Introduction:
ASML, a leading semiconductor firm renowned for its extreme ultraviolet lithography machines, has recently faced a setback as it missed sales forecasts for the Q1 of 2024. Despite sticking to its full-year outlook, the company experienced a decline in net sales and net profit, signaling challenges in an industry grappling with fluctuating demand and geopolitical tensions.
Chip stocks experienced a decline on Wednesday following ASML’s announcement of a significant decrease in bookings, which fell by 61% sequentially during the first quarter, surpassing investor expectations for the downturn.
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ASML Q1 Earnings: The Numbers
ASML’s net sales for the quarter amounted to 5.29 billion euros, falling short of the 5.39 billion euros expected by LSEG consensus estimates. Its net profit experienced a decline to €1.2 billion, marking a 37% decrease compared to Q4 2023.
These figures reflect a year-on-year decline of 21.6% in net sales and 37.4% in net income. Notably, net bookings for ASML’s machinery, a key metric, decreased by 4% compared to the previous year, with a significant drop from the December quarter.
More than half of its 2023 sales were attributed to its top two customers. Sales experienced a decline in Taiwan and South Korea, home to TSMC and Samsung, respectively.
“Our outlook for the full year 2024 is unchanged, with the second half of the year expected to be stronger than the first half, in line with the industry’s continued recovery from the downturn,”
~ASML CEO
Read More: Project Beethoven: Can $ 2.7 Billion Investment Keep ASML in the Netherlands?
1. EUV Systems Driving Revenue
The shipment of 12 Extreme Ultraviolet (EUV) systems significantly contributed to ASML’s revenue, with EUR 1.8 billion in recognized revenue. This highlights the growing adoption of EUV technology in semiconductor manufacturing, fueled by the need for higher efficiency and performance in chip production processes.
2. Exceeding Gross Margin Guidance:
ASML surpassed expectations with a gross margin of 51%, driven by a favorable product mix. This achievement underscores the company’s efficient cost management and operational excellence, enhancing shareholder value and financial stability.
3. Confident Outlook:
Despite near-term uncertainties, ASML remains optimistic about its long-term growth prospects. The company forecasts net sales for Q2 to be between EUR 5.7 billion and EUR 6.2 billion, with a gross margin of 50-51%. ASML’s confidence is further bolstered by its fully booked status for 2024, indicating strong demand for its semiconductor solutions.
Read More: Why ASML is Seeping High-NA EUV Technology into Low-NA Tools
4. ASML Q1 Earnings: China Shines
Interestingly, China emerged as ASML’s primary market in Q1 2024, comprising 49% of the company’s sales. This is notable considering ASML’s involvement in the escalating chip conflict between the US and China, resulting in export restrictions.
The recent measures, effective since January, prohibit ASML from selling certain deep ultraviolet lithography (DUV) machines, which are crucial for producing less advanced chips, to China.
ASML anticipates that these restrictions will affect approximately 15% of sales in China. Sales in the first quarter of this year saw a €300 million decrease compared to the previous quarter.
The Dutch technology giant projects global net sales to range between €5.7 billion and €6.2 billion for the second quarter, compared to €6.9 billion in the same period last year.
5. ASML Q1 Earnings: Factors at Play
Several factors contributed to ASML’s underwhelming performance. Weak demand for consumer electronics, such as smartphones and laptops, impacted chipmakers, thus affecting ASML’s equipment sales. Additionally, the uncertain economic environment led customers to curtail spending, while anticipation of a product transition in 2025 prompted some to delay investments. Despite these challenges, ASML highlighted strong sales in China, albeit amidst export restrictions imposed by the Dutch government.
Read More: ASML Overtakes Applied Materials as World’s No. 1 Chip Equipment Maker in 2023 by Revenue
6. Share Market Response:
AMD witnessed a drop of nearly 6% in its stock price, while Nvidia shares decreased by over 3%. Intel also saw a decline of under 2%, and Qualcomm experienced a decrease of over 2%. However, the most substantial impact was observed in chip technology firm Arm, which traded nearly 12% lower on Wednesday.
ASML itself fell over 7% on the same day, contrasting with the broader market trend as the entire S&P 500 index experienced a decline of less than 1%.
Industry Dynamics:
The semiconductor industry is witnessing a nuanced landscape. While some sectors experience a rebound in demand, others face constraints due to geopolitical tensions and supply chain disruptions. ASML’s clientele, including major players like Samsung, TSMC, and Intel, are expanding production capacity, particularly in America, buoyed by initiatives like the U.S. CHIPS and Science Act.
ASML CEO expressed anticipation that companies establishing foundries in the U.S., such as Intel and TSMC, would increase their orders for lithography machines later in the year. ASML also stated its expectation that government incentives for chip factories, such as the CHIPS Act in the U.S., would contribute to its sales growth. However, the company did not provide details on how export controls on China were impacting its business.
Conclusion:
ASML’s recent financial results underscore the complexities within the semiconductor industry. While challenges persist, the company’s resilience and strategic initiatives position it well for long-term growth. As global demand for advanced chips continues to evolve, ASML remains a pivotal player, driving innovation and enabling the production of cutting-edge semiconductor technologies.
