ASML released its 24Q1 earnings report yesterday:

--Revenue of 5.29 billion euros, below market expectations (5.47 billion euros)

--Net profit of 1.224 billion euros, exceeding market expectations (1.114 billion euros)

--New orders: 3.61 billion euros, below market expectations (4.63 billion euros)

Guidance:

--24Q2 revenue of 5.7-6.2 billion euros (market expectation: 6.456 billion euros)

--Gross margin of 50-51% (market expectation: 50.12%)

--Full-year 2024 guidance remains unchanged

ASML's stock price dropped 7.09% after the earnings report. Where does ASML go from here after the sharp decline?

Key Question 1: 2024 Performance

ASML had 39 billion euros in new orders in 23Q4, with a delivery cycle of 18 months or more. 24Q1 deliveries were for orders placed in 2022, so the certainty should be high. Why was 24Q1 revenue below expectations? Why is the company's 2024 performance guidance unchanged?

<1> The first reaction after the earnings report was that delivery delays caused revenue recognition to be postponed. The numbers show that EUV sales this quarter were significantly lower than the previous four quarters.

<2> From the regional revenue breakdown, Taiwan's proportion seems abnormal.

<3> There are also related voices online.

TSMC's EUV orders missed, and delays caused by unresolved pricing agreements between the two companies.

<4> The company was firm about its 2024 plans during the earnings call: 2024 is fully booked, and shipments will proceed as scheduled.

In summary: 24Q1-24Q2 may be affected by adjustments in customer delivery schedules, but this does not change the overall 2024 revenue guidance.

Key Question 2: Why Were New Orders Below Expectations?

24Q1 new orders were 3.61 billion euros, below market expectations (4.63 billion euros). New orders correspond to ASML's 25-26 performance. Does this affect ASML's long-term certainty?

The company's response during the earnings call:

<1> We have always said this: New order volumes are indeed unstable, whether they are high or, as now, low from certain perspectives. If you look at the total of the past six months, it's 13 billion euros in orders, which averages 6.5 billion euros per quarter—a significant number.

<2> To meet the 2025 guidance, we need 4 billion euros in new orders per quarter. Some major customers (like TSMC) did not place orders in recent quarters. If you look at these customers' announcements, it's clear they will need to place many new orders in the coming quarters.

<3> We interact closely with customers and understand their actual needs. This understanding drives our plans for this year and next, which is more important than receiving orders. Some orders are just delayed.

<4> An analyst asked: To meet the mid-to-high range of the 2025 guidance, we already have over 30 new EUV orders but need 40 more. Is there a risk?

The company responded that they know exactly what customers need, and customers know too. Some are in negotiations; the orders just haven’t come in yet.

Summary: The company believes new orders are volatile. They are in close communication with customers and know the demand, but orders are just delayed. The company is confident that 24Q2-24Q4 will average 4 billion euros in new orders per quarter.

Key Question 3: Impact of China

Will U.S. and Dutch regulations change the 10-15% impact on China's business? Could China face overcapacity later this year?

The company's response: No changes. Maintenance for equipment in China remains unchanged.

From 2022 to 2030, an additional 380,000 wafer starts per year are needed (as stated at the 2022 capital markets day). Demand for mature equipment remains strong.

But this is a potential risk, especially if policies are adjusted again.

Summary

<1> ASML's 24Q1 performance and next-quarter guidance were below expectations, but 2024 deliveries are for products ordered in 2022, so this may only affect the delivery and revenue recognition timeline.

<2> 24Q1 new orders were below expectations. To meet the 2025 guidance, 24Q2-24Q4 will need an average of 4 billion euros in new orders per quarter. The company is very confident and understands customer demand well. Orders are just delayed. This needs further observation, depending on major customers' factory construction and capacity utilization.

<3> Will China's impact intensify? The company says demand for traditional equipment remains strong, and the 10-15% impact is unchanged. This is a potential risk.

<4> The author believes that given ASML's unique position, a drop to 30x 2025 PE (around 900) would be an opportunity.

Risk Disclosure: The views expressed may contain the author's personal biases or errors. Any mentioned stocks or funds are not buy recommendations. Please think independently. The author currently does not hold ASML but may buy in the future.

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