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ASML announced 3Q profits fall

Semiconductor equipment maker ASML Holding NV announced its third-quarter profit decreased a little predicted an order increase for the coming year.

The outlook sent the company's shares up 7.9 percent to EUR24.28 (US$35.47) in Amsterdam.

Net profit came to EUR168 million (US$239 million), down 2.3 percent from EUR172 million. Sales fell 1.9 percent to EUR940 million (US$1.33 billion).

But the company's sales backlog - closely watched as a bellwether of manufacturer expectations - increased slightly from the previous quarter.

ASML expects "fourth-quarter order unit intake will exceed third-quarter bookings, and we see potential for our revenues over the first three quarters of 2008 to exceed the first three quarters of 2007," Chief Executive Eric Meurice said in a statement.

He added that demand from "foundries" - freelance chipmaking plants - will increase next year, since their utilization rates had been rising throughout 2007 but they had delayed capacity expansions.

ASML makes lithography systems, the machines used to map out the circuitry of computer chips. It targets a 70 percent market share by 2010, ahead of Japanese rivals Nikon Corp. and Canon Inc., and up from analyst estimates of around 60 percent at present.

Clients include Intel and Samsung Electronics Co, the 1st and 2nd-largest chipmakers, and Taiwan Semiconductor Manufacturing Co., the largest foundry.

"ASML is heading toward a dominant/near-monopoly position in fast-growing lithography, which is not yet reflected in the company's margins or valuation," Sanford Bernstein analyst Scott Geels wrote in a research note after earnings were released.

"We expect orders to rise through the middle of 2008 providing a catalyst to reach (and likely overshoot) our one-year target price of EUR25."

Meurice said demand for "flash" memory chip capacity - used in products like the iPod Shuffle, was driving short-term purchasing.

In the longer term, the need for chipmakers to lower their production costs for "DRAM" chips - the basic memory chips used in computers and game consoles - would force them to buy more efficient, newer equipment from ASML.

"These technology upgrades, added to an expected healthy although reduced DRAM memory unit growth, puts solid fundamentals under our memory business," Meurice said.

Intel, the world's largest semiconductor company, said late Tuesday that its third-quarter profit leapt 43 percent to US$1.86 billion (EUR1.31 billion) on a massive restructuring and swelling demand for microprocessors.

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