ASML: Performance Plummets, Is the AI Boom Bypassing Lithography Machines?

ASML released its first-quarter financial report for 2024 (ending in March 2024) before the US stock market on the afternoon of April 17, 2024 Beijing time, with the following key points:

1. Core Data: Significant Decline in Revenue. In the first quarter of 2024, ASML achieved a revenue of 5.29 billion euros, below market expectations (5.47 billion euros). The decline in revenue this quarter was mainly due to the slowdown in shipments from TSMC and Korean customers. The net profit for the first quarter of 2024 was 1.224 billion euros, a year-on-year decrease of 37.4%, exceeding market expectations (1.114 billion euros). The company's gross profit margin remained relatively stable, but the significant decline in revenue directly affected the company's quarterly profit.

2. Business Performance: EUV and ArFi are the Main Revenue Sources. System sales revenue remains the main source of revenue for ASML.US, accounting for over 70% of the company's revenue. The year-on-year decline in company revenue this quarter was mainly due to the slowdown in customer demand for products such as EUV.

3. Regional Revenue Performance: Mainland China Accounts for Half. Despite regulatory impacts, the proportion of revenue from Mainland China customers has increased, making it the company's largest customer, mainly due to the significant decline in shipments from other regions. During the industry downturn, customers in Mainland China maintained a countercyclical pace of demand. In addition, the growth in demand for data centers and AI has not yet significantly translated into shipments of lithography systems.

4. ASML Performance Guidance: Expected revenue for the second quarter of 2024 is 5.7-6.2 billion euros (market expectation 6.456 billion euros) and a gross margin of 50-51% (market expectation 50.12%). Although the company's revenue is expected to improve next quarter, there are no clear signs of a significant turnaround in business performance.

Overall, ASML's financial report is not very ideal. Both revenue and profit have shown significant declines, mainly due to the reduced shipments from TSMC and Korean customers.

Looking ahead to the next quarter: The company expects revenue of 5.7-6.2 billion euros for the second quarter of 2024 (market expectation 6.456 billion euros) and a gross margin of 50-51% (market expectation 50.12%). Both figures are lower compared to the previous period, indicating that there are no clear signs of a significant improvement in product demandUpon closer examination of the company's latest financial report, Dolphin believes that the decline in revenue in the mainland China region is in line with expectations. This is due to the impact of the expanded export control product list starting from January 1, 2024. The company's lower-than-expected financial performance is mainly attributed to overseas clients such as TSMC.

Looking at the overall industry landscape, the semiconductor cycle remains sluggish, with demand for end products such as smartphones and PCs relatively weak. On the other hand, companies like NVIDIA and TSMC have seen improved performance, mainly driven by structural demand from data centers and AI. However, based on ASML's latest financial report, this demand has not yet translated to equipment such as lithography systems.

Overall, Dolphin believes that TSMC's focus is currently on advanced packaging rather than expanding production in lithography systems. The stock price of ASML is expected to be impacted in the short term due to the less-than-ideal performance. From a medium to long-term perspective, the company will still benefit from the capacity drive of data centers and AI demand, but it is not currently the main focus of core customer capital expenditure.

Here is Dolphin's specific analysis of ASML:

I. Key Data: Significant Decline in Revenue

1.1 Revenue: ASML achieved revenue of 5.29 billion euros in the first quarter of 2024, lower than market expectations (5.47 billion euros), with a significant quarterly decline. Revenue for the quarter saw a 21.6% decrease compared to the previous quarter, mainly due to reduced shipments from TSMC and Korean clients.

1.2 Gross Profit and Gross Margin: ASML achieved a gross profit of 2.697 billion euros in the first quarter of 2024, a 21% year-on-year decrease. In terms of gross margin, the company maintained a stable 51% for the quarter, outperforming market expectations (48.8%). Despite a decrease in shipments this quarter, the average selling price remained relatively stable.

1.3 Operating Expenses: ASML's operating expenses in the first quarter of 2024 were 1.305 billion euros, an 8% year-on-year increase.

Specifically:

1) Research and Development Expenses: R&D expenses for the quarter were 1.032 billion euros, an 8.9% increase year-on-year. The R&D expense rate remained at 19.58%, with the company's R&D investment staying around 1 billion euros. The increase in expense rate is influenced by the decline in revenue.**2) Sales Management and Administrative Expenses: Sales and administrative expenses for this quarter amounted to 273 million euros, an increase of 5.1% year-on-year; the sales management expense ratio was 5.2%, and sales and other expenses remained relatively stable.

1.4 Net Profit: ASML's net profit in the first quarter of 2024 was 1.224 billion euros, a decrease of 37.4% year-on-year, exceeding market expectations (1.114 billion euros). The company's performance in this quarter showed a significant decline, mainly due to a decrease in shipments from the company's major customers directly impacting its revenue performance.

II. Breakdown of Data: Mainland China Accounts for Half

ASML's business consists of system sales revenue and service revenue, with system sales revenue accounting for over 70%, being the company's core source of revenue.

2.1 Business Situation

1) System Sales Revenue

ASML's system sales revenue in the first quarter of 2024 reached 3.966 billion euros, a decrease of 25.8% year-on-year. The decline in system sales business was mainly affected by reduced shipments from downstream customers. Although customers in mainland China are still making shipments, shipments from TSMC and Korean customers significantly slowed down this quarter. The average selling price of the company's lithography systems this quarter remained around 56 million euros, relatively stable.

2) Service Revenue

ASML's service revenue in the first quarter of 2024 reached 1.324 billion euros, a decrease of 5.7% year-on-year. ASML's service revenue mainly includes equipment maintenance projects, with business revenue being more stable than system sales.

2.2 Income Situation in Various Regions

The income proportion in mainland China reached nearly 50%, remaining the largest customer for the company this quarter. This is mainly due to the increasing demand for ArFi and other products from customers in mainland China for expanding production.

Apart from mainland China, the proportion of income from Taiwan, South Korea, and the United States has declined to varying degrees this quarter. This is mainly due to reduced demand from clients such as TSMC and Korean customers, with TSMC's capital expenditure remaining relatively conservative.