ASML Is a Little Too Modest

12/13/2010 2:44 pm EST


Jim Jubak

Founder and Editor,

ASML Holding (Nasdaq: ASML) doesn’t report fourth-quarter earnings until January 19, but the Dutch maker of lithography equipment for the semiconductor industry delivered an early surprise on December 9. The company told investors to expect bookings for the fourth quarter—that represents future orders for 2011—to climb above two billion euro on stronger-than-expected demand. When the company announced third-quarter earnings on October 13, it said only that it projected fourth-quarter bookings would exceed the 1.3 billion euro of the third quarter.

“Exceed?” I’ll say. The news represents a 54% increase in projected bookings. The stock was up 7.3% on December 9, the day of the announcement, then dropped a tad on December 10, and has edged up further today, December 13.

So what’s gone so right for ASML Holding? Demand for lithography equipment from DRAM (computer memory chips) makers is down less than expected, and demand for equipment from makers of flash memory and special-purpose chips is up.

One especially interesting item in the announcement: ASML went out of its way to specifically mention that the bookings forecast did not include orders for its next-generation extreme ultraviolet lithography equipment. I think ASML has a sizeable lead in this new generation of machinery over its competitors that will persist through 2011 and beyond. But the new generation of machinery is just now generating orders. The company said it is producing six NXE 3100s, its second-generation extreme ultraviolet model, and has orders for nine NXE 3300 systems. Delivery of volume-production NXE 3300 systems will start in 2012, the company said.

I had a price target of $41 by June 2011 on ASML Holdings in my Jubak’s Picks portfolio before this announcement. As of December 13, I’m raising my target price to $43 by June 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. The fund did own shares of ASML Holding as of November 30, 2010. For a full list of the stocks in the fund as of the end of November 2010, see the fund’s portfolio here.

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