ASML Beats Expectations, Jumps 4%, But Caution Prevails for Chip Industry Recovery

In an earnings report released on January 29, 2025, Dutch semiconductor equipment maker ASML Holding N.V. ( $ASML Holding NV(ASML)$ ) reported better-than-expected fourth-quarter results, leading to an 8% surge in its stock price in pre-market trading. The company announced net sales of €9.26 billion, surpassing the consensus analyst estimate of €9.07 billion, and a net profit of €2.69 billion, which was above the anticipated €2.64 billion. However, this performance must be viewed in the context of previously lowered expectations and the broader industry landscape.

Highlights of Today's Earnings Report:

• Net Sales: ASML's Q4 net sales reached €9.26 billion, a 24% increase quarter-over-quarter and 28% from the year before, indicating robust demand for its products.

• Net Profit: The company reported a net profit of €2.69 billion, again beating forecasts.

• Bookings: Net bookings, a critical indicator of future demand, stood at €7.09 billion, significantly higher than the €3.99 billion expected by analysts, with €3.0 billion coming from EUV orders alone.

Earnings Beat in Context:

The surprise in today's report largely stems from the context set by the guidance given in October 2024. At that time, ASML had already revised its 2025 forecasts downwards due to slower recovery in certain market segments, setting the stage for a more conservative outlook. Let's break this down to assess the situation accurately:

1. Against Expectations: ASML's earnings report on January 29, 2025, did beat the consensus estimates. The company reported better-than-expected net sales and profit for the fourth quarter, with net sales at €9.3 billion and net income at €2.7 billion, both above what analysts had forecasted. This indicates a "beat" relative to the lowered expectations following the October guidance revision.

2. Year-over-Year Comparison: (1.)

    

   Revenue: The full-year 2024 net sales of €28.3 billion were higher than the €27.6 billion reported in 2023, showing year-over-year growth. (2.)

    

   Net Income: However, the full-year 2024 net income of €7.6 billion was down 3.4% from the previous year. This suggests that while there was revenue growth, net income did not beat the previous year's figures.

3. Lower Expectations: The October 2024 guidance had already set a lower bar for 2025 forecasts due to a slower-than-expected market recovery outside of AI. The January 2025 earnings, therefore, beat these lowered expectations, particularly with strong Q4 results and a significant increase in bookings.

4. In Conclution: 

   ASML can indeed be said to have "beat expectations" for the January 29, 2025, earnings release due to the figures exceeding what was anticipated by analysts after the October guidance.

    

   However, when compared to the previous year's performance:

    

   Revenue did increase year-over-year.

    

   Net income decreased, so it did not beat the previous year's net income.

Therefore, while ASML beat the lowered expectations set in October, it did not surpass its own 2023 net income performance. The narrative of ASML "beating" expectations primarily applies to how the latest results compared to what analysts and the market were expecting post-guidance revision, not necessarily in comparison to the previous year's absolute figures.

Stock Performance:

At the time of writing, ASML shares surged by 4%, reflecting investor confidence in the company's immediate performance. This movement was part of a broader market reaction to tech earnings, with investors closely watching if these results could signal a lift in the market.

Analysis of 2025 Guidance:

Today's guidance for 2025 remains consistent with the October announcement:

• Sales and Margin: ASML reiterated its expectation for 2025 net sales between €30 billion and €35 billion, with gross margins projected at 51% to 53%.

• Market Dynamics: The company noted that while AI continues to drive demand, other areas are recovering at a slower pace, which is reflected in a cautious outlook.

• Potential for Growth: The strong bookings, particularly in EUV machines, suggest that ASML sees potential for growth in specific high-tech segments like AI and advanced computing. However, this guidance also acknowledges ongoing challenges, including geopolitical tensions affecting sales to China.

Conclusion on Industry Recovery:

While ASML's performance is commendable and signals strength in certain niches of the semiconductor market, it should not be taken as an indicator of a broad recovery or growth across the entire chip industry:

• Narrow Focus: ASML's success is primarily linked to its role in high-end chip manufacturing, which doesn't necessarily reflect the health of the broader market, including memory, consumer electronics, or automotive chips.

• Cyclical Nature: The semiconductor industry is known for its boom-and-bust cycles, and while ASML might be at a peak for certain products, other areas might still be in a trough.

• Broader Indicators Needed: A true recovery would require positive signals from multiple industry players, reduced inventory levels, and consistent demand across various chip types.

Thus, while ASML's earnings report is a positive note for investors in the company, it serves more as a testament to ASML's strategic positioning in a niche market rather than a definitive sign of industry-wide recovery. The tech earnings this week, including ASML's, might lift market sentiment temporarily, but a comprehensive view of the chip industry's health will require more than just one company's performance.

@TigerWire