ASML Holding- A Not So Temporary Monopoly
ASML Q1 FY12/24 Earnings
Summary
ASML reported revenue and FCF decline in line with expectations.
High visibility well into 2025 makes these earnings calls a bit repetitive.
The stock can be traded technically like any other; it is reasonably liquid and well known with a substantial institutional following.
The stock has declined in lockstep with the rest of the market.
Maintain Hold rating.
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Background - A Not So Temporary Monopoly
by Alex King
If you're unfamiliar with ASML, and there is no reason why you wouldn't be if you have any kind of normal life, allow me to give you a little background. The company is, through a series of smart moves detailed here, the monopoly provider of enormous machines that are purchased by the likes of TSMC and which do something called extreme ultraviolet (EUV) lithography. In essence, this is a required step in the manufacturing of small-feature-size semiconductors, the kind that show up in more and more devices doing more and more complex things. TSMC's lead in manufacturing was sealed when Intel tripped over its own shoelaces in the move to 10nm feature size in 2017/18 and then fully faceplanted on 7nm in 2020 (read this for the detail). The logic for ASML's long-term health goes like this:
If electronics, then small feature size.
If small feature size, then EUV. (Whether used by TSMC, Intel or ANO).
If EUV, then ASML.
Fundamentals can get hit by export controls and by the cyclical nature of semiconductor capital equipment (yes it is cyclical - remember that!).
The stock can be traded technically like any other; it is reasonably liquid and well known with a substantial institutional following.
Now, over to the esteemed "Jams O'Donnell" for an earnings review of this monster!
Earnings Review
by "Jams O'Donnell"
ASML Q1 2024 Earnings
ASML reported revenue and FCF decline in line with expectations. The stock price has fallen since, but there's nothing much to report on ASML Q1 earnings: revenue came in at $5.3bn as guided, an anticipated 27% drop relative to the previous quarter. Gross margin at 51% was slightly higher than guided. Overall ASML's business is following the script that management has illustrated in the past at least two quarters: revenue-wise, 2024 will start slow, end strong, navigating the bottom of the semi cycle.
How do they know 2024 will end strong? Because they're fully booked for the year already, and their customers' technology roadmaps for 2025 imply that big orders are on their way. As the new CEO puts it, if you need an EUV tool, there's only one number you can dial. All the while, demand for mature chips can only increase in service of secular trends like electrification of mobility and AI-fication of the economy (and ramping up in defense spending, which wasn't mentioned as a secular trend but we know has to happen).
Numbers, valuation and chart follows below.
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