Will ASML and STMicroelectronics earnings beat boost share prices?

ASML and STMicroelectronics both posted earnings beats and positive guidance to mark an upbeat start to 2023. However, Intel's sales and revenue declined year-over-year and missed expectations. Fresh restrictions are likely to hit non-US chipmakers soon as Washington piles on pressure to curb exports to China.

- ASML and STMicroelectronics post earnings beats; Intel misses.

- ASML CEO is expecting steady Chinese sales despite upcoming restrictions.

- iShares Semiconductor ETF is up 14% YTD.

This week, chipmakers ASML [ASML.AS], STMicroelectronics [STM.PA] and Intel [INTC] shared their latest sets of financial results.

ASML announced an earnings and revenue beat on Wednesday. In response, its shared rose a marginal 0.2% on the day, and 0.3% the day after.

STMicroelectronics’s share price gained 7.8% on Thursday, following news that it too had beaten analyst forecasts. Intel, reporting after markets closed later that day, missed both its earnings and revenue expectations. Its share price fell as much as 9.7% in after hours trading.

Japan and the Netherlands, where ASML and STMicroelectronics are based, are at the centre of global chip production. Both countries are expected to announce tighter controls on exports to China following years of pressure applied by the US government. The US itself imposed such restrictions last year in a bid to curtail China’s advanced computing capabilities.

ASML’s CEO Peter Wennink has called for any such restrictions to be “sensible” and to avoid “fallout in industries that are completely dependent on those semiconductors”, during an interview with the Financial Times.

Earnings review

ASML reported €6.43bn net sales and EPS of €4.60 for the fourth quarter (Q4) of 2022 before markets opened on 25 January, beating Refinitiv analyst expectations by 0.9% and 6.5% respectively. The figures mark a year-over year increase of 28.6% in sales and 4.8% in EPS. ASML reported a record order backlog of €40.4bn at the end of 2022.

ASML also forecast a 25% increase in sales in 2023, despite the prospect of trade restrictions with China. Wennink told Reuters following the earnings announcement that he anticipates sales to China during 2023 to be “about the same” as in 2022, when they totalled €2.2bn, approximately 14% of total revenue.

STMicroelectronics reported $4.4bn in revenue, 24.4% up year-over-year, with EPS increasing 61% to $1.32 for Q4 2022. These figures beat the $4.3bn and $1.09 respectively forecast by analysts polled by Refinitiv.

STMicroelectronics CEO Jean-Marc Chery predicted $16.8bn to $17.8bn revenue in 2023, which would exceed the $16.7bn that Refinitiv analysts expect for the year even at the low end.

Intel posted a disappointing set of results, with EPS of $0.10 just half the $0.20 predicted by Refinitiv analysts, while revenues at $14bn fell 2.8% short of the $14.5bn forecast. The revenue figure marked a 28% year-over-year decline on a non-GAAP basis. A steep fall-off in demand for PC chips appears to have caused the miss.

Revenue is forecast to be $10.5 to $11.5bn in Q1 2023, well below the $13bn that analysts are currently expecting. Intel also forecasts an adjusted loss of $0.15 per share in Q1. Chief financial officer David Zinsner emphasised in the earnings release that Intel is focused on finding $3bn of cost reductions in 2023, with that figure rising to between $8bn and $10bn by 2025.

Theme trend

Whipsawing demand and US-China trade wars have dominated the playing field for chipmakers over recent years. While demand reached such a height during 2021 that suppliers struggled to keep up, the surging inflation and interest rates of 2022 caused a demand slump, leading to oversupply by the end of the year.

According to ASML, its customers believe demand will recover in the second half of 2023, which spells good news for the industry as a whole.

Tensions between the US and China, however, show little sign of abating. While the US continues to cajole its allies into restricting exports of chips, chip manufacturing equipment and labour to the country, Wennink told Bloomberg this week that the measures could accelerate advanced chipmaking in China.

“If [Chinese companies] cannot get those [advanced] machines, they will develop them themselves. That will take time, but ultimately they will get there,” he said.

ASML is Europe’s largest semiconductor company, and it is the sole producer of its proprietary extreme ultraviolet lithography (EUV) machines. Intel, Taiwan Semiconductor Manufacturing Company [2330.TW], and Samsung [005930.KS] rely on these to produce their own advanced chips.

Funds in focus: iShares Semiconductor ETF

The iShares Semiconductor ETF [SOXX] holds ASML, STMicroelectronics and Intel. ASML is the tenth-largest holding with 3.96% of net assets as of 25 January. Intel has a 3.81% weighting, while STMicroelectronics has a 1.47% weighting. SOXX has fallen 7.2% in the last year, but it has gained 17.7% in 2023 to date.

Investors looking for greater exposure to ASML as well as other innovative technology companies can consider the Pacer Bluestar Engineering the Future ETF [BULD], a rules-based ETF offering exposure to companies earning “at least 50% of their revenues from robotics and manufacturing automation, 3D printing or computer aided design”. ASML is the fund’s top holding with a 8.33% weighting as of 27 January. BULD has gained 0.9% in the last 12 months, and is up 13.6% year-to-date.

ASML’s share price has gained 7.6% in the last 12 months. and 22.9% since the start of the year. STMicroelectronics has had a similar trajectory, with respective gains of 7.2% and 31.3%, while Intel’s share price is down 34.9% over the past year, but up 13.8% in 2023 so far.