10 months ago • 2 mins
What’s going on here?
Chipmaking equipment maker ASML might finally be affected by the industry’s downturn, and it can only rely on its emergency backup for so long.
What does this mean?
ASML sells the machines that companies use to make advanced chips, but it’s been able to shrug off a slumping chip industry and lethargic demand for electronics for months. But no longer: the firm’s order intake halved last quarter from the same time last year, hitting its lowest level since 2020. Still, the Dutch firm had a big enough backlog to cushion the blow. So with chipmakers installing its hardware faster than you could polish off a plate of chips and dip last quarter, ASML managed to double its revenue and almost triple its profit. But if investors were impressed, they hid it well: they ignored the company’s better-than-expected outlook for this quarter to send shares down 5%, spooked by the dropoff in ASML’s orders.
Why should I care?
The bigger picture: When the stars align.
ASML might’ve worked through some of that order backlog, but there’s still a chunky $40 billion left over. And there might be more opportunity ahead: governments around the world are racing to build more chip plants on home ground to avoid déjà vu of pandemic-induced supply hiccups. The US alone, for example, has received over 200 applications for its $40 billion chip production program. So there’s that, and there’s the anticipation of more demand from recently reopened China to boot.
For markets: Empty your cups.
Investors might have been a bit too cup half-full about the sluggish chip industry. An index tracking some of the biggest chip stocks has bloated 20% this year, double the S&P 500. Plus, its price-to-earnings ratio is verging on the peak levels of two years ago, when chipmakers couldn’t keep up with fired-up demand. But with the likes of TSMC disappointing for the second-straight quarter, analysts will no doubt be getting cold feet.
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