[Salon] Being early isn’t always a virtue - Bloomberg Guest Post

Bloomberg Being early isn’t always a virtue Most experienced business reporters know that when a company is late with its quarterly earnings report — even a few minutes off its usual cadence — the chances are that bad news is about to hit. ASML Holding NV, which produces advanced chipmaking machines and is Europe’s most valuable technology company, flipped the script. The Netherlands-based company released its results, scheduled for Wednesday, a day early on Tuesday by mistake. It was an unpleasant surprise for investors. The report detailed bookings — a predictor of future revenue — of €2.6 billion ($2.8 billion) in the third quarter, nowhere near the €5.39 billion average of analysts’ estimates. Tracking demand for machines that make components of electronic devices has been an esoteric pursuit for most of the company’s history. ASML is the market leader for something called lithography. Its giant machines burn patterns in layers of materials deposited on disks of silicon, completing one stage in the multistep process of making semiconductors. But the fact that ASML is the only one that has mastered the art of doing this for the absolute leading edge of technology has made its gear a must have for the chip industry’s most important companies. Its success has made it a focus of politicians looking to assert geopolitical pressure on rival nations by controlling access to advanced technology, as well as investors, who’ve come to love the company’s growth and profitability. ASML’s giant machines, arguably the most important piece of equipment used by companies including Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and Intel Corp., take months to build, install and qualify for production in chip plants that cost tens of billions of dollars. The operators of those facilities know that they need to be running that gear flat out, 24 hours a day, to give themselves a chance of making a return on the massive upfront investment. That means customers place orders at ASML generally when they’re confident that they’ll have enough demand to keep the machines busy as long as a year in the future. The key takeaway from ASML’s announcement appears to be that optimism about that future among chipmakers is declining rapidly. “It now appears the recovery is more gradual than previously expected. This is expected to continue in 2025, which is leading to customer cautiousness,” Chief Executive Officer Christophe Fouquet said in the statement that roiled the markets Tuesday. The news sent ASML shares down 16% in Amsterdam, the worst single-day decline in 26 years, and walloped other chip-equipment makers — KLA Corp. plunged the most in a decade at 15%, while Applied Materials Inc. and Lam Research Corp. dropped 11% each. ASML’s results also pulled down the broader industry as the benchmark Philadelphia Stock Exchange Semiconductor Index declined 5.3%, the most in six weeks. Even though ASML pointed to continued strong demand for chips used to power artificial intelligence work, market leader Nvidia Corp. got caught in the overall industry pessimism that took hold, with its shares extending an early decline and falling 4.5% at the close in New York. ASML’s leader will face questions from analysts Wednesday at 9 a.m. New York time on a conference call. Like its peers, the company doesn’t usually talk about customers specifically. There’s some debate among analysts about the chief area of concern. None of the range of options is appealing. Intel, once the chip industry’s biggest company and biggest spender, has been forced to rapidly scale back its ambitions, hurt by the loss of market share and weaker demand for its main products. The company is cutting its budget for new gear by 20% this year and scaling back on capital expenditures again next year. Some analysts now predict Intel will never get back to its former levels, which is bad news for ASML and the rest of the chip gear industry. Then there’s Samsung, the biggest memory chipmaker and another of the largest spenders on semiconductor equipment. Earlier this month, the South Korean company issued an apology to investors for disappointing results. Jun Young-hyun, newly appointed head of the core semiconductor business, promised to overhaul the organization in an unusually frank statement issued after Samsung disclosed worse-than-projected revenue and profit. And more generally, makers of less sophisticated chips are suffering weaker demand in the key industrial and automotive markets. They’re key buyers of older types of machines from ASML that nonetheless account for a large chunk of its revenue. Finally, there’s China. The region accounted for 47% of ASML’s revenue in the quarter. That portion is headed for lower “more normalized” levels, ASML’s management said. The ill-timed results are more than a one-day surprise, according to Bernstein analyst Stacy Rasgon. “The order trajectory and comments on broader demand will probably create an overhang on 2025 expectations (especially given some of the well-publicized issues at Intel et al) that seems unlikely to ease in the near term,’’ he said in a note.—Ian King