ASML’s order book expected to benefit from AI chip boom

By Toby Sterling and Nathan Vifflin

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

Another focus will be whether Chinese firms have continued heavy purchasing of equipment used to make older generations of chips such as those used in electric cars, a concern for Western policymakers who have curbed buying of more advanced technology.

Analysts say the company may upgrade guidance as key makers of cutting-edge chips – including Taiwan’s TSMC, which manufactures chips for Nvidia (NASDAQ:) and Apple (NASDAQ:), and reports earnings on Thursday – may increase and accelerate equipment purchases.

ASML dominates the market for lithography systems, complex tools that use lasers to help create the tiny circuitry of computer chips. It is the only maker of lithography systems using extreme ultraviolet (EUV) wavelengths, needed by TSMC to make the most complex chips for smart phones and AI chips.

“We expect ASML’s order received value to reach close to 5 billion euros in the second quarter, higher than consensus estimates”, Mihuzo analyst Kevin Wang said, with strong orders from TSMC of ASML’s EUV product line.

The results are the first under ASML’s new CEO Christophe Fouquet, who took over the reins at Europe’s biggest tech firm as it navigates the ongoing U.S.-China fight over chips.

ASML, worth about 400 billion euros ($437 billion), has described 2024 as a “transition” year when business will be flat before rebounding strongly in 2025, driven by demand for its most advanced tools.

Shares in the group have risen 45% this year and are trading near record highs above 1,000 euros each, about 40 times forecast 12-month forward earnings, significantly higher than the STOXX Europe 600 tech index.

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

Analysts are expecting second-quarter net income of 1.41 billion euros on revenue of 6.04 billion euros, according to the mean estimate from 16 analysts, based on LSEG data.

That compares with net income of 1.94 billion euros on revenue of 6.90 billion euros in the same period a year ago.

ORDER BACKLOG

ASML had a 38 billion euro order backlog at the end of the first quarter. That means it needs new orders of 4 billion-6 billion euros each quarter to meet its forecast of 2025 sales at the upper end of a 30 billion-40 billion euro range.

The company’s machines, which cost up to $300 million each, have delivery lead times of 12-18 months, and orders are closely coordinated with customers including Samsung (KS:), Intel (NASDAQ:), and memory specialists SK Hynix and Micron (NASDAQ:).

For slightly older generations of chipmaking technology, it competes with Canon and Nikon (OTC:) of Japan. Chinese firms including Shanghai Micro Electronics Equipment (SMEE) are attempting to develop competing lithography tools.

But Chinese chipmakers, who are prevented by U.S.-led export restrictions from obtaining ASML’s best tools, have escalated their purchases of older ASML equipment in the past year, representing nearly half of company sales in the first quarter.

China’s rapid increase means lost market share and more competition for non-Chinese firms. The European Commission has begun polling European chip industry firms on whether they feel Chinese state subsidies are distorting markets.

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

($1 = 0.9164 euros)