ASML shares fall as Europe's biggest tech company predicts flat sales in 2024 after 71% order drop

By Louis Goss

Shares of ASML Holding NV fell on Wednesday after the maker of semiconductor manufacturing machines predicted flat sales for 2024 amid slumping demand for microchips, as its orders fell 71% year-on-year.

The Veldhoven headquartered firm (ASML) (NL:ASML), which is now Europe's biggest tech company, however claimed the sector will soon see an "inflection point" as it brushed aside the impact of U.S. export controls and forecast "significant growth" in 2025.

The Dutch firm posted third-quarter results that were in line with analysts' expectations, generating revenues of EUR6.67 billion ($7.04 billion, compared to the EUR6.73 billion forecast by 20 analysts according to Factset data.

In the Netherlands, ASML stock fell 2.5% and U.S.-listed shares dropped nearly 3% in pre-market trading following publication of the results. Shares of the stock are up around 11% year to date. .

Analysts said ASML's stock price fall is likely due to its lower order intake.

JP Morgan's analysts described orders received by ASML in the third quarter as "very weak," at just EUR2.6 billion, a 71% drop versus the same period in 2022.

Speaking to investors, ASML's chief financial officer Roger Dassen acknowledged orders were "lower than what we had in previous quarters," noting the current climate had seen customers become "very cautious with cash."

The tech giant said it sold 106 new lithography machines to customers worldwide in the third-quarter, compared to 86 in the third-quarter of 2022. The sales of its multi-million-dollar machines, alongside other services, saw ASML generate earnings of EUR4.81 per share.

Notably, ASML's earnings were slightly better than analysts expected as the firm generated a 51.9% margin on its sales, leading to gross profits of EUR3.46 billion. Analysts polled by Factset had forecast the company would post earnings of EUR4.64.

Looking ahead, company CEO Peter Wennink said while 2024 will likely be a "transition year," a period of "significant growth" in 2025 will follow, even if sales remain similar to those seen in 2023.

"The semiconductor industry is currently working through the bottom of the cycle and our customers expect the inflection point to be visible by the end of this year," Wennink said in a statement.

Dassen added that ASML currently has an order backlog worth EUR35 billion, as he argued the growth of artificial intelligence and the continuation of the global energy transition will drive the firm's sales going forwards.

JP Morgan's analysts said investors will now be looking towards the wider sector to work out "where we are in cycle," and that the business remains strong, "despite short term risks."

ASML's position as the world's sole supplier of extreme ultraviolet (EUV) lithography machines puts it in a prime position to benefit from the global shift towards the use of high-tech EUV machines, said the bank's analysts.

At the same time, mounting geopolitical tensions between China and the West could also benefit ASML, as rival powers seek to build up their own semiconductor manufacturing capacity, they said.

Looking ahead, Dassen claimed that new U.S. restrictions on exports of semiconductor manufacturing equipment to China, announced on Tuesday, will only affect a "limited number" of semiconductor manufacturing facilities in the country and have a limited impact on revenues.

Notably, ASML generated 46% of its system sales to China in the third quarter, compared to 24% in the second quarter. Dassen said the high proportion of sales to China was mainly related to the fulfillment of orders from 2022.

-Louis Goss

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10-18-23 0808ET

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