As the world's leading semiconductor equipment manufacturer, ASML's revenue, especially its annual results, is often regarded as a "barometer" of the semiconductor market. ASML, which recently announced its Q4 2023 revenue and annual results summary, reported a gratifying financial report, and its stock price also rose 9%, drawing a perfect end to the semiconductor equipment giant's 2023. In this earnings conference, in addition to its own performance, ASML also revealed several important information about the semiconductor market, which is worthy of our careful analysis.
ASML ended 2023 on a flawing note, exceeding expectations
In the fourth quarter of 2023, ASML closed the quarter with a total revenue of 7.2 billion euros, a gross margin of 51.4% and a net income of 2 billion euros. The total revenue of lithography machine systems was 5.7 billion euros, with logic chips accounting for 63% and memory chips accounting for 37%. The majority of the higher-than-expected revenue was in managed installation services revenue, as Q4 ushered in additional upgrades and field service demand.
Looking at the full-year 2023 results, the total annual revenue increased by 30% year-on-year to 27.6 billion euros, and the gross margin reached 51.3%. EUV system revenue increased by 30% year-on-year, with 53 EUV lithography machines contributing 9.1 billion euros and DUV system revenue increasing by 60% year-on-year to 12.3 billion euros. With such a revenue result, ASML still ends 2023 with a huge backlog of orders of 39 billion euros.
Interestingly, in 2023, the ratio of lithography systems used for logic chips to memory chips has changed even more, from a ratio of nearly 2:1 in 2022 to a ratio of nearly 3:1 in 2023. Logic systems revenue increased by 60 percent year-on-year to EUR 16 billion, while storage system revenue increased by only 9 percent to EUR 6 billion. It can be seen that the demand for logic chips was still strong last year, and it can also be seen that the storage market was sluggish last year.
At the same time, the deployment of high-NA EUV lithography machines has begun. In January this year, the first module of the high-NA EUV system EXE:5000 was successfully shipped to Intel's fab in Texas, USA. The new machine can increase transistor density by 2.9 times, which is also one of the killer features that Intel plans to achieve after the 18A process node, and as the first manufacturer to win the first order of high NA EUV, they can also be regarded as taking the lead. After all, even at ASML's speed, they only expect to complete the delivery of one or two high-NA EUV lithography machines this year.
Lithography Systems Revenue / ASML
Of the 27.6 billion euros in revenue in 2023, 21.939 billion euros are net sales of lithography systems. From the regional market distribution, we can find that the proportion from Chinese mainland is as high as 29%, and this figure is only 14% in 2022. Under the premise of increasing total revenue in 2023, the sales of lithography systems from Chinese mainland still doubled, second only to Taiwan by 30%, and finally surpassed South Korea. On the one hand, this is because most of the equipment delivered to the mainland in 2023 is 2022 and previous orders, and the second is that the demand for equipment in the Chinese market remains stable after a round of growth.
Based on an analysis of export policy restrictions, ASML expects to have a 10% to 15% impact on its performance in Chinese mainland in 2024. This is due to the fact that NXE:2000 and later DUV systems will not be licensed for export, and NXE:1970 and 1980 system exports are restricted for a few specific continental fabs. However, ASML remains optimistic about revenue from mainland China in 2024, because the demand for mature process nodes remains strong, so it seems that Chinese mainland will still become ASML's second or third largest regional customer in 2024.
The last quarter of the record number of bookings, 2024 semiconductor market recovery is imminent?
After experiencing a market downturn in 2023, everyone is looking forward to when it will usher in a recovery. Judging from the 2024 semiconductor outlook collected by the electronic enthusiast network, many semiconductor company executives expect to see signs of recovery in the first half of this year, but the performance and views from upstream equipment manufacturers such as ASML may give more accurate market signals.
ASML Quarterly Net Bookings / Quartr
Interestingly, if we look at net bookings, ASML saw its largest quarterly bookings in its history in Q4 2023, much higher than last year's Q1 to Q3 figures, reaching €9.2 billion, up 46% year-on-year and 254% quarter-on-quarter! Such a year-end reservation will inevitably make people wonder whether the recovery of the semiconductor industry has arrived?
Judging from the overall trend prediction of the semiconductor market by various institutions, 2024 will indeed become a year of market recovery, whether it is Gartner, Techinsights or IBS, it is expected that the semiconductor market revenue in 2024 will increase significantly compared with 2023, and even the market performance will slightly exceed that of 2022.
ASML believes that historical trends show that the semiconductor market is often in a period of recession, and it is bound to usher in a round of significant growth, and the speed is rapid, and unpreparedness will cause supply chain disruptions, capacity shortages and other phenomena, such as rapid digital transformation during the epidemic.
According to the feedback collected by ASML from customers, in addition to the positive signal given by the increase in system bookings, the improvement of inventory in the end market and the increase in the utilization rate of lithography machines also give a good omen, but from these signs alone, the recovery of the semiconductor market this year is still not clear.
2024 is a transition year for ASML, preparing for 2025
ASML remains conservative about its performance in 2024, believing that the full-year revenue in 2024 may be similar to that in 2023, and 2024 will still be a smooth transition year for ASML. That being said, ASML doesn't plan to "lie down" past 2024, they need to be prepared for strong demand in 2025.
ASML expects revenue in the range of €5.0 billion to €5.5 billion for the first quarter of 2024 and gross margin in the range of 48% to 49%. ASML also gave its own explanation for the reasons for the further reduction of gross profit margin, such as the current product mix of DUVs may have a negative impact on gross profit margin, and secondly, the high cost of a single high-NA EUV system and the annual production capacity plan of 90 EUVs and 600 DUVs have also had an impact on its gross profit margin.
Although there is uncertainty about the recovery of the entire semiconductor market this year, ASML expects revenue in the second half of this year to be significantly stronger than in the first half. In addition, ASML maintains its ambition to achieve a gross margin of 54% to 56% by 2025, when the new high-NA EUV system EXE:5200 and EUV upgrade services will bring more profits to it.
In terms of the ratio of logic and storage systems, 2024 will also usher in a different situation. For example, in Q4, the proportion of logic systems and storage systems has tended to be even, accounting for 53% and 47% respectively. ASML expects that in 2024, the revenue from logic systems will be lower than in 2023, but under the AI-related demand, DRAM process nodes will continue to be promoted to support DDR5 and HBM, and the storage market will usher in a wave of recovery.
Write at the end
ASML's performance report is undoubtedly a shot in the arm for the semiconductor industry, and the global semiconductor market value is still moving towards the goal of exceeding one trillion US dollars by 2030. However, ASML's equipment sales cannot be used to predict changes in demand in the end market, and there is a lag in the delivery time of its systems that can be more than a year, and the fab's ability to adjust production capacity according to customer needs. But only by continuing to innovate semiconductor manufacturing technology can we ensure that the entire semiconductor market still has room for sustainable growth.