The lithography machine giant's profit plummeted by 40% in the first quarter, and the company's CTO: China will not produce ASML's competitors

Global lithography giant ASML (ASML) suffered market headwinds due to its first-quarter earnings report that fell short of expectations, and triggered a sharp drop in U.S. stocks.

Titanium Media App learned that on April 17, local time, ASML (NASDAQ: ASML/AMS: ASML) released its financial report for the first quarter of 2024, showing that it achieved net sales of 5.3 billion euros, down 27% from the previous quarter, gross profit margin of 51.0%, compared with 51.4% in the previous quarter, and net profit of 1.2 billion euros (about 9.24 billion yuan), down 40% from the previous quarter, lower than analysts' expectations.

Peter Wennink, CEO of ASML, said: "As the semiconductor industry continues to recover from the downturn, our outlook for the full year 2024 remains unchanged and we expect the second half of the year to be stronger than the first. We see 2024 as a 'year of adjustment' and we will continue to invest in capacity enhancement and technological advancement to prepare for the inflection point of the industry's cycle." ”

However, ASML's share price fell sharply due to the decline in profits in the first quarter. During the night trading session of U.S. stocks, ASML plummeted by more than 11%. As of the close of the U.S. stock market on April 17, ASML fell 7.09% to close at $907.61 per share, reducing its market value by $28.1 billion (about RMB 203.399 billion) overnight.

It is reported that ASML occupies a vital position in the global chip supply chain. In the semiconductor manufacturing industry, DUV (deep ultraviolet) lithography machine can be used to manufacture chips with 7nm and above processes, covering most of the digital chips and almost all analog chips, with the evolution of the process to 5nm and 3nm, EUV equipment has become the core of future lithography technology and advanced processes. ASML is the only supplier of lithography equipment for advanced chip manufacturing processes at 7nm and below.

Specifically, in the first quarter, ASML's new orders amounted to 3.611 billion euros, of which 656 million euros were orders for extreme ultraviolet (EUV) lithography machines, a decrease of 141 million euros year-on-year and 5.575 billion euros quarter-on-quarter, respectively.

Winnick, who is retiring on April 24, explained in a pre-recorded earnings video interview that new orders are generally unstable and that the order book volume over the past six months should be reviewed, i.e. almost 13 billion euros of new orders from the fourth quarter of 2023 to the first quarter of 2024, which is a considerable figure.

According to the financial report, in the first quarter, ASML's core lithography machine system sales revenue was 3.966 billion euros. ASML sold a total of 70 lithography machines during the quarter, of which 11 were extreme ultraviolet (EUV) lithography machines, accounting for less than 16% of the volume, bringing 46% of the lithography machine sales revenue. For reference, ASML sold 100 lithography machines in the same period last year and 124 in the previous quarter.

In terms of regions, in the first quarter of this year, ASML's sales revenue of lithography machines in the Chinese mainland market further increased from 39% in the fourth quarter of 2023 to 49%, a year-on-year increase of 41 percentage points. Europe, Middle East and Africa (EMEA) emerged as the second largest market, accounting for 20% of revenue. South Korea, the third largest market, accounted for 19% of revenue, followed by the United States and Taiwan, both accounting for 6%.

Talking about the Chinese market, ASML management said in last night's earnings call that the Chinese market performed strongly in the quarter, but the sales revenue of lithography machines also declined quarter-on-quarter, from about 2.2 billion euros in the previous quarter to about 1.9 billion euros;

"Demand in China is strong because they are increasing their capacity. Their self-sufficiency will increase compared to today. "We believe that China's increase in mature capacity today is justified and in line with ...... demand in the second half of the century. ASML management said.

ASML management spends, "The market is recovering, which means that customers will first increase the utilization of their existing equipment, which is exactly what they are currently doing." ”

The company believes that when the capacity utilization rate rises to a certain level, customers will resume placing orders for production equipment. ASML predicts that global market demand will pick up in the second half of the year, while mature process demand in the Chinese market will also remain strong.

Looking ahead to the second quarter, ASML expects revenue to be in the range of €5.7 billion to €6.2 billion, gross margin to be between 50% and 51%, and net sales in 2024 to be broadly flat compared to 2023.

Using the median of the above range as a reference, ASML's second-quarter revenue will decline by about 14% year-on-year. However, ASML stressed that the second half of the year will be stronger than the first half as the semiconductor industry moves from a downturn to a sustained recovery, so the company's outlook for the full year remains unchanged, that is, revenue in 2024 will be in line with 2023.

Winnick said that the current industry is currently in an upward cycle with equipment utilization and inventory levels more normalized, and 2024 is expected to see the industry recover. For 2025, he believes that new fab openings, long-term demand, and an upcycle in the industry will occur simultaneously, so the company is currently investing to prepare for future growth.

It should be noted that although ASML showed signs of weakness in the first quarter, it is normal for the entire semiconductor equipment industry to have sales fluctuations.

Roger Dassen, ASML's chief financial officer, said, "In terms of new orders, I think we should look at the order book as a whole over the last six months, and if you look at the new orders in the fourth quarter of 2023 and the first quarter of 2024, there are almost 13 billion euros, which is a considerable number." As you can see, new orders are usually unstable. At the 2022 Investor Day, we forecast net sales of €30 billion to €40 billion in 2025. In order to achieve the median of this target, which is 35 billion euros, we will be able to reach the median of our net sales target at the beginning of 2025 if we receive more than 4 billion euros of new orders per quarter over the next three quarters. ”

Dasen emphasized that the company is seeing a further increase in the utilization of ASML equipment for both memory chip customers and logic chip customers. At the same time, downstream inventories are being well controlled and are falling back to normal levels. This is very much in line with the company's expectation of a recovery in the industry in 2024 and is preparing for strong growth in 2025. This means building capacity to prepare for an increase in production.

However, a recent statement by ASML CTO Martin van den Brink about lithography in China has attracted attention.

Van den Brink told MIT Technology Review that although China's domestic lithography technology will make progress, there will be no competitors to ASML in China, and it will not reach the level of ASML's high-precision technology.

"Even the previous generation of lithography technology had a gap. SMEE is making DUV machines, or at least claiming that they can, but it's another matter to get to the level of sophistication of the ASML family of machines, including low NA, high NA and super NA, which I find comfortable, and it will take a long time for them to replicate these. Van Den Brink's conversation.

Martin van den Brink(来源:ASML)

In the next two years, the world's major fabs will expand their production capacity, and the demand for equipment will also increase.

According to the statistics of the International Semiconductor Industry Association (SEMI), from 2022 to 2024, the global semiconductor industry plans to have 82 new facilities put into operation, of which 11 and 42 will be put into operation in 2023 and 2024, respectively, covering production lines from 4-inch (100mm) to 12-inch (300mm) wafers. It is estimated that by 2027, the world will invest up to $137 billion to build wafer factories and buy equipment.

Recently, the U.S. government has "sprinkled coins" with subsidies of more than $30 billion, hoping that Intel, TSMC, Samsung and other companies will expand production in the United States. SEMI mentioned that in 2024, driven by new energy vehicles, AI and other fields, the global semiconductor industry is expected to grow by more than 10%, and the market size will be close to 600 billion US dollars. It is predicted that global semiconductor sales are expected to exceed $1 trillion in 2030.

ASML expects to expand its production capacity to 90 low-NA EUVs, 600 DUVs per year, and (in the medium term) 20 high-NAV EUVs after 2025.

"We believe that the future of the semiconductor industry is promising, and there is still a lot of demand, so we are working hard to expand our production capacity. Roger Dassen said.

(This article was first published on Titanium Media App, author | Lin Zhijia, editor | Hu Runfeng)