After chip-equipment maker ASML raises outlook, Lam Research stock rises ahead of its own earnings report

Shares of Lam Research Corp. rose ahead of the company’s expected earnings report on Wednesday, after a quarter of beating and rebounding Dutch rival ASML Holding NV lifted all boats in the sector.

Lam LRCX chip fabrication equipment supplier,
+2.49%
saw shares climb as much as 3% on Wednesday as ASML’s US Certificates of Deposit ASML,
+6.27%

ASML,
+8.15%
rallied up to 8%. Meanwhile, both the S&P 500 SPX index,
-0.67%
and the technology-heavy Nasdaq Composite Index COMP,
-8.76%
fell more than 1%, and the PHLX Semiconductor Index SOX,
+0.76%
was flat.

ASML ASML,
+6.27%
on Wednesday reported net profit of 1.7 billion euros in the third quarter, or 4.29 euros per share, while analysts polled by FactSet expected a profit of 3.56 euros per share on revenue of 5.44 billion euros.

More importantly, the company raised its guidance for the fourth quarter, following a series of chip forecast cuts of $1 billion or more. ASML said it expects sales of between €6.1 billion and €6.6 billion, excluding approximately €100 million of deferred net revenue forecast in the last quarter that caused the company to downgrade its outlook, casting a pallor over the sector. Analysts had forecast a turnover of 6.37 billion euros.

This turned out to go against recent trends, as the two-year global chip shortage turned into a glut, forcing chipmakers to cut their outlook and fabs to start cutting capacity.

ASML — like Lam, KLA Corp. KLAC,
+1.19%,
and Applied Materials Inc. AMAT,
+2.70%
— to manufacture the complicated machines needed to transform the silicon into the wafers needed to manufacture the chips. More recently, Applied Materials Inc. AMAT,
+2.70%
warned last week that an expansion of US restrictions on advanced technology to China could cost it just over $1 billion in sales over the next six months, or about 9% of the $12.29 billion dollars in sales reported in the company’s fourth and latest report. first trimesters.

Recently, the third-party manufacturer Taiwan Semiconductor Manufacturing Co. TSM,
-0.08%

2330,
-2.02%
said it would cut its 2022 capital budget by about $5 billion following a series of quarterly capital budget increases.

As for Lam Research, analysts polled by FactSet also expect earnings of $9.57 per share on revenue of $4.92 billion from Lam, while Estimate expects $9.68 per share. action on revenue of $4.96 billion.

One thing to consider ahead of Lam’s earnings is that ASML chief executive Peter Wennick told analysts on Wednesday that as supply chain issues ease and become more predictable, he sees tariffs shipping costs increase as the company is able to produce backordered products.

“Building on this progress, we believe we are well positioned to further increase our capacity next year,” Wennick said.

Lily: Chip stocks could suffer worst year ever as scarcity effects spread

“With respect to the announcement made earlier this month by the US government regarding export control restrictions, we have made our initial assessment and expect the direct impact on the shipping plan of ASML for 2023 will be limited,” Wennick said. “However, there could be an indirect impact due to the inability of other equipment vendors to ship their systems. Our current expectation of
such an indirect impact would represent approximately 5% of our order book.

In a note titled “Record Bookings, Robust Backlog, & Intact Build Plans – Who Could Ask for More,” Evercore ISI analyst CJ Muse praised ASML, noting that the only sticking point of the report was a forecast of planned operating expenses.

“Despite this headwind, this was overall a stellar report for ASML in the current environment – record bookings, growing backlog and reiteration of CY23/25 build plans,” Muse said. It has an outperform rating on the stock.

Citi Research analyst Amit Harchandani, who also has a buy on the stock, was a bit more cautious in his rating.

“We believe these results provide strong evidence of the relative attractiveness of ASML’s long-term fundamentals – which in turn underpin our buy recommendation on the stock,” Harchandani said. “However, we still expect the debate to continue as investors aim to reconcile ASML’s optimism with broader pessimism on the macro/semiconductor cycle.”

Of the 31 analysts covering ASML, 25 have buy ratings, five have hold ratings, and one has a sell rating.

About Chris McCarter

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