ASML's European stocks surged by 7%! Q4 order revenue reached a record high, and net profit hit a historic high.

ASML, the giant in the lithography machine industry, has seen a surge in performance, with fourth-quarter net profit exceeding expectations and order growth tripling quarter-on-quarter, indicating a recovery in the semiconductor industry.

On Wednesday, January 24th, ASML announced its fourth-quarter and full-year performance for 2023. The performance report shows that in the fourth quarter, ASML's net sales reached 7.2 billion euros, with a gross margin of 51.4% and a net profit of 2 billion euros, reaching a historic high and surpassing market expectations.

Driven by the demand for advanced lithography machines in AI, the order value in the fourth quarter was 9.2 billion euros, tripling compared to the third quarter and setting a new record. The order value for EUV lithography machines reached 5.6 billion euros, with significant sales growth in the Chinese market.

Looking at the full-year data, net sales for 2023 reached 27.6 billion euros, a year-on-year increase of 30%. The gross margin was 51.3%, and the net profit was 7.8 billion euros. The total value of outstanding orders reached 39 billion euros.

In terms of performance guidance, ASML is relatively cautious. It expects net sales in 2024 to be roughly the same as in 2023, with net sales in the first quarter of 2024 expected to be between 5 and 5.5 billion euros, and the gross margin between 48% and 49%. ASML stated that 2024 will be an important year in preparation for significant growth in 2025.

Jos Versteeg, an analyst at InsingerGilissen, pointed out:

After TSMC announced good performance and outlook last week, people hope that they can raise their outlook for 2024. With the continued recovery of the end market, the company may raise its performance outlook later this year.

After the financial report was released, ASML's European stocks rose by as much as 7%, marking the largest increase since November 2022.

ASML's record-breaking orders are attributed to strong demand in the Chinese market. According to data from the customs cited by First Financial, the total amount of semiconductor manufacturing equipment imported from the Netherlands in 2023 was approximately 6 billion US dollars, accounting for about 20% of ASML's net sales for the whole year.

In recent months, the number and value of lithography machines imported from ASML in the Netherlands to China have surged. According to the summary data released by Chinese customs on January 22nd, the amount of lithography equipment imported from the Netherlands to China in December 2023 reached 1.1 billion US dollars, a year-on-year increase of nearly 1000% and a month-on-month increase of 44.2%. However, according to the Global Times, ASML previously stated that export controls in 2024 will affect 10% to 15% of sales in the Chinese market.

ASML's Chief Financial Officer, Roger Dassen, stated that the equipment shipped to China by ASML is mainly targeted at mature process customers. This part of the market demand is stable, which was the case last year and is expected to continue in the future.

Indicating the recovery of the semiconductor industry

It is worth mentioning that ASML dominates the global lithography machine market, and lithography machines are the upstream industry in the semiconductor market. Therefore, the demand for its products is an indicator of the health of the semiconductor industry. The surge in orders in the fourth quarter of last year indicates the recovery of the semiconductor industry.

Driven by AI, ASML's EUV lithography machine orders reached a historic high, highlighting the optimistic prospects of Intel, Samsung, TSMC, and others. ASML's CEO, Peter Wennink, pointed out that artificial intelligence will be the main driver of business growth for ASML and its downstream customers.

In the financial report, Wennink stated that although the semiconductor industry continues to operate at the bottom of the cycle and the recovery situation is still uncertain, there have been some positive signs. Roger Dassen also mentioned that the inventory levels in the end market have improved.

Statistics from the Semiconductor Industry Association this month show that after more than a year of decline, chip sales in November have shown growth. Citigroup analyst Andrew Gardiner pointed out:

The market has been expecting orders to rebound in the first half of 2024, but now the rebound is coming earlier. The fourth-quarter orders will give the market confidence in strong growth in 2025, and the stock price will correspondingly increase.