Whatās Going On Here?Chipmaking equipment maker ASML reported lush quarterly results on Wednesday. What Does This Mean?Investing 101 tells you that when an industryās facing a downturn, its suppliers are probably poised for a rough patch too. So with the world of smartphones and PCs looking a little limp right now, youād guess that the makers of chipmaking equipment would be biting their nails too. Nuh-uh: at least, not ASML. In fact, the company said its customers continued to focus on building new manufacturing plants ā likely thanks in part to support from western governments. For ASML, that meant record bookings and unexpectedly high profit and revenue figures. And with an impressive outlook on the cards for the current quarter as well, jubilant investors sent ASMLās shares up 7% after the news. Why Should I Care?The bigger picture: Going like hotcakes.
ASMLās business has been so good that the company just canāt keep up with demand. The firm has a backlog of orders totaling nearly $40 billion ā around the size of entire economies of some small European nations. So ASMLās been skipping some final product testing and carrying it out later on customersā premises, in a bid to deliver products faster. Thatās not a long term solution, mind you, which is why the firmās planning to boost its production capacity over the next few years.
Zooming out: Embargo bugaboo.
Just when everything was going so well for ASML, it looks like Uncle Sam could be about to rain on its parade. Earlier this month, the US issued new restrictions on selling chipmaking equipment to China. And although ASML is a Dutch firm, the US embargo could stop Chinese chipmakers getting their hands on vital American gear, denting demand for ASML's products by extension. The firm doesnāt seem worried for now, but with 15% of its revenue coming from China last year, this could be a thorn in its side going forward. | 