ASML's Q2 results pave way for possible R&D update

Tue Jul 17, 2012 11:32am EDT

* Q2 results due on July 18, 0500 GMT

* Net profit seen at 283 mln euro, down 34.5 pct - poll

* Sales seen at 1.228 bln euro, down 19.7 pct - poll

* Net bookings of 918 mln euro forecast, up 9.3 pct - poll

* Possible update on Samsung Electronics, TSMC investments

By Sara Webb

AMSTERDAM, July 17 (Reuters) - ASML's earnings attract attention because the world's leading chip equipment maker is considered a barometer for the health of Europe's tech sector and the strength of demand for smartphones and other hot consumer gadgets.

But when the Dutch firm reports its second-quarter results on Wednesday morning, investors and analysts will also want an update on the longer-term outlook, in particular for news on its research funding plans.

Last week Intel Corp agreed to invest in ASML's R&D and to take an equity stake of up to 15 percent. ASML aims to reach similar deals with Taiwan's TSMC and South Korea's Samsung Electronics to help fund its research in exchange for up to 25 percent of its shares.

Analysts expect ASML to report second-quarter net profit of 283 million euros ($346.4 million), according to a poll commissioned by Reuters, unchanged from the first quarter but down 34.5 percent from a year ago.

Second-quarter sales are seen at 1.228 billion euros, down a fifth from a year ago.

At the time of its first-quarter earnings in April, ASML said it expected steady sales over the next six to nine months, driven by demand for Apple Inc's iPhones, iPads and other brands of smartphones and tablets.

But it declined then to predict exactly when those orders would be made because its business has shifted towards fewer but bigger customers, making such forecasts trickier.

"Colour on Q4 2012 will be key," said Credit Suisse analysts in a research note.

In addition to the orders and guidance for the coming quarters, the focus will be on whether ASML has signed up more customers to bankroll its research so that it can speed up the introduction of the next generation of chip-making technology.

COOLER PHONES

Janardan Menon, an analyst with Liberum Capital, said he believed that both TSMC and Samsung would invest in ASML. If they did not sign up, the offer would be open to smaller customers such as SK Hynix and Micron Technology Inc , analysts said.

The co-investment programme is clearly intended to tie in customers and to speed up the development of new technology that will eventually lead to much cheaper gadgets.

"The consumer is going to benefit from fitting more and more functionality for the same price or less. It means smarter, cooler phones and at a lower price," Menon said.

There are two areas that ASML wants to fast-track. One is the move to a new chip-making standard based on bigger wafers, as more chips can be produced if the diameter of the wafers is increased from 300 millimetres to 450 millimetres, leading to significant cost savings.

The other concerns an advanced chip-making technique known as extreme ultraviolet or EUV lithography, referring to the light source used in the lithography machines to make tinier but more powerful semiconductors.

Intel has committed the bulk of its funding for developing the 450 millimetre technology.

"Because Intel stands to benefit most from 450 mm migration, it has been the main proponent of the migration so far, but has met with resistance from the equipment industry, most noticeably ASML, which had stated it would only start developing 450 mm tools if the industry would offer support," ING said in a research note.

Other customers, such as TSMC and Samsung, stand to benefit most from an acceleration of the EUV development, ING said, adding that it expects them to commit.

"By joining the programme, their control over the EUV development would clearly increase," it said.