Analyst Note| Abhinav Davuluri, CFA |
ASML reported third-quarter results ahead of our expectations and above the midpoint of management’s guidance, thanks to record quarterly extreme ultraviolet, or EUV, system revenue. A key customer, Intel, will be delaying its 7-nanometer process technology that uses EUV by six to 12 months, which will prevent ASML reaching its EUV shipment target of 35 systems for 2020. That said, management remained optimistic for its EUV prospects and called for at least 20% EUV top-line growth in 2021. We attribute this confidence to TSMC’s successful deployment and ramp of EUV for its 5-nm process, while we assume Samsung will also further incorporate EUV into its logic and DRAM technologies in 2021. We are raising our fair value estimate for wide-moat ASML to $365 per share from $276 (and EUR 310 per share from EUR 249), as industry adoption of EUV is poised to accelerate in the coming years despite Intel’s delay.