To The Moon

Lithography giant $ASML Holding NV(ASML)$  has just released its Q2 report:

Beated Expectations:

• Revenue: 5.43 billion euros, exceeding the company's guidance cap of 5.3 billion and far exceeding analysts' expectations of 5.26 billion.
• Net income: EUR 1.41 billion, beating market expectations of EUR 1.38 billion.
• Value of lithography bookings: 8.46 billion euros -- a record high

Missed Expectations:

• Q3 revenue guidance: 5.1-5.4 billion euros, unchanged from the previous year level but less than the market expectation of 6.48 billion.
• 2022 Revenue growth rate: lowered to 10% from the previous 20%.
• 2022 gross margin guidance: 49%-50%, less than the previous guidance of 52%.

In terms of key figures, ASML Q2 greatly exceeded expectations, but the guidance of the second half of year fell.

1. Analysis of Key Figures

1) Q2 ASML revenue of 5.43 billion euros, up 35.1% year-on-year, exceeding market expectations.

Data from ASML financial statements, chart made by Tiger Analyst

The main reason for the big increase in revenue was the simultaneous rise in sales and prices.

2) Lithography sales reached a record 91 units in Q2, up 26.4% year-on-year; the unit price for lithography reached 45.5 million euros, up 11% year-on-year.

Data from ASML financial statements, chart made by Tiger Analyst

The main reason for the increase in unit price is that EUV shipments reached 12, up from 9 units in the same period last year. (EUV unit price is higher than DUV lithography).

3) Gross margin: 49.1%, at the lower end of the 49%-50% guidance given by the company, less than the 49.5% expected by the market, mainly due to the impact of inflation.

 Net income: 1.41 billion euros achieved in the second quarter, up 35.9% year-on-year, with a net margin of 26%.

2. Why Does ASML Lower its Revenue & Gross Margin Guidance?

Affected by supply chain issues and high demand for lithography, $ASML Holding NV(ASML)$ has chosen to move testing to chip fabs to increase the speed of supply.

This move will cause a delay in revenue recognition, which was originally €1 billion for 2023. But this move made delayed revenue recognition increase to 2.8 billion euros.

If the revenue of 1.8 billion is counted in 2022, ASML's revenue growth rate is still 20%, which is in line with the expectation.

3. Management Doesn't Worry About Recession

Regarding the recession that the market has been worried about, the management's view is similar to $Taiwan Semiconductor Manufacturing(TSM)$ :

there is a decline in demand for cell phones and PCs, but an explosion in demand for HPC (high performance computing) and automotive chips, among others.

Meanwhile, if the economy is only moderately recession in 2023, ASML does not expect the impact on itself to be significant.

In the second quarter, ASML's lithography bookings were worth a record €8.46 billion, and the overall backlog of orders now stands at €33 billion.

Management is very optimistic about longer-term revenue forecasts, mainly due to the surge in demand for chips from automotive chips, HPC, and IOT. As the only EUV manufacturer, ASML will naturally enjoy the dividends of the times.

Management expects the company's compound annual revenue growth rate to be around 11% from 2020-2030. By 2025, ASML's gross margin can be increased to around 55%.

As of now, ASML's P/E (ttm) is 34.5 times, which is at a historically high level.

What's your opinion towards ASML's earnings?

Will you buy and hold ASML?

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