ASML results spook market as sales drop below expectations

ASML, the firm which makes machines to produce computer chips, saw its shares drop on Wednesday after the release of its first-quarter results.

Stock in Europe's most valuable tech company was down by as much as 6.4%, as investors responded to a number of disappointing indicators.

ASML recorded €5.29 billion in net sales during the first three months of the year, compared with a predicted €5.39 billion.

Net bookings, a figure which looks at the value of orders received, came in at €3.6 billion in the first quarter, compared with estimates of €4.63 billion.

Russ Mould, investment director at AJ Bell, said care should be taken, however, about overstating the drop in demand.

"ASML's equipment is very expensive and it's common to see swings in sales on a quarterly basis," he explained.

"It is a highly considered purchase and not a low-price, high-volume product which is constantly ordered. … While the latest results have spooked the market, ASML insists its full-year outlook is unchanged and it is sticking with the belief that the chip industry will improve as 2024 progresses."

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ASML has described 2024 as a "transition" period, during which the group will continue to invest in technology and increase capacity.

The company expects the second half of the year to be stronger than the first, as the wider industry recovers from a rocky period.

According to the Semiconductor Industry Association, global semiconductor sales totalled $526.8 billion (€494.9 billion) in 2023, a decrease of 8.2% compared with the figure recorded in 2022.

This downturn can largely be explained by over-enthusiastic stockpiling.

As electronic makers struggled to source enough chips during the pandemic period, they were subsequently driven to over-order, dampening demand for components when the economy began to stabilise.

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ASML was also hit last year by sanctions restricting its sales to China, introduced by the US government to curb Chinese chipmaking capacity.

Despite the export regulations, ASML nonetheless confirmed that orders to China represented about half of this quarter's total sales, up from 39% in the fourth quarter of 2023.

Resilient Chinese demand was partially driven by a consumer run on products before the restrictions came into force.

Chipmakers have also been flocking to buy older ASML equipment that has not been targeted by sanctions.

Over the coming year, it remains unclear what impact export restrictions will have on the Dutch group, although it is estimated that 15% of its Chinese sales will be affected.

The outlook for 2024 is, however, boosted by expected demand from the artificial intelligence sector.

On Thursday, Taiwan Semiconductor Manufacturing Co, the dominant producer of chips used in AI applications, is expected to report a 5% rise in first-quarter profit.