ASML: The Return of the Industry Leader

ASML released its Q4 2024 financial report (ending December 2024) before the US stock market opened on January 29, 2025, Beijing time. The key points are as follows:

1. Core Data: Record performance, orders rebound. ASML achieved revenue of €9.263 billion in Q4 2024, slightly better than market expectations (€9.03 billion). Revenue continued to recover this quarter, mainly driven by increased shipments of EUV and ArFi products. The company's net profit for Q4 2024 was €2.693 billion, a year-on-year increase of 31.5%, slightly better than market expectations (€2.625 billion). At the end of this quarter, $ASML(ASML.US) backlog orders rose to €7.088 billion, significantly improving from the previous quarter (€2.6 billion).

2. Business Performance: EUV and ArFi are the main drivers of performance. System sales revenue remains the company's primary source of income, accounting for nearly 80% of total revenue. The growth this quarter was mainly due to the increase in shipments of EUV and ArFi. Specifically, EUV shipments were 14 units, an increase of 1 unit year-on-year; ArFi shipments were 39 units, an increase of 6 units year-on-year. The average selling price of the company's lithography systems increased to €53.9 million this quarter.

3. Regional Revenue Performance: The US, Mainland China, and South Korea each account for 1/4. This quarter, the revenue share from the company's three major regions was within the range of 25-30%, relatively balanced. Among them, the revenue share from China dropped from nearly half to 27%, mainly due to the gradual digestion of previously backlogged orders and export restrictions. Currently, customer demand is mainly focused on EUV and ArFi products, with relatively high demand in the logic sector.

4. ASML Performance Guidance: For Q1 2025, expected revenue is €7.5-8 billion (better than market expectations of €7.25 billion) and gross margin of 52-53% (better than market expectations of 51.3%).

Overall View of Dolphin: ASML's Q4 financial report is good.

Both operating revenue and gross margin reached the upper limit of previous guidance, mainly due to increased shipments of EUV and ArFi equipment. The company's EUV revenue reached a new high this quarter, approaching €3 billion. In 2024, the company's low-NA high-end products have officially shipped, and high-NA products have also received acceptance from two customers. Although R&D and sales expenses have increased, their proportion is still declining, and the company's overall operations show a stable and improving trend Looking at ASML's guidance for the next quarter, the company expects revenue for the first quarter of 2025 to be between €7.5 billion and €8 billion, with a gross margin reaching 52-53%. The first quarter is often a slow season for the company's performance, but both pieces of guidance are better than market expectations. Considering the current order situation, the company's current orders stand at €7.088 billion. Compared to the "flash crash" data from the previous quarter, the order situation this quarter has clearly improved. Although there is a decline compared to the same period last year, this was mainly affected by order backlogs in mainland China. Looking at it over a longer term, €7 billion in orders is still relatively good.

For ASML, Dolphin believes it can be viewed from both short-term and medium-to-long-term perspectives:

1) Short-term perspective: Focus on current orders and capital expenditure of key customers. The return to €7 billion in current orders this quarter provides good support for next quarter's performance. Additionally, TSMC's capital expenditure outlook for 2025 (an increase of 26%-40% year-on-year) will also support ASML's full-year revenue guidance of €30 billion to €35 billion (considering the impact of export controls). Although current AI market demand is strong, the capital expenditure expectations of Intel, which is in a "crisis," and Samsung, which has "not completed HBM certification," will still bring some uncertainty to the company;

2) Medium-to-long-term perspective: Pursuit of advanced processes and price increases for high-end EUV and other equipment. Since ASML currently holds an absolute leading position in the lithography track, the pursuit of advanced processes cannot bypass the company, which also ensures that the company's gross margin can be maintained around 50% in the long term. With the improvement in EUV productivity and efficiency, higher-end lithography products are expected to drive an increase in the average selling price of the company's products, further ensuring revenue and gross margin growth.

Previously, the company set a revenue target of $44 billion to $60 billion by 2030 and a gross margin target of 56-60%. The company is expected to maintain double-digit compound growth over the next five years, reflecting its confidence in medium-to-long-term operations.

There has been no significant improvement in the traditional semiconductor sector. Although there is a noticeable demand increase in the AI field, it faces Intel's "predicament" and Samsung's "difficult certification," which directly affects the company's performance and has impacted market confidence in the company over the past six months. However, the current order situation and next quarter's guidance provided in this financial report demonstrate the company's operational "resilience." Even considering the potential impacts in mainland China, the company can still achieve steady growth, restoring market confidence in the company.

Below is Dolphin's specific analysis of ASML:

1. Core Data: Record High Performance, Orders Return to Warmth

1.1 Revenue Side: ASML achieved revenue of €9.26 billion in the fourth quarter of 2024, reaching the upper limit of the company's guidance (€8.8 billion to €9.2 billion), with quarterly revenue hitting a new high. This quarter's revenue increased by 28% year-on-year, mainly driven by the increase in shipments of EUV and ArFi products, both of which reached record highs this quarter.

1.2 Gross Profit and Gross Margin: ASML achieved a gross profit of €4.79 billion in the fourth quarter of 2024, a year-on-year increase of 28.9%. In terms of gross margin, the company's gross margin this quarter was 51.7%, a rebound that exceeded the company's guidance upper limit (49-50%). With the increase in the proportion of EUV shipments, the company expects the gross margin to further rise to 52-53% next quarter. Considering the company's expectation of 51-53% for the full year of 2025, ASML's gross margin will remain relatively stable.

1.3 Operating Expenses: ASML's operating expenses in the fourth quarter of 2024 were €1.434 billion, a year-on-year increase of 8.2%.

Specifically:

1) R&D Expenses: This quarter's R&D expenses were €1.116 billion, an increase of 7.2% year-on-year. The R&D expense ratio decreased to 12%. Although the company's R&D investment continues to increase, the R&D expense ratio fell to 12% due to the impact of revenue growth;

2) Sales, Management, and Administrative Expenses: This quarter's sales and management expenses were €318 million, a year-on-year increase of 12.1%; since the company's clients are mainly in the B-end, sales expenses remained relatively stable, with a sales management expense ratio of 3.4% this quarter.

1.4 Net Profit: ASML's net profit in the fourth quarter of 2024 was €2.693 billion, a year-on-year increase of 31.5%. Driven by revenue growth and the rebound in gross margin, the company's profit reached a new high this quarter, with growth in both the EUV and ArFi business lines.

The company's backlog from the previous quarter fell to €2.6 billion, directly affecting market confidence in the company. This quarter, the backlog rose to €7.088 billion, mainly due to seasonal effects from clients at the end of the year. Although it is not as good as the €9.186 billion from the same period last year (affected by customer orders from the Chinese market, etc.), a backlog of €7 billion is still a good figure.

Previously, although TSMC's capital expenditure expectations were good, progress from Intel and Samsung made the market relatively cautious about the company's performance. Now, the recovery in backlog and guidance outlook will once again boost market confidence in ASML.

II. Detailed Data Situation: EUV and ArFi are the Main Performance Drivers

ASML's business consists of system sales revenue and service revenue, with system sales revenue accounting for nearly 80%, making it the company's core source of income.

2.1 Business Situation

1) System Sales Revenue

ASML's system sales revenue reached €7.116 billion in the fourth quarter of 2024, a year-on-year increase of 25.2%. The year-on-year growth in system sales is mainly influenced by the increase in shipments of EUV and DUV lithography systems.

The company's system sales revenue mainly comes from EUV and ArFi, which together account for 83%. In terms of shipments: the company shipped 14 EUV systems this quarter, an increase of 1 unit year-on-year; while the company shipped 39 ArFi systems this quarter, an increase of 10 units year-on-year, making them the main sources of growth this quarter.

According to Dolphin's calculations, the average price of lithography systems this quarter has increased to €53.9 million per unit. The average price of EUV systems has risen to €214 million, while the average price of ArFi systems remains relatively stable at around €75 million.

In addition, the company's order backlog has risen again to €7 billion this quarter, mainly driven by demand in the logic sector. In the order structure, demand from the logic sector accounts for about 60%, while demand from the storage sector remains at 40%.

2) Service Revenue

ASML's service revenue reached €2.147 billion in the fourth quarter of 2024, a year-on-year increase of 38.1%. ASML's service revenue mainly includes equipment maintenance and other projects. Due to the increase in equipment shipments, the growth rate of the company's service revenue has also accelerated. Service revenue continues to account for about 20% of total revenue.

2.2 Income Situation by Region

ASML's revenue this quarter mainly comes from the United States, mainland China, and South Korea, with each accounting for 25%-30% of total revenue. However, due to the digestion of backlogged orders from mainland China and the impact of export restrictions, revenue from mainland China has declined this quarter, with its share dropping to 27%.

With the increase in EUV shipments, the company's future major customers will still be concentrated in South Korea, the United States, and Taiwan. Meanwhile, mainland China's procurement will remain focused on DUV due to export restrictions and other factors. The main customers in South Korea are Samsung and SK Hynix, with current procurement primarily driven by demand in the storage sector. TSMC's capital expenditure has increased, with part of it allocated for expansion of its U.S. factories, mainly focused on lithography needs in the logic sector.

As ASML is at the very top of the semiconductor industry chain, it is influenced by the overall industry situation. Although AI demand can drive the demand for EUV and other equipment, traditional cycle conditions will also affect the demand for ASML's other products. Currently, driven by AI demand, TSMC has increased its capital expenditure for 2025, but ASML will still be affected by traditional cycles. Although the company is expected to grow for the year, the growth rate will be lower than the performance of the AI market.