Chip Chip Chooray

8th_Oct-1

Image source: Finimize

What's going on?

Global microchip maker ASML announced better-than-expected quarterly results on Wednesday, which could herald better times ahead for the global economy.

What does this mean?

The Netherlands’ ASML is a major supplier to TSMC and, notably, Samsung, which just revealed a better-than-expected second quarter. And that means keen-eyed investors might’ve known there’d be good news to come from ASML itself.


They were spot on: the company said that despite some issues in the first half of the year – understandably given, well, everything – things quickly went back to normal. In fact, the increase in remote-working – and the boost it gave technology and internet companies – actually helped ASML since it led to a surge in demand for its microchips. That could be why the company still reckons it’ll be able to grow both its revenue and profit this year.

Why should I care?

For markets: Typical.


The semiconductor industry has a couple of hallmarks. For one, it’s pretty homogeneous, in that good or bad news for one company generally affects them all to some degree. Optimistic investors, then, might see ASML’s relative strength as a sign that the sector as a whole is holding up okay. For another, the industry is considered “early cyclical”, meaning it tends to experience surprisingly high growth during the recovery from a downturn. And since demand for semiconductors – which are used in practically every sector – is still going strong, it could suggest cyclical customers aren’t doing as badly as expected either.



Zooming out: Very discreet. 


Consumer discretionary stocks are also early cyclicals, but you wouldn’t have known it to look at British luxury brand Burberry on Wednesday. The company reported sales that were down 20% in June, and down 45% last quarter as a whole from a year ago. That tallies with the UK economy’s 1.8% growth in May compared to April – a much slower recovery than economists, forecasting a 5.5% increase, had hoped for.

Originally posted as part of the Finimize daily email.

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