Market Shock:
ASML’s Sharp Decline Rattles Investors
In a dramatic turn, ASML Holdings’ third-quarter performance has surged past revenue expectations, yet it delivered a mere fraction of anticipated orders. This divergence has led the company to revise its sales targets for the coming year, triggering a precipitous 13% fall in its stock price.
Earnings Snapshot:
A Closer Look at the Financials
ASML, a Dutch titan in photolithography systems, presented its quarterly financials on Tuesday. While boasting sales that outperformed estimates, the halving of expected orders precipitated a significant downgrade in sales objectives for the following year, causing ASML’s ADR to tumble.
Market Reactions:
The repercussions were felt broadly as the STOXX Europe 600 Index experienced an expanded decline of 0.6%, the Philadelphia Semiconductor Index plummeted by an approximate 4.5%, and NVIDIA noted its poorest intraday performance since September 6, with a 5.7% drop.
Detailed Financial Metrics:
Analyzing ASML’s Performance
Third Quarter Sales:
Net sales for the quarter reached €7.47 billion, a sequential growth of 20%, surpassing analysts’ projections of €7.17 billion.
Order Volume:
Orders for the third quarter amounted to €2.63 billion, representing a 53% sequential descent, starkly below the expected €5.39 billion.
Gross Margin:
The gross margin for the third quarter stood at 50.8%, slightly above the 50.7% forecasted.
Net Profit:
Net profit saw an increase of 32% sequentially, reaching €2.08 billion, over the anticipated €1.91 billion.
Cash Reserves:
Cash and equivalents reported were €4.99 billion, a minor sequential decrease of 0.7%, against the expected €4.86 billion.
Guidance Highlights:
Projected Sales and Margins
Net Sales Forecast:
The forecast now stands at a net yearly sale of €28 billion, slightly above the analysts’ estimate of €27.71 billion.
Q4 Sales Projection:
Fourth-quarter sales are projected between €8.8 billion to €9.2 billion, against an expected €8.95 billion.
Q4 Gross Margin:
ASML estimates a gross margin of 49-50% for the fourth quarter, marginally below the 50.5% expected by analysts.
Sales in the Coming Year:
The company’s targeted net sales for 2025 are set between €30 billion to €35 billion, marking the lower to middle range of analyst expectations, which anticipated €35.94 billion.
Gross Margin Outlook:
For 2025, the gross margin is projected to be 51-53%, a downward adjustment from the previously projected 54-56%.
Executive Commentary:
CEO Christophe Fouquet’s Statement
Christophe Fouquet, CEO of ASML, acknowledged the robust and rising potential within the AI sector but cautioned of prolonged recovery periods in other markets. He anticipated this trend to persist until 2025, provoking increased caution among clients. In chip logic, competitive dynamics in foundry services prompted a deceleration in the adoption of new nodes for some clients, leading to delayed lithography demands, especially in EUV. In the memory segment, the emphasis remains on technology transitions to meet demands for AI-related HBM and DDR5, amid limited capacity additions.
Media Analysis:
Impact of Export Control Policies
Recent media analyses have suggested that ASML’s performance might be subject to new export control policies. Last month, the Netherlands introduced new export control regulations, necessitating ASML to seek export licenses from The Hague and not the United States for shipping certain older machines. Past reports indicated that the Dutch government could restrict ASML’s capacity to service and maintain its semiconductor equipment within China.
Following the release of the report, shares in ASML’s ADR plummeted over 13%, and its Amsterdam market price experienced a staggering 15% drop, leading to a temporary suspension in trading. Since reaching its peak in July, the company’s share value has come down by 30%. Key industry players like Intel, TSMC ADR, the Semiconductor ETF, Advanced Micro Devices, Micron Technology, NVIDIA, and Arm Holdings also reflected this downturn with varying degrees of decline.
