ASML’s order backlog is likely to benefit from the AI ​​chip boom

By Toby Sterling and Nathan Vifflin

AMSTERDAM (Reuters) – ASML, the largest supplier to computer chip makers, is expected to report an influx of new orders when its new boss reports second-quarter results on Wednesday, as customers expand capacity to meet booming demand for AI chips.

Another focus will be whether Chinese companies continue to buy large quantities of equipment used to make older generations of chips, such as those used in electric cars, a cause for concern for Western policymakers who have restricted purchases of more advanced technology.

Analysts say the company could raise its forecast as major cutting-edge chip makers – including Taiwanese company TSMC, which makes chips for Nvidia and Apple and reports earnings on Thursday – could increase and accelerate their equipment purchases.

ASML dominates the market for lithography systems, complex tools that use lasers to create the tiny circuits of computer chips. ASML is the only manufacturer of lithography systems that use extreme ultraviolet (EUV) wavelengths, which TSMC needs to make the most complex chips used in smartphones and AI chips.

“We expect ASML’s order value to reach nearly EUR 5 billion in the second quarter, higher than consensus estimates,” said Mihuzo analyst Kevin Wang, due to strong orders from TSMC for ASML’s EUV product line.

The results are the first under the leadership of ASML’s new CEO, Christophe Fouquet, who took over the reins of Europe’s largest technology company to help it navigate the ongoing chip dispute between the US and China.

ASML, valued at around 400 billion euros ($437 billion), described 2024 as a “transition year” in which business will stagnate before rebounding strongly in 2025 on demand for its most advanced tools.

The group’s shares have risen by 45 percent this year and are currently trading near record levels of over 1,000 euros. This corresponds to around 40 times the earnings forecast for the next twelve months and is therefore significantly higher than the STOXX Europe 600 technology index.

A growing backlog would reassure investors that demand for the company’s most advanced products is returning after a weak first half of 2024, during which it relied heavily on orders for older equipment from China.

Analysts expect second-quarter net profit of €1.41 billion on revenue of €6.04 billion, according to the average estimate of 16 analysts based on LSEG data.

For comparison: In the same period last year, net profit was 1.94 billion euros on sales of 6.90 billion euros.

ORDER BACKLOG

ASML had an order backlog of €38 billion at the end of the first quarter. This means that the company needs new orders worth €4 billion to €6 billion each quarter to meet its 2025 sales forecast, which is at the upper end of a €30 billion to €40 billion range.

The story goes on

The company’s machines, each costing up to $300 million, have delivery times of 12 to 18 months, and orders are closely coordinated with customers such as Samsung, Intel and memory specialists SK Hynix and Micron.

The company competes with Canon and Nikon of Japan on slightly older generations of chip manufacturing technology. Chinese firms such as Shanghai Micro Electronics Equipment (SMEE) are trying to develop competing lithography tools.

But Chinese chipmakers, deprived of ASML’s best tools due to U.S. export restrictions, increased their purchases of older ASML equipment last year; they accounted for nearly half the company’s sales in the first quarter.

China’s rapid rise means lost market share and more competition for non-Chinese companies. The European Commission has started asking European chipmakers whether they believe that Chinese state subsidies distort the markets.

ASML argues that the world needs older chips, as shown by shortages during the COVID pandemic, and that China is stepping in to supply them.

(1 US dollar = 0.9164 euros)

(Reporting by Toby Sterling; Editing by Jan Harvey)