ASML NV (ASML - Get Report) shares surged to the top of the European market Wednesday, lifting tech peers in its wake, as the chipmaker forecast stronger-than-expected fourth quarter sales for its key lithography machines and topped analysts forecast for third quarter earnings in what could mark a late cycle rebound for the beaten-down sector.
ASML said it expects to sell 18 of its extreme ultraviolet lithography systems, or EUV, machines, which design complex chips used by, sector titans such as Samsung Electronics (SSNLF) , Intel Corp. (INTC - Get Report) and Taiwan Semiconductor (TSM - Get Report) and cost as much as €100 million each, this year, and as many as 30 in 2019. The bullish forecast comes alongside stronger-than-expected third quarter earnings of €680 million, sales of €2.8 billion and a quarterly order intake of €2.2 billion. It also follows surprisingly strong earnings from U.S. chipmaker Lam Research (LRCX - Get Report) , which beat Street forecasts and boosted its full-year outlook.
"We currently see strong demand for our products in Logic and Memory continuing in 2019, which supports our Logic customers' advanced nodes production schedule," said CEO Peter Wennink. "In the Memory segment, we see strong momentum continuing, as evidenced by our Q3 order intake."
ASML shares jumped more than 6.8% in Amsterdam following the release, topping the Stoxx 600 benchmark and rising to the highest level since early September. Peer chipmakers were also on the move, with AMS AG (AMSSY) , a key Apple Inc. (AAPL - Get Report) supplier, rising 4.5% and STMicroelectronics (STM - Get Report) gaining 4.8% to change hands at €15.54 each. Germany's Infineon Technologies (IFNNY) gained 3.12% in Frankfurt to trade at €19.54 each.
Lam Reserach shares were marked 7% higher in pre-market trading, indicating an opening bell price of $155.50 each, a move that would trim its year-to-date decline to around 15.5%.
The ASML and Lam Research earnings come at a crucial time for the chip sector, which has seen shares battered amid concerns of oversupply and falling prices, as well as slowing end-demand from global smartphone makers as customers balk at fresh handset upgrades.
Last week, Swiss vacuum valve maker VAT Group said it would cut the number of working hours at one of its factories between now and the end of the year as a result of slowing demand, an announcement that shook the already-nervous industry.
The Philadelphia Semiconductor index, the U.S. sector benchmark, has fallen some 13.3% since its March 12 peak, while industry bellwethers such as Applied Materials Inc. (AMAT - Get Report) and Micro Technology (MU - Get Report) have tumbled 43% and 30% over the same period.
"The biggest difference in semi fundamentals today vs. the last correction seen in 2015 is in the degree of excess that built up in the supply chain this go-round," Craig Hettenbach and Joseph Moore of Morgan Stanely wrote in a Tuesday research note that continued to paint a gloomy sector outlook. "In 2018, cyclical indicators (lead times, double ordering, inventory) flashed red in contrast to the benign cyclical backdrop of 2015."
Lam Research, however, posted stronger-than-expected September quarter earnings of $3.36 a share, even as revenues slid to $2.33 billion, and sees its fiscal second quarter EPS in the range of $3.45 to $3.85 per share, topping previous forecasts.
"There has been more semiconductor capital investment volatility both upside and downside in 2017 and 2018 than in the recent prior years and that is only extenuated by broader macro headlines such as trade, tariffs and interest rates," CEO Martin Anstice told analysts on a conference call last night. "Despite this context, we remain very excited by the long-term drivers for data economy enablement from the world of silicon and the complements of our products and services portfolio to the technology roadmap of the industry."