April 20, 2018 / 9:30 AM / 2 years ago

Silicon wafer firm ASMI's profit, shares hit by new product costs

AMSTERDAM, April 20 (Reuters) - Dutch silicon wafer equipment maker ASM International reported a sharp drop in profitability in the first quarter as it spent more on hiring staff in anticipation of demand for new products, knocking its shares to a seven-month low.

ASMI’s gross margin fell to 37.8 percent from 43.0 percent a year earlier, while sales edged up 1 percent to 159 million euros ($196 million), at the low end of its guidance, the company said on Friday.

Brokerage Natixis cut its price target to 67 euros from 70 euros but kept its “buy” recommendation, saying it believed the higher costs were temporary and the company would recover from its difficult start to the year in the second quarter.

But ASMI shares, already rattled by signs the chip industry may be weakening, sold off sharply and were set for their worst day in nearly five years, falling as much as 11 percent. At 0854 GMT they were down 8.3 percent at 52.14 euros.

Other semiconductor-related stocks also traded lower, following Asian technology shares after a warning on smartphone demand from the world’s largest contract chipmaker, Taiwan Semiconductor.

“The gross margin in Q1 at 38 percent was impacted by an unfavourable product mix and costs related to our preparation for further growth. We estimate our gross margin in Q2 to show a substantial improvement bringing it back again in the range of low- to mid-40s,” Chief Executive Chuck del Prado said.

ASMI is ramping up production of new tools for layering materials on silicon wafers.

The company said it expected sales of 200-230 million euros in the current quarter, and order intake of 160-200 million, down from 206 million in the first quarter.

Natixis analyst Charles Lepetitpas wrote: “We expect the share price to react negatively today... probably amplified by the current volatility in the sector. Nevertheless, our investment case is unchanged.” ($1 = 0.8109 euros) (Reporting by Toby Sterling and Anthony Deutsch; Editing by Jon Boyle, Georgina Prodhan)

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