By Toby Sterling
AMSTERDAM (Reuters) - ASML Holding NV, the world's largest maker of semiconductor production equipment, has reported forecast-beating results on the back of stronger-than-expected demand from memory chip makers, sending its shares to a record high.
The Veldhoven, Netherlands-based company remains sensitive to cyclical swings in the chip sector but has recently hit a strong run of form, driven by consumer demand for new mobile phones and other communication products.
ASML, whose rivals include Applied Materials, which it outranks by stock market value, and Nikon, reported fourth-quarter net income of 305 million euros ($445.6 million) on sales of 1.49 billion, beating expectations of 221 million and 1.31 billion respectively.
The group also said it would raise its dividend 15 percent to 0.70 euros per share and launched a new 1 billion euro share buyback, extending a programme which has run for several years.
Its stock hit a record 94 euros and was up 0.6 percent at 90.08 euros by 1431 GMT.
ASML makes lithography machines, which use highly focused beams of light to trace out the circuitry of computer chips. It is a key supplier to the world's biggest chipmakers including Samsung and Intel.
Its results are therefore sometimes seen as a proxy for how quickly electronics makers are investing to create the next generation of products.
In this instance they suggest strong demand for memory chips used in all manner of mobile devices, and a careful approach to capital spending by top microprocessor maker Intel, which is investing in a new class of chips for laptops capable of cord-free wireless charging and new 3D features.
ASML said growth in the first half of 2015 was expected to come from contract chipmakers, known as foundries, such as Taiwan Semiconductor Manufacturing Co. TSM received a contract from Apple last year to make chips for the iPhone 6.
Chief Executive Peter Wennink said the foundry business was "in its most aggressive ramp-up that we've ever seen, to support new mobile and communications" devices. He said ASML's order backlog had increased to 2.8 billion euros from 2.41 billion three months before.
MIXED PICTURE
For logic chips, such as those made by Intel, he said the picture was mixed; one unnamed customer was racing to begin using ASML's next generation of machines in production by 2016, while others are still expanding use of the current generation.
Many analysts are wary of the high valuation of the stock, which is trading at around 25 times forecast earnings against a peer average of 17 times, according to Reuters data, despite vulnerabilities to economic swings which in 2008 caused a sharp slowdown and forced it to cut 1,000 jobs.
"This is clearly a strong update but given (the) current valuation strong updates are needed to support the share," ABN AMRO analyst Marc Hesselink said in a note to clients.
Janardan Menon at brokerage Liberum said ASML's medium-term prospects may be overdone, as sales of both smartphones and tablets had peaked after years of rapid growth. "The mood at the memory chip makers is weakening as we speak," he said.
Menon added ASML's order book was strengthened by foundry orders for the first half of 2015, but there was little evidence of new appetite from chip makers to invest in its next-generation equipment. "The likelihood is for some weakness in the second half," he said, rating the stock "hold".
($1 = 0.8640 euros)