +1.4%. KLAC +1.5%. ASML +2.1%. ACLS +1.6%. CAMT +5.3%. RTEC +1.5%. PLAB +3.4%. One notable exception is Teradyne (TER -4.1%), which provided light Q2 EPS guidance - $0.36-$0.43 vs. a consensus of $0.49 - to go with a Q1 beat. Revenue guidance is in-line.
The group sold off last week after ASML offered soft guidance and a cautious 2H outlook. KLA reports after the bell.
ASML (ASML -5.5%) has lowered its 1H14 sales outlook. Moreover, the lithography equipment kingpin says logic IC customers are "encountering timing uncertainties in next-generation device designs" for 2H, and that NAND flash memory makers are "continuing their evaluation of [3D] NAND and future-node planar technologies, resulting in uncertainties for system demand."
ASML's remarks about logic customers might partly be a reference to Intel, which has reportedly delayed the launch of its 14nm Broadwell CPUs. NAND vendors have been keeping a lid on capex for some time; recent price pressure might encourage them to do so.
Chip equipment peers Applied Materials (AMAT -2%), KLA-Tencor (KLAC -2.5%), Lam Research (LRCX -2.5%), Axcelis (ACLS -2.6%), Camtek (CAMT -5.8%), and Ultratech (UTEK -0.9%) are off in sympathy. Compared with many other tech companies, the group has held up well during the March/April selloff.
One silver lining: ASML says multiple customers are qualifying 10nm EUV lithography equipment, and that it expects to recognize revenue on 8 EUV systems in 2014. Investments in both EUV and 450mm wafers have been delayed.
Gartner has forecast chip wafer fab equipment spend will grow 14.9% in 2014 to $31B, after falling 9.1% in 2013.
ASML's (ASML) Q1 net profit almost halved to €249.1M ($344M) from €481M in Q4 but exceeded expectations of €230M. Profit in Q1 a year earlier was €96M.
Sales slumped 24% on quarter to €1.4B, as expected. On year, revenue rose 57% from €892M.
ASML downgraded its H1 sales forecast due to slowing revenues in Q2, saying it expects turnover of €3B including extreme ultraviolet (EUV) systems for producing smaller chips. The company's prior guidance was €3B excluding EUV products.
"That ASML is now including EUV in its sales guidance means a difference on a yearly basis of around €500-600M, which is about 10% of sales," says ING analyst Robin van den Broek.
ASML Holding NV is a provider of lithography systems for the semiconductor industry, manufactures complex machines that are critical to the production of integrated circuits or chips. Its products include TWINSCAN, PAS 5500, Optics, among others.