ASML Outperforms Semiconductor Sector

Wednesday, 24 Aug 2011 11:35 AM

By Tim Plaehn

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ASML Holdings (ASML) is a Netherlands holding company which trades as an ADR on the Nasdaq. As a holding company, ASML owns manufacturing companies located in Europe, Asia, and the United States. Those companies produce and sell lithography systems which are used in the semiconductor industry during the manufacture of complex integrated circuits.

Recent earnings for ASML have been on an upswing. Its 2011 second quarter results continued the trend with record revenues and net income. Sales for the quarter were $2.2 billion, up from $1.3 billion a year earlier. Net income for the quarter was 28 percent of sales at $622 million, up from $292 million. A strengthening euro gives the gains an extra boost when converted to dollars, but even in euro terms sales were up 43 percent and net income increased 81 percent year-over-year.

During the second quarter ASML generated $1.2 billion in new orders, bringing the order backlog up to $3.8 billion. The backlog is the key to future sales. The company sells big ticket equipment with large price tags and high profit margins. Watching the new order intake thus gives investors a forecast of future sales volume.

Cycle slowing

The semiconductor industry is highly cyclical. Current forecasts show a significant slowing in sales for ASML starting in 2012. The company is forecast to earn $4.40 per share for all of 2011 but just under $3 per share in 2012. The share price has reflected this outlook with a significant price decline since a peak in early March in spite of the very good earnings numbers released in July.

For the previous five years ASML has significantly outperformed the overall semiconductor sector. The S&P Semiconductor ETF (XSD) is a few points below break-even over five years. The share value of ASML has gained better than 50 percent during the same time period. The company next reports on Oct. 13.

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