ASML & TSM | Q3-24 Earning
The start of a slower demand?
If you do not know these businesses, they own a quasi-monopoly on semiconductor manufacturing. ASML is selling the most advanced lithography systems, hardware meant to manufacture semiconductors which is Taiwan Semiconductor’s activity. These semis are used by almost 100% of our tech hardware and the most advanced come from TSM which relies on ASML.
Two wonderful companies as you can imagine.
ASML.
Besides the big mess with the results being accidentally released 24h before their due date, they still didn't convince the market at all and the stock is down more than 20% in two days.
The quarter itself was pretty good though.
We had a bit of a bump during the last quarters but we're back on YoY growth in all important metrics with stable margins. An improving business and domination with a stable company. Even guidance was pretty strong.
“ASML expects Q4 2024 total net sales between €8.8 billion and €9.2 billion, and a gross margin between 49% and 50%.”
Investors are worried about the company's future starting with next year as the net bookings slowed down, divided by two since the last quarter from 5.56B€ to 2.63B€. This data represents "all system sales orders and inflation-related adjustments, for which written authorizations have been accepted," without timeframe to my knowledge. Some more comments from the CEO are pretty bearish for the medium-term demand of their products.
“It now appears the recovery is more gradual than previously expected. This is expected to continue in 2025, which is leading to customer cautiousness.”
“We expect a gross margin between 51% and 53%, which is below the range we then provided, mainly related to the delayed timing of EUV demand.”
We are still talking about a monopoly but ASML was the first of the sector to report earnings and I assume many are scared of the sword of Damocles above the GPUs industry - will demand stay as strong as it was?
It's hard to keep such a premium and the latest talks about regulating these tech companies' geographic sales aren't helping ASML but we'll talk about this on Sunday in the weekly review.
Taiwan Semiconductors.
The story is very different for TSM which continues its path on the road to excellence with a new ATH after releasing this quarter.
There won't be much to say as everything is excellent for the semiconductor king. Growth is strong - although the comparison is helped by a tough 2023, margins are expanded and the balance shit is as strong as ever.
Most of these results are due to a strong demand for 3nm semis which TSM are the only ones to sell and are of course sold at a premium.
Those are used for the most advanced tech systems we have and it shows with HPC representing 51% of the company’s revenues and grew 11% QoQ.
Once again: techy demand is very strong, a very good new for the market at large - and a potential indication that ASML’s weak net bookings is only temporary or a timing issue but we can never be certain.
I remember writing about TSM at $85 last year, saying it could be a great deal. I of course didn't buy in.
Conclusion.
Wonderful quarter from TSM and a great quarter from ASML while net bookings worried the market. Investors gotta pick a narrative.
ASML's net bookings slowdown is either a timing issue and TSM's results are the indicator of continuous & strong demand fueled by the 3nm semiconductors. TSM will need the best hardware to manufacture + R&D and it only comes from ASML.
ASML's net bookings are the start of the slowdown for the entire semi industry and in time, the global computing power slowdown.
Only time will tell us which is true and many will take their chance on ASML which is now trading at its 10Y historical multiples. I personally do not put money on any of those, I'm very happy as an external observer, but if I had to pick a narrative I would chose the first one, at least medium term - up to 2026 ish.