ASML Cuts Sales Forecast Amid Continued Testing Delays

(Bloomberg) — ASML Holding NV cut its revenue growth guidance in half for this year because fast-track shipping of its chip-making machines led to delayed sales recognition.

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Sales growth this year will come in at 10%, ASML said, adding that the value of machines on a fast shipping schedule will more than double to 2.8 billion euros next year as it races to get equipment to customers amid a chip shortage.

Shares of ASML dropped as much as 4.8% after the earnings result. They were trading 1.1% down at 479.3 euros per share as of 9:44 a.m. in Amsterdam on Wednesday.

“The demand is still significantly higher than what we can make,” CEO Peter Wennink said in a statement. “This was the situation in the last quarter it’s still the same.” But despite the “very strong” demand in automative, the company sees a slowdown particularly in products such as PCs and smartphones.

The company’s net sales forecast for the third quarter fell short of analyst expectations. It predicts sales of 5.1 billion euros ($5.22 billion) to 5.4 billion euros for the third quarter compared with an estimate of 6.48 billion euros in a Bloomberg analyst survey.

“Initial reaction will be negative, but it could create an opportunity as the overall picture remains strong,” Oddo BHF analyst Martin Marandon-Carlhian wrote in a note to clients. He said ASML will “continue to benefit from the structural growth of the lithography market in 2022 and far beyond.”

The company began skipping some final testing in its factories last year to speed up delivery. This meant clients get their machines more quickly, but ASML had to delay sales recognition for those shipments until formal customer acceptance.

The value of fast shipments in 2022 leading to delayed revenue recognition into 2023 is expected to increase to 2.8 billion euros from a previous forecast of about 1 billion euros, the company said.

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“What we saw in the second quarter, which is basically an acceleration of supply chain constraints, is actually also happening in the third quarter,” Wennink said. “And I think it will happen throughout the remainder of the year.”

ASML shares have been under extra pressure in recent weeks as the US pushes the Netherlands to ban the chip-tool maker from selling some deep ultraviolet lithography systems to China. Washington is focused on banning sales of the most advanced type of DUV technology, immersion lithography machines, Bloomberg reported earlier this month, citing people familiar with the matter.

Read more: US Pushes for ASML to Stop Selling Chipmaking Gear to China

The Dutch government, which confirmed US officials are seeking to expand an existing moratorium on the sale of such systems to the Asian nation, has yet to agree to any additional restrictions. ASML opposes the proposed ban because DUV lithography equipment is already a mature technology, Wennink said earlier this year.

“The geopolitical situation, the technological sovereignty that countries are after is driving” big investment and subsidy programs, he said in a separate statement Wednesday. He said ASML expects a “quadrupling or quintupling” of the semiconductor content in the longer term despite “mixed signals” in the short term.

ASML has cornered the market for the latest advanced extreme ultraviolet lithography equipment needed to make cutting-edge chips that are faster, cheaper and more efficient.

The Dutch company’s customers include Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co., which have been investing heavily to keep up with rebounding demand as lockdowns ended. It competes with Japan’s Nikon Corp. in deep ultraviolet machines used to produce more mature chips.

The delivery times for semiconductors fell by a day in June, a sign of modest relief after chronic shortages that have plagued automakers and other industries for more than a year. Still, lead times — a closely watched gap between when a semiconductor is ordered and when it is delivered — averaged 27 weeks last month.

Key Insights

• In the second quarter, ASML sold a total of 91 lithography machines.

• In 2022, it’s planning to ship 55 EUV devices, which etch smaller circuits while increasing capacity and speed, but it will only book revenue for 40 systems because of the sales recognition delay.

• The company said it’s revised its dividend policy to make payments on a quarterly basis, starting with an interim dividend of 1.37 euros per ordinary share that will be made payable on Aug. 12.

• ASML stock dropped about 32% since the start of the year, in line with a 30% retreat in the Stoxx Europe technology index.

(Updates with the move in shares in the third paragraph)

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