Semiconductor lithography systems maker ASML Holdings N.V. (NASDAQ: AMSL)
stock has been rising in a parabolic manner as the insatiable global demand
for faster, cheaper, and more powerful chips continue to accelerate. ASML’s state of the art extreme ultraviolet (EUV) lithography systems currently have no competitors virtually giving them the monopoly selling these machines to the world’s largest semiconductor fabs like Taiwan Semiconductor (NASDAQ: TSM)
, Intel (NASDAQ: INTC)
and Samsung Electronics (OTCMKT: SSNLF)
. The EUV demand is being driven by 5G
handsets, artificial intelligence (AI), gaming, and high-performance computing
(HPC) causing systems to be sold out for 2021 but driving higher margins in 2022. The Company’s deep ultraviolet (DUV) lithography machines are used in the automotive, industrial, memory, and IoT segments. Prudent investors looking for one of the few monopoly strongholds in the semiconductor industry can monitor shares of ASML for opportunistic pullbacks to gain exposure.
Q4 FY 2020 Earnings Release
On Jan. 20, 2021, ASML released its fiscal fourth-quarter 2020 results for the quarter ending December 2020. The Company reported an earnings-per-share (EPS) profit of EUR2.54 excluding non-recurring items versus consensus analyst estimates of EUR2.46, a EUR0.08 beat. Revenues fell (-1.9%) year-over-year (YoY) to EUR3.96 billion beating analyst estimates of EUR3.73 billion. The Company raised its fiscal Q1 2021 guidance for revenues of EUR3.9 billion to EUR4.1 billion versus EUR3.52 billion consensus estimates. ASML increased its dividend to EUR1.55 per share, up from EUR1.20. The Company ended the quarter with EUR7.4 billion in cash, cash equivalents and short-term investments.
Conference Call Takeaways
ASML CFO, Roger Dassen provide color on the quarter. The Company shipped nine EUV systems recognizing EUR1.1 billion on eight systems in the quarter. Revenue for one EUV system will be recognized in early 2021 after site acceptance from a customer. System sales were split 72% Logic (EUV and DUV) and 28% memory (DRAM). Gross margins were above guidance coming in a 52% due to DUV immersion and upgrade business. Installed Base Management sales were EUR3.7 billion, up 30% YoY with EUR11.3 billion total bookings for 2020 reflecting strong demand for EUV and DUV. DUV booking value hit a record EUR7.3 billion. Gross margin for Q1 2021 is expected between 50% to 51% with higher R&D expenses projected around EUR620 million to support “roadmap plans to drive further innovation of our EUV, DUV and Apps products.”
Strongest Growth Segments
ASML CEO, Peter Wennink stated, “We were able to achieve an 18% top line growth and 37% growth in profitability despite some unique challenges with having to continue to run our business through the pandemic.” The Company expects Logic segment strength to grow at least 10% YoY, driven by strong demand in advanced nodes, including secular growth drivers in 5G, AI and HPC. Wennink added, “In addition and also driven by digital transformation, we are seeing a strengthening demand for more mature nodes, across a wide variety of markets such as consumer, automotive and industrial.” He noted that Memory customers indicated inventory levels continuing to come down and expecting a further tightening of supply in 2021 fueled by digital transformation in the application space. Data centers and consumer electronics are driving lithography recovery in 2021 as the Company expects top line growth to be “up around 20%” YoY. It’s worth noting the strength segments mirror what Taiwan Semiconductor described in it’s Q4 2020 conference call. It makes sense since they are a major customer. It’s worth noting in the Q4 conference call, ASML is capable of producing 50 EUV units annually in terms of space and people. However, the custom EUV systems are constructed out of modules, which rely solely on the supply chain resulting in an integral lead time of 20 months between the EUV tool installation and start of module production.
ASML Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the playing field for ASML shares. The monthly rifle chart has been in an uptrend that peaked near the $578.54 Fibonacci (fib) level and falling back below the monthly upper Bollinger Bands (BBs) at $548.73 with a rising 5-period moving average (MA) support at $438.02. The monthly stochastic is stalling at the 90-band to either trigger a mini pup or peak and cross back down towards the 80-band. The weekly rifle chart has been uptrending since the market structure low (MSL)buy triggered above $373.21. The 5-period MA deflected pullbacks at $525.51, but the weekly stochastic indicated a peak and crossover down which could accelerate if shares fall under the weekly market structure high (MSH) sell trigger at $522.50. If the weekly MSH trigger forms, then prudent investors can watch for deep opportunistic pullback levels at the $448.60 fib, $411.50 fib, $396.68 fib, and the $373.21 fib. The upside trajectories range from the $601.72 fib up towards the $786.23 fib.
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