ASML reported a 24% increase in orders for equipment for the production of chips – AI spurs demand

The Dutch company ASML is the world’s largest supplier of lithographic scanners, without which in modern conditions the production of advanced semiconductor components is impossible. At the end of the second quarter, it managed to increase its order book by 24% to 5.6 billion euros, and the company’s revenue and net profit exceeded analysts’ expectations.

Image Source: ASML

As usual, analysts tried to justify the dynamics of ASML’s main financial indicators in the last quarter by the growth in demand for equipment for the production of chips used as part of artificial intelligence systems. Technically, ASML’s revenue for the second quarter decreased by 9.5% year-on-year to 6.24 billion euros, but this amount was still higher than the 6.03 billion euros expected by the market. The company’s net profit also decreased by 18.7% year-on-year to 1.58 billion euros, but was higher than the 1.43 billion euros forecast by investors.

No less important for assessing the dynamics of the company’s business development was the parameter of the total cost of the equipment that ASML intends to supply to its customers in the future. The amount of orders increased in the second quarter by 24% year-on-year to 5.6 billion euros, and sequentially it increased by 54%. Previously, ASML representatives called 2024 a “transition period”, which will be characterized by the consequences of market overstocking caused by the pandemic. The management of ASML left its revenue forecast for the current year unchanged when publishing the results of the second quarter (at the level of the previous year); in the current quarter, the company expects revenue from 6.7 to 7.3 billion euros. This is less than the 7.5 billion euros that analysts had expected.

ASML’s new CEO, Christophe Fouquet, said: “Although there are market uncertainties, mainly driven by the macroeconomic environment, we still expect demand to recover in the second half of the year.” According to the head of the company, next year the semiconductor industry will enter a cycle of recovery and recovery. Accordingly, ASML will have to prepare for the construction of several new chip plants around the planet, which are being built by several of the company’s customers. All these clients will receive appropriate technology systems from ASML. In addition, as the head of ASML noted, now the growth in demand in the semiconductor industry is mainly due to the segment of artificial intelligence systems. Other market segments are so far only following it in terms of the speed of demand recovery. At least in ASML’s current order book, about half of the amount comes from the cost of equipment suitable for producing chips using advanced EUV lithography.

ASML previously warned that sanctions against China introduced by the US authorities last fall would deprive it of 10 to 15% of its total revenue. In the context of the likely worsening of these sanctions this year, there have been no corresponding comments from ASML management yet. But the stock market reacted with lightning speed to the threat of new sanctions – the ASML share price in Amsterdam fell by 7.7% to 903 euros per share, the highest since October 2022.

For ASML, the Chinese market continues to be one of the most important, as in the second quarter it provided almost half (49%) of its total revenue (€2.3 billion), and the company’s sequential revenue growth in China reached 21%. By the way, 49% of ASML’s revenue is generated by the Chinese direction for the second quarter in a row, and it grew to a level of 46% in the third quarter of last year, when it became known about the upcoming next sanctions against China. Under pressure from the United States, the Dutch authorities have banned ASML from supplying a number of DUV lithography scanners to China since the beginning of this year, with the help of which, according to American officials, Chinese manufacturers retain the ability to produce chips that are quite advanced by the standards of the local industry. ASML equipment previously purchased by Chinese customers continues to be serviced, and this causes particular dissatisfaction in the United States. ASML has not been able to sell the most advanced EUV lithography systems to China since 2019, when the Dutch authorities proactively introduced appropriate restrictions.