ASML: Expecting high landing slow, hard to catch up with the market's "AI dream"

ASML released its financial report for the second quarter of 2024 on the afternoon of July 17, 2024, Eastern Time, with the following key points:

1. Core Data: Revenue and Gross Margin Exceed Expectations. In the second quarter of 2024, ASML achieved a revenue of 6.24 billion euros, exceeding market expectations (6 billion euros). The increase in revenue this quarter was mainly driven by increased shipments from customers in mainland China and South Korea. The net profit for the second quarter of 2024 was 1.578 billion euros, a year-on-year decrease of 18.7%, exceeding market expectations (1.45 billion euros). The gross margin of the company remained stable with an upward trend, and revenue was the main influencing factor for the company's performance this quarter.

2. Business Sector Performance: EUV and ArFi are the Main Revenue Sources. System sales revenue remains the company's main source of revenue, accounting for over 70% of the company's revenue. Due to the high unit price of EUV, it is an important factor affecting the company's performance. Due to the relatively low recent shipment volume of EUV, the company's revenue and performance have not fully recovered from the downturn.

3. Regional Performance: Mainly from Mainland China. Despite regulatory impacts, the revenue share of mainland China still remains the highest, mainly due to the counter-cyclical expansion of production, which has increased shipments of ArFi and ArF Dry in mainland China. Shipments from South Korean customers have returned to normal, while TSMC's procurement situation remains relatively low.

4. ASML Performance Guidance: $ASML(ASML.US)The expected revenue for the third quarter of 2024 is 6.7-7.3 billion euros (market expectation 7.45 billion euros) and a gross margin of 50-51% (market expectation 51.12%). Although the company's revenue is expected to increase in the next quarter, it is still below market expectations.

Overall, ASML's financial report for this quarter is satisfactory, but the guidance for the next quarter is relatively weak.

This Quarter's Financial Data: The company's revenue and gross margin for this quarter exceeded market expectations, mainly due to the recovery in shipments from customers in China and South Korea. In addition, due to capital expenditure, TSMC's shipment situation remains relatively low.

Looking at the Company's Guidance Again: The company expects a revenue of 6.7-7.3 billion euros for the third quarter of 2024 (market expectation 7.455 billion euros) and a gross margin of 50-51% (market expectation 51.12%). Driven by industries such as AI and storage, although revenue is expected to rebound compared to the previous quarter, it is still below market expectationsDuring a relatively sluggish period in the semiconductor industry, the counter-cyclical expansion in mainland China has become the company's largest source of revenue. However, if the United States and others continue to increase trade restrictions in the semiconductor sector, the company's performance may be significantly affected.

Overall, Dolphin believes that although the financial data is still good, the company's guidance is below expectations, directly impacting market confidence in the company. In addition, there are concerns in the market about the United States and others continuing to impose further trade restrictions in the semiconductor sector. In the short term, the company's stock price already includes expectations of incremental growth brought by AI, but this weak guidance and market concerns will affect market confidence. In the medium to long term, the real improvement in the company's performance still requires an increase in capital expenditure by core customers, thereby driving growth in shipments of advanced products such as EUV (pay attention to Dolphin's information on capital expenditure in tomorrow's TSMC financial report review).

Here is Dolphin's specific analysis of ASML:

I. Core Data: Revenue and Gross Margin, Both Better Than Expected

1.1 Revenue: ASML achieved revenue of 6.24 billion euros in the second quarter of 2024, exceeding market expectations (6 billion euros), with quarterly revenue beginning to rebound. Revenue for this quarter increased by 18% compared to the previous quarter, mainly driven by the recovery in shipments from Korean customers.

1.2 Gross Profit and Gross Margin: ASML achieved a gross profit of 2.697 billion euros in the second quarter of 2024, a 9.4% year-on-year decrease. In terms of gross margin, the company's gross margin was 51.5% this quarter, slightly improved, exceeding market expectations (50.6%). The significant increase in ArF equipment shipments this quarter contributed to the improvement in the company's gross margin.

1.3 Operating Expenses: ASML's operating expenses in the second quarter of 2024 were 1.378 billion euros, an 8% year-on-year increase.

Specifically:

1) Research and Development Expenses: Research and development expenses this quarter were 1.1 billion euros, a 10.1% increase year-on-year. The research and development expense ratio remained at 22.1%, with the company's research and development investment slightly increasing, relatively maintaining stability;

2) Sales, Management, and Administrative Expenses: Sales and management expenses this quarter were 277 million euros, a 1.5% decrease year-on-year; the sales management expense ratio was 4.4%, maintaining in the range of 4-5%.

1.4 Net Profit Margin: ASML's net profit in the second quarter of 2024 was 1.578 billion euros, a year-on-year decrease of 18.7%, exceeding market expectations (1.45 billion euros). Although the company's performance is still declining this quarter, there has been a slight rebound compared to the previous quarter, mainly driven by increased shipments from customers in mainland China and South Korea boosting the company's revenue.

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%, which is the company's core source of revenue.

2.1 Business Performance

1) System Sales Revenue

ASML's system sales revenue reached 3.761 billion euros in the second quarter of 2024, a 15.1% year-on-year decrease. The year-on-year decline in system sales business is mainly due to the decrease in lithography system shipments. Although the shipment volume from customers in mainland China has significantly increased, TSMC's shipments this quarter remain relatively low. Due to the slowdown in EUV shipments, the average selling price of the company's lithography systems this quarter has dropped to around 47.6 million euros.

2) Service Revenue

ASML's service revenue reached 1.482 billion euros in the second quarter of 2024, a 14.3% year-on-year increase. ASML's service revenue mainly includes equipment maintenance projects, with business revenue being more stable compared to system sales.

2.2 Revenue by Region

Revenue from mainland China accounts for nearly 50%, remaining the company's largest customer this quarter. This is mainly due to the increased demand for production expansion from customers in mainland China, leading to continuous shipments of products such as ArFi and ArF Dry.

Compared to the first quarter, revenue from the company's other two major customers (TSMC and the South Korean region) has also increased this quarter. The revenue from the South Korean region customers has returned to normal levels this quarter, while TSMC's shipments this quarter remain relatively low, still affected by relatively conservative capital expenditures.**