October 17, 2018 / 8:44 AM / a month ago

ASML's bullish outlook pulls computer chip stocks higher

AMSTERDAM (Reuters) - Semiconductor industry bellwether ASML Holding NV’s better-than-expected third quarter results and bullish outlook gave sector stocks a boost on Wednesday after fears of slackening demand had dragged them down in recent months.

FILE PHOTO: ASML logo is seen at the headquarters in Veldhoven, Netherlands August 30, 2018. REUTERS/Piroschka van de Wouw

ASML, one of the largest suppliers to Samsung, Intel and TSMC, said demand from both memory and logic computer chip makers remains strong and it expects a record 2018 followed by further growth in 2019.

Net profit rose to 680 million euros ($786 million) from 557 million a year ago, topping the 671 million expected by analysts polled for Reuters. Sales rose to 2.78 billion euros from 2.45 billion.

The shares rose 6.7 percent to 165.30 euros, doubling their year to date gains and erasing much of an 18 percent slide they had suffered since July on fears of a slowdown in demand for memory chips.

Other chipmakers that were pulled higher included STMicroelectronics up 5 percent and Infineon, up 3.2 percent at 19.54. Technology shares were also benefiting from overnight results in the U.S., including from Netflix, which helped the Nasdaq Composite Index rise 2.9 percent.

ASML reported net orders of 2.2 billion euros for the third quarter, up from 1.95 billion in the second quarter. Of new orders, about 64 percent were for ASML lithography systems destined for the manufacture of memory chips.

The company is also benefiting from a move toward a new cycle of smaller logic chips, known in the industry as the 7 nanometer generation.

“We see strength in both logic and in memory,” CFO Roger Dassen said in a statement, with steady strength in demand for memory but increasing demand for logic chips, used as the brains of high-end electronics devices.

Dassen said that many customers were planning to upgrade or maximize the capacity of their existing systems, another important source of revenue.

The company is forecasting 3 billion euros in sales for the fourth quarter, which would mean a record of more than 11 billion euros in full year sales.

“ASML reported a very comforting update,” said analyst Marc Hesselink of ING, who has a buy rating on the stock and a 12-month price target of 220 euros. He said in a note that while the third quarter numbers were “slightly” ahead of consensus, the fourth quarter forecast was “well ahead.”

“The market will take this update positively as the stock was down 20 pct since its peak on worries that the memory segment would slow down,” he said.

“Today, ASML underlines that its relative exposure ... to logic and DRAM memory is better than its competitors that are more exposed to NAND (flash) memory.”

ASML foresees selling 18 of its company’s most advanced lithography systems, which cost roughly 100 million euros each, in 2018 and another 30 in 2019.

Hesselink said this was a good sign that customers are proceeding with plans to move the newest machines into full scale production.

Reporting by Toby Sterling; Editing by Subhranshu Sahu and Elaine Hardcastle

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