On October 15th local time, lithography machine giant ASML released its third quarter financial report. In the third quarter of 2024, ASML achieved a net sales revenue of 7.5 billion euros and a net profit of 2.1 billion euros, both of which achieved year-on-year growth with a gross profit margin of 50.8%.
From the above data, it can be seen that ASML's revenue and profit for this quarter met or even exceeded expectations. However, another important indicator - the data of new orders - is far lower than external estimates.
ASML's new orders in the third quarter of this year amounted to 2.6 billion euros, of which 1.4 billion euros were EUV lithography machine orders. Previously, analysts generally expected around 5.6 billion euros, which was basically the same as the second quarter, but the data for the third quarter showed a significant decline.
This also reflects the relatively weak demand for lithography machines in the current market. At the same time, ASML has lowered its sales target and gross profit margin for next year, adjusting its net sales forecast for 2025 from the range of 30 billion to 40 billion euros to 30 billion to 35 billion euros, with a gross profit margin between 51% and 53%.
After the performance announcement, ASML's stock price experienced a rare drop of 16.26%, the largest daily decline in nearly 26 years, with a current market value of $287.2 billion. On the day of the financial report announcement, there was a small incident where the third quarter financial report, originally scheduled to be released on the 16th local time, was unexpectedly released online and subsequently withdrawn. ASML stated that the early announcement of performance was due to a technical malfunction, with some pages of the website mistakenly publishing the report.
As soon as the performance was disclosed, it was quickly captured, directly affecting the semiconductor sector. On the same day, the Philadelphia Semiconductor Index closed down 5.28%, and chip stocks collectively fell. Among them, Nvidia fell more than 4%, AMD fell more than 5%, and Intel fell more than 3%.
Insufficient demand leads to a decline in stock price
ASML, as a leader in lithography machines, is a core equipment manufacturer in chip manufacturing, and the signals it releases are also a key indicator of the semiconductor market. In fact, ASML's performance in the third quarter and net sales guidance for the fourth quarter of this year have both increased. ASML expects net sales of 8.8 billion to 9.2 billion euros in the fourth quarter of 2024, with a gross profit margin between 49% and 50%.
This is basically consistent with ASML's forecast at the beginning of the year, with net sales in 2024 basically the same as last year, and gross profit margin slightly lower than in 2023. However, this year's growth has been overshadowed by insufficient order demand and lowered expectations, leading to a sharp drop in stock prices.
There are multiple factors behind market performance. When it comes to the demand trend of lithography machines, Sheng Linghai, Vice President of Semiconductor Industry Research at Gartner, analyzed to 21st Century Business Herald reporters, "In fact, there was a shortage of demand for lithography machines last year. Due to the ban, the Chinese market purchased some lithography machine products in advance, so the current sales from China account for nearly 50%, but under normal circumstances it is 30%, 20%, or even lower
This leads to an early overdraft of demand, but delivery requires a long cycle, which will result in a lag in performance. The Chinese market will experience fluctuations in the future, and ASML executives have also revealed that the proportion of sales in the Chinese region will decrease.
At the same time, Sheng Linghai also pointed out that the market has not improved significantly this year, and the demand for lithography machines has not increased significantly, which is weaker than expected. At present, it seems that some manufacturers are not very active in investment, which has affected their original purchase plans. For example, Intel needs to build a large number of factories, but some of the construction plans are currently being postponed, and Samsung's storage production has not increased significantly.
Regarding the significant drop in stock prices, Sheng Linghai believes that the capital market has overreacted, which is also related to ASML's previous significant increase. However, in the industry, everyone has basic expectations for performance.
Corresponding market changes can also be seen from the interpretation of executives' financial reports. ASML President and CEO Christophe Fouquet said, "In the field of logic chips, due to the competitive situation among wafer foundries, the development trend of new technology nodes for some customers has slowed down, resulting in delays in some wafer fab plans and affecting the demand for lithography equipment, especially EUV lithography machines
In the field of storage chips, "we see limited new production capacity, and the focus of development in this area is still on technological transformation to meet the demand for high bandwidth memory (HBM) and fifth generation double data rate random access memory (DDR5) related to artificial intelligence," said Fu Keli.
In addition, ASML executives expect the proportion of sales in the Chinese market to decrease to 20%. According to the financial report, the sales of lithography systems accounted for 47% of the sales in the third quarter of this year in the Chinese market, based on the proportion of shipping regions.
Regarding the decrease in proportion, Roger Dassen, Chief Financial Officer of ASML, explained, "As we gradually meet the needs of Chinese customers and the non Chinese market recovers, we expect China's sales to account for about 20% of global total revenue next year, gradually returning to its historical proportion level. This figure is consistent with our share of undelivered orders in China, mainly affected by the sales of logic and storage chips and immersive products
In his view, the long-term trend remains very strong and positive, showing considerable growth potential. But the market changes in the past few months and the specific customer situation mentioned earlier have led to a flattening of the business growth curve.
Semiconductor recovery slows down
Overall, the semiconductor market demand outside of AI remains weak, with a recovery lower than expected, which has also been transmitted to the upstream of the industry.
ASML's expectations also provide a glimpse into next year's trend. ASML expects its net sales to increase to € 30 billion to € 35 billion by 2025, with some adjustments made. The gross profit margin is expected to be between 51% and 53%, which is lower than expected at the time, mainly due to the delayed demand for EUV (extreme ultraviolet) lithography systems in the market.
Dai Houjie stated that on the one hand, the demand for low numerical aperture EUV systems has decreased, and it is expected that the shipment volume will be less than 50 units in 2025, which will also have an impact on the expected gross profit margin.
On the other hand, the overall revenue share of the Chinese market will change next year. "Many of the business in the Chinese market revolves around immersion lithography systems, and the gross profit margin of such lithography systems is significantly higher than the company's overall gross profit margin. Therefore, if the market share in China changes, ASML's gross profit margin will also be affected Dai Houjie said.
From the overall market perspective, Fu Keli pointed out, "Although the field of artificial intelligence continues to show strong development momentum and upward potential, the recovery of other segmented markets is relatively slow. The current situation indicates that the recovery process of the semiconductor market is slower than previously expected. This recovery process is expected to continue until 2025, so customers have become more cautious in their decision-making
This also means that in the global market, it will take longer for semiconductors to emerge from the bottom of the cycle and rebound in prosperity. When it comes to the recovery of the semiconductor market, Sheng Linghai said, "Although there has been some growth compared to last year, the growth in other areas, except for AI chips, does not come from the increase in demand, but from the increase in unit price. For example, the unit price of memory has risen a lot, and the rebound mainly comes from chip upgrades
Taking storage chips as an example, prices quickly reverse after rising. A storage industry insider told 21st Century Business Herald reporters, "Although there is a high demand for AI servers, large models, and other products, the demand from individual consumers is actually not high. Although the prices of storage products increased in the first half of this year, we did not expect the market to reverse very quickly. By the end of the first quarter, prices had already started to stabilize, and even some terminal product prices were already declining. Although there is a lot of room for imagination in AI applications, it still takes time for actual products to be implemented
At present, the hot AI has not been able to boost the entire semiconductor market on its own. However, Dai Houjie said, "In the long run, I believe the driving factors for industry growth remain stable, and the long-term growth trend is clear and strong. The growth momentum of artificial intelligence is very strong and beyond doubt, and it is occupying an increasing proportion in our clients' businesses
In addition, he also mentioned that trends such as energy transition and electrification continue to develop, expanding the application space for different process nodes. In this context, ASML will continue to prepare for the opening of new wafer fabs for customers. "Although there may be some delays in the timeline, the number of under construction wafer fabs that will be put into use globally in the next few years is quite considerable. We will continue to expand our production capacity to meet the customer growth demand we predict for the period until 2030," said Dai Houjie.