About the company

ASML (Advanced Semiconductor Materials Lithography) is a Dutch company founded in 1984. Since its foundation, it has specialized in the development and production of advanced technologies and equipment needed for semiconductor chip manufacturing. It has made significant contributions in the field of photolithography, especially extreme ultraviolet lithography (EUV) technology, and provides key tools for the production of state-of-the-art chip technologies. Over the years, ASML has become one of the world's leading technology suppliers in the semiconductor industry and plays a key role in the development and production of the latest chip technologies.

Financial results and expectations

In 2023, ASML recorded a significant economic success as its fourth quarter sales reached €7.2 billion ($7.76 billion) , with a gross margin of 51.4% and net profit of €2 billion ($2.156 billion). Total sales for 2023 reached €27.6 billion ($29.76 billion), up 30% year-on-year, and net profit reached €7.8 billion ($8.41 billion). At the same time, total sales for 2023 reached 449 units of lithography systems.

Despite an expected slight decline in gross margin in 2024, ASML forecasts a recovery in the second half of the year and a strong 2025, supported by new factory construction and industry growth. The company also expects 2024 earnings to be similar to 2023. In an effort to increase shareholder value, the company is proposing a 2023 dividend of €6.10 ($6.6) per common share, an increase of 5.2% from 2022.

Room for further growth

ASML's shares have seen significant growth since the company's earnings report on 24 January 2024. Despite this growth, Goldman Sachs notes that ASML's performance over the past 12 months still lags its semiconductor capital equipment (semicap) peers. * According to their analysis, this suggests potential for further growth. Goldman Sachs expresses confidence in the company, supported by strong fourth quarter order intake and positive indicators from industry partners and customers regarding end-market demand. These factors are expected to contribute to ASML's growth, particularly in 2025, supported by technological advances and increased spending in general AI.

ASML share price performance over the last 5 years (Source: Google Finance) *

Introduction of the new machine

The chip tooling giant has announced a $350 million increase in production of its new High NA EUV machine, which is key to maintaining its market leadership. The new machine, which was unveiled for the first time on Friday 9 February 2024 at the company's Dutch headquarters, is designed for Intel and other cutting-edge semiconductor manufacturers. ASML expects to deliver "several" machines later this year, which will need to be customised and installed. The company says the new machine will be more economical, but analysts warn that many customers may not yet be ready for the switch because of the higher cost. ASML says the new machine will allow it to shrink the smallest elements on its chips by up to 40%, increasing transistor density nearly threefold. The company has competitors among Japanese firms Nikon and Canon, but as of late 2010 it is the only one in the market with tools for EUV use.

Restrictions in a key market

The company finds itself caught in a wider technology battle between the US and China. In June, the Dutch government, under pressure from the US, imposed restrictions on the export of advanced semiconductor equipment. In October, the US strengthened its own controls on exports of advanced semiconductors and chipmaking tools to China. ASML said in January that the Dutch government had partially revoked its licence to ship NXT:2050i and NXT:2100i lithography systems to China in 2023. These systems are needed to produce less advanced chips. CFO Roger Dassen also said the company does not expect to obtain export licenses for some machines to China. ASML said some of the restrictions would affect 10% to 15% of its sales in China. Dassen also added that a similar impact is expected in 2024. ASML's most advanced tools, known as extreme ultraviolet lithography (EUV) machines, have never received an export license. ASML has not yet shipped any of these machines to China.[1]

Conclusion

ASML continuously invests in innovation and the development of new technologies, which strengthens its competitiveness and enables it to respond to changing market needs. Thanks to its significant influence on the development of the semiconductor industry and the introduction of new technological solutions, the company has considerable potential and can maintain its leading position in the industry in the future. The recently introduced new High NA EUV machine promises further benefits, but limitations in key markets such as China raise some concerns.

Adam Austera, Chief Analyst at Ozios

[*] Past performance is no guarantee of future results

[1] https://www.fool.com/investing/2024/02/10/4-phenomenal-companies-that-will-be-massive-winner/

[2]https://companiesmarketcap.com/asml/marketcap/

[3] https://www.cnbc.com/2024/01/24/asml-earnings-report-q4-and-full-year-2023.html