ASML accidentally published its quarterly earnings for Q3 earlier today. At least that’s what the company claims. After being offline for a while, the message is now back on the company’s website. The implications of these latest figures are pretty hefty. The Veldhoven-based company lost about 15 percent of its stock market value in no time. Are we seeing the first signs of the restrictions on sales to China, or is something else going on?
ASML has been doing extremely well for years. It records one record year after another. Even in its latest yearly report, the company indicated that 2024 would be a transition year. What that would entail was not immediately clear. The figures for the third quarter of the current fiscal year seem to shed some light. As a matter of fact, these numbers are not bad at all. Compared to the previous quarter, sales increased from over 6.2 billion to over 7.4 billion euros. The number of EUV machines sold also increased from 89 to 106. ASML’s profitability, on an Earnings Per Share basis is also higher than last quarter.
The catch in ASML’s numbers is in the orders it was able to add to its books. These went from a value of over 5.5 billion in the previous quarter to “only” over 2.6 billion this quarter. This was expected to be somewhere between 4 and 6 billion euros. And since orders ultimately also become delivered products and thus turnover, this means the outlook is no longer so hugely positive either. For 2024, by the way, ASML still expects sales figures that are slightly higher than last year’s, namely 28 billion euros. For 2025, the company expects to realize sales totaling between 30 and 35 billion euros.
Sales to China
In pointing to a “culprit” for the partially disappointing figures, it is easy to point to the restrictions imposed on ASML’s exports to China. Yet in terms of sales figures, that does not yet seem to be the case. As a matter of fact, last quarter ASML sold a record 2.79 billion worth of products to China. That is almost half of its total sales.
ASML is not expected to be able to record such high percentages for long. ASML CFO Roger Dassen expects that share to return to some more normal levels next year. By 2025, he expects it to be 20 percent of sales. That’s quite a bit less than the high 40 percent it did in previous quarters. Perhaps some of this normalization was already visible last quarter in incoming orders. In that sense, Chinese customers are contributing both positively and negatively to the numbers. At least, if we assume that the decline in orders has something to do with Chinese customers.
Sales growth will continue for some time
Funnily enough, we are in the middle of an AI boom, so there must be some orders coming in. That is not the sector where the stagnation is. That is apparent in “other market segments”, which “take longer to recover,” according to CEO Christophe Fouquet. We imagine that Intel’s tough time at the moment isn’t helping ASML either. That company has also cut spending quite a bit, no doubt including spending it would do at ASML. In addition, the memory market doesn’t really want to keep going either.
For next year, by the way, ASML does expect another increase in sales to more than $30 billion. That in itself is only logical. The machines that ASML makes are in great demand, external factors do not detract from that. Not being allowed to sell the most modern machines to China remains a setback, of course. The recent expansion of the restrictions from EUV to some DUV machines is certainly not good news in that respect. However, there are still so many chips to be made worldwide that ASML will be able to continue on its growth path for the foreseeable future.
ASML is the hub of the global chip industry. And a lot will be asked and demanded of it again in the coming years. That’s good news for ASML. However, almost all other chip-related companies are also closely tied to the fate of the Dutch company. Not only did we see a 15 percent drop at ASML today, the company also pulled down virtually all other companies doing business with ASML, including Nvidia. The chip world is and remains one of communicating vessels, in which ASML largely determines the direction of communication.