ASM Earnings: Slowing Foundry Demand Drives Shares Down to Our Fair Value Estimate of EUR 300

ASM International ASM reported first-quarter results ahead of our expectations, as the firm enjoyed robust demand from logic and foundry customers. However, management noted it has recently seen pushouts and some delays in new customer fabs that will impact the firm’s near-term results. Specifically, second-quarter sales are expected to be down about 6% sequentially at the midpoint of guidance, followed by a 10% decline in revenue for the second half of 2023 relative to the first half. Shares fell 10% in response to the results and now trade close to our unchanged fair value estimate of EUR 300 per share.

First-quarter revenue was EUR 710 million, up 37% year over year thanks to strong demand for the firm’s atomic layer deposition, or ALD, equipment. These tools are critical in leading-edge process technologies that feature multiple patterning and will be increasingly vital in future inflections such as gate-all-around transistors at customers such as TSMC and Intel. Orders during the quarter were EUR 647 million, down 22% sequentially as memory demand further weakened and logic/foundry demand also begins to decelerate. Gross margins rose 300 basis points sequentially to 49.4% thanks to improved mix.

Management expects second-quarter sales to be at a midpoint of EUR 670 million. We believe the 2023 wafer fab equipment market will be down at least 20%, primarily due to weaker memory spending as well as pushouts in advanced logic and foundry investments. For 2023, we now expect ASM to grow its sales in the high single digits (versus low double digits previously).