ASML experienced a significant drop of 16% in Tuesday's closing trade following a surprise announcement of third-quarter earnings that validated analysts' concerns about the impact of a delayed market recovery on the semiconductor equipment manufacturer's order book and future sales projections. The company reported that there has been a postponement in the demand for extreme ultraviolet (EUV) technology, leading ASML to revise its 2025 outlook.
The revised range for gross margin was lowered, and the upper limit of its sales target, established during the 2022 Investor Day, was reduced from 40 billion euros to a range of 30 billion euros, now reflecting a more cautious market environment. The latest net bookings for the quarter ending September 29, 2024, stood at 2.63 billion euros; this figure is less than half when compared to the previous quarter's 5.57 billion euros, indicating a worrying trend. In response to the earnings report, ASML's President and CEO, Christophe Fouquet, stated, "While there continue to be strong developments and upside potential in artificial intelligence, other market segments are taking longer to recover.
It now appears that the recovery is more gradual than previously forecasted, which has led to increased caution among customers." Furthermore, Morgan Stanley issued a note prior to the earnings release, cautioning investors to keep an eye on the order intake for the third quarter, which they expected to hold steady at around 5.2 billion euros.
Morgan Stanley's equity analyst Lee Simpson commented, "We think investors are focused on the order intake for the quarter, signs of continued spending by TSMC, deep ultraviolet spending in China, and any updates on the fiscal year 2025 sales guidance. As expectations shifted since the peak in July, we believe the current setup heading into the Q3 financial report may be relatively benign.
While the overall market narrative has shifted towards balancing risks and rewards for ASML over the next couple of years, there remains potential for a short-term trading rally—especially if the company confirms its FY25 sales guidance midpoint of 30 to 40 billion euros." ASML also outlined its expectations for net sales in the fourth quarter to range between 8.8 billion euros and 9.2 billion euros.
Additionally, they projected research and development costs to be around 1.1 billion euros, along with selling, general, and administrative expenses set at 300 million euros. For the full year 2024, sales are expected to total 28 billion euros. Despite the challenging economic environment, ASML managed to report an annual growth in its third-quarter net income, which rose to 2.08 billion euros from 1.89 billion euros.
This increase was facilitated by a rise in net sales from 6.67 billion euros to 7.47 billion euros. CEO Fouquet remarked that third-quarter sales exceeded guidance, largely driven by increased deep ultraviolet (DUV) technology sales and improvements in Installed Base Management services. Lastly, ASML attributed an early release of their financial results to a technical glitch on their website, but declared an interim dividend of 1.52 euros per ordinary share—an increase from the previous year's payment of 1.45 euros per share. Current Stock Price: $668.10, Change: $-120, Percent Change: -15.64%.