ASML is one of the world's largest semiconductor equipment manufacturers, supplying computer and smartphone chips to major chipmakers such as TSMC, Samsung, and Intel. The Dutch group is scheduled to report its second-quarter (Q2) on 17 July - so what are investors expecting?
Its share price has risen by 45% year-to-date amid the AI frenzy, outperforming the 8% growth of the benchmark Euro Stoxx 600 this year. Key metrics that will determine its upcoming earnings results include TSMC's orders and sales in China, with an expectation that the firm may continue to experience a decline in sales.
Orders from TSMC a key factor
The Taiwan-based semiconductor maker, TSMC, is ASML's largest customer, a primary Apple supplier. Therefore, due to the lump nature of orders, ASML's bookings are a main factor impacting the Dutch firm’s quarterly results. Some analysts expect that the order contract may not be signed until the third quarter, which could boost ASML's full-year guidance but the result will not factor into the second quarter.
Analysts anticipate that ASML will report net machinery bookings of €5.04 billion in the second quarter, up 12% from the same quarter in 2023. This would be a positive outcome for the firm after a 4% decline in the first quarter when it reported only €3.06 billion in new bookings.
However, net sales are expected to be €6.08 billion, a fall of 12% from the same quarter last year, marking the second consecutive quarterly decline. In the first quarter, ASML disappointed investors with a 21.6% drop in net sales and a 37.4% slump in net income.
ASML reported a gross profit margin of 51%, with a net income of €1.2 billion in the first quarter. The company forecasts a profit margin of between 50% and 51% in the second quarter. Analysts expect the margin to be around 50.6%. Its gross profit is expected to be near €3.08 billion, down 13% from the second quarter last year.
Impact of business with China
China's sales remain a key metric for the Dutch firm's quarterly results. China has been one of the biggest markets for the tech firm, along with Taiwan and South Korea. However, sales in China may be affected by US export restrictions aimed at curbing China's ability to advance technology for military use. Nonetheless, sales of ASML's lithography systems in China accounted for 49% of its overall revenue in the first quarter, up from 39% in the fourth quarter of 2023. This increase has been driven by sales of its lower range of products that were not affected by US law.
However, this momentum may not be sustainable as China reported a much weaker-than-expected second-quarter GDP, with domestic consumer demand remaining sluggish in the first half of the year.
Positive expectations in the service revenue
Apart from hardware sales, ASML's service segment is also a key contributor to its overall revenue, making up roughly 25% of its earnings. The service division includes servicing, maintenance, and upgrading of its equipment. The advanced technology, Extreme Ultraviolet (EUV), is expected to perform well and bolster the company's service revenue in the second quarter. EUV is a cutting-edge lithography process used in semiconductor manufacturing, which should be in high demand amid the AI boom.
The company's technological advancement and its unique services have a positive prospect in the long term. In the first-quarter earnings call, CEO Peter Wenink said: "Our outlook for the full year 2024 is unchanged, with the second half of the year expected to be stronger than the first half, in line with the industry's continued recovery from the downturn." Chief financial officer, Roger Dassen, also expressed an optimistic outlook for 2025.
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