In last quarter's ASML piece I noted that ASML's biggest issue right now is growth. This quarter's booking miss was within expectations.
Lithography leader ASML reports Q3:
Revenue €7.467B, up 12% year over year and 20% sequentially, above the prior guidance ceiling.
Gross margin 50.8%, down 1.1 percentage points year over year and 0.7 percentage points sequentially.
Operating income €2.44B, up 12% year over year and 32% sequentially. Operating margin 32.7%.
Net income €2.08B, up 10% year over year and 32% sequentially. Net margin 27.8%.
No share repurchases in Q3.
Q3 backlog €36B, down €3B sequentially.
On lithography specifics, Q3 shipped 116 systems, total up 4% year over year:
EUV: 11 units, revenue €2.074B, 35% of system revenue, ASP €189M.
ArFi: 38 units, revenue €2.844B, 48% of system revenue, ASP €74.85M.
ArF dry: 7 units, revenue €178M, 3% of system revenue, ASP €25.4M.
KrF: 42 units, revenue €593M, 10% of system revenue, ASP €14.11M.
I-Line: 18 units, revenue €119M, 2% of system revenue, ASP €6.58M.
EUV revenue share rebounded this quarter. DUV share remains above 50%. EUV customers continue migrating to the NXE:3800 platform. Q4 NXE:3800 is expected to become the EUV revenue driver. Q4 will deliver 2 High-NA tools. High-NA EUV has already validated over 10K wafers at customers. All EUV customers have ordered High-NA tools.
Q3 bookings €2.633B, up 1% year over year but down 53% sequentially. EUV bookings €1.4B, up 180% year over year but down 44% sequentially.
Management previously stated that to maintain the 2025 €30-40B revenue target, each remaining quarter this year needed bookings above €4B. Q3 missed, so management cut the 2025 revenue target to €30-35B.
Mainland China lithography revenue hit an all-time high this quarter at €2.73B, up 14% year over year, accounting for 47% of system revenue, the fifth consecutive quarter as ASML's largest customer region. However, management expects China's revenue share to normalize in 2025, reverting to ~20%, a notable decline.
Outlook:
Guides Q4 2024 revenue €8.8-9.2B, up 22%-27% year over year. 2025 revenue lowered from €30-40B to €30-35B, up 7%-25% year over year. The company says long-term demand remains strong, but near-term lithography demand is lower and the growth curve is flattening.
Q4 gross margin 49%-50%, mainly due to revenue recognition on the two High-NA tools. Full-year gross margin 50.6%, down slightly year over year. 2025 gross margin lowered from 54%-56% to 51%-53%, mainly due to lower Low-NA EUV volumes and declining China revenue.
AI demand is strong. The non-AI semiconductor industry is weaker than expected. Customers are cautious on 2025 spending.
Low-NA EUV ASP above €200M. High-NA EUV ASP above €350M.
Expects 2025 China DUV revenue to decline sharply. Ex-China DUV and EUV revenue growth rates are similar, but Low-NA EUV shipments drop to ~50 units, High-NA EUV shipments ~5 units. Installed Base revenue, however, grows double digits year over year. Whether the 2026 growth curve can recover remains unknown.
Next, watch whether the previous 2030 €44-60B revenue target gets cut at the November Investor Day.
This is the third consecutive quarter we've emphasized: ASML's biggest issue right now is growth. ASML's 2024 earnings are flat. If 2025 revenue is €30-35B, combined with gross margin and OpEx guidance, net income optimistically reaches only ~€9B, implying the current market cap is still expensive.
Many like to compare ASML with TSMC. Their leadership positions in their respective domains are indeed similar, but one is upstream equipment and the other midstream manufacturing — a big difference. Their earnings diverging is not new. ASML's monopoly is unchallenged, but that doesn't mean lithography demand grows linearly, nor does it directly capture the AI demand explosion. TSMC, sitting in midstream manufacturing, can directly serve downstream AI customers and capture the full AI upside.
ASML's near-term demand weakness stems mainly from memory customers' reluctance to expand (HBM mostly comes from DRAM line conversions), fab customers like Intel and Samsung having weak internal demand, and the strongest-demand customer TSMC being cautious on High NA as well; combined, these factors lead to concerns about ASML's near-term growth.