ASML October 2024 Valuation Model and Risk Framework
ASML October 2024 Valuation Model and Risk Framework
This ASML valuation model includes a DCF valuation, company comparable relative value matrix, financial forecasts, segment breakdown, and detailed operating model. Assumptions can easily be adjusted by the user.
This is one of the three most important semiconductor companies in the world and the top lithography player. We discuss and show potential interesting levels to accumulate the company's shares long term. You can adjust the assumptions in the model on your own.
Despite weaker near term performance, the long term runway of the business remains strong.
Business:
ASML Holding is a global innovation leader in the chip industry that provides chipmakers with hardware, software, and services to mass produce patterns on silicon through lithography. ASML's products include EUV (extreme ultraviolet) lithography systems, DUV (deep ultraviolet) lithography systems, refurbished systems, and metrology and inspection systems. ASML staffs some 60 offices in three continents. More than 90% of its revenue comes from chip manufacturers in Asia and its customers include the world's biggest chipmakers. The company was founded in 1984.
3Q24 Performance
The reason for the recent consolidation is ASML expects 2025 rev of €30B-€35B (vs prior range of €30B-€40B), which is below the Street at €36.0B.
We had previewed sentiment moving toward €35B. ASML notes a semi recovery is progressing slower than previously expected, while competitive foundry dynamicshave resulted in a slower ramp of new nodes at certain customers leading to several fab push-outs and timing change of EUV shipments. Additional memory capacity remains limited.
2025 GM% Guide:
The company now expects 2025 GM% to be 51%-53%, below its prior target of 54%-56% (Street: 54.7%). Lower GM% is due totiming of EUV shipments.
Implied EPS:
Based on the company's guide update, we'd be left to estimate implied2025 EPS in the ~€25/sh. range and below Street: €29.86.
3Q24 Bookings:
ASML reported 3Q24 system net bookings of ~€2.6B vs.€5.7B in 2Q24 & €2.6B yr ago—vs. buy-side sentiment €5B. EUV bookings were €1.4M (vs. €2.5B in 2Q24).
3Q24 Results:
(1) Revenue / EPS: €7.47B / €5.28 compares to (Street: €7.12B / €4.85) & prior guide revenue at €6.7B-€7.3B.
(2) GM%: GM%at 50.8%, vs. guide of 50%-51%.
(3) 4Q24 Guide: Revenue at €8.8B-€9.2B compares to our estimate of €8.86B (Street:€8.99B), which includes rev rec of its first two high-NA EUV tools.
(4) GM% at 49-50%compares to Street: 51.4%. Total opex at €1.400B, vs. Street est. of €1.470B / €1.447B.
Operations
ASML has one reportable segment, for the development, production, marketing, sales, upgrading and servicing of advanced semiconductor equipment systems, consisting of lithography, metrology and inspection systems.
System sales account for over 70% of the total sales, while service and field option sales account for the rest.
Geographic Reach
Netherlands-based ASML generates about 90% of its total revenue from Asia, of which Taiwan accounts nearly 40%, followed by South Korea, China, and Japan. The US accounts for about 10%, while EMEA accounts for less than 5%.
Strategy
To realize ASML's long-term strategy vision within the semiconductor industry, the company continues to drive its core strategy, which it defines around five major pillars: strengthen customer trust, holistic lithography and applications, DUV competitiveness, EUV 0.33 NA for manufacturing and EUV 0.55 NA insertion.
HISTORY
ASML Holding's pedigree is as good as its timing was bad. The company was formed in 1984 under the name ASM Lithography Holding as a joint venture between Advanced Semiconductor Materials (ASM; now ASM International) and the Scientific and Industrial Equipment Division of Philips. ASML had already begun selling a wafer stepper (a device that transfers reticle patterns onto silicon wafers) when the joint venture was announced.
Unfortunately, the chip industry was headed into one of its infamous slumps. Startup costs dogged both ASM and Philips. Though the industry downturn abated by 1987, the financial stresses created by the slump led ASM to sell its 50% stake in ASML to Philips in 1988.
Philips offered a minority stake in ASML to the public in 1995. By 1998 ASML was battling Canon for the stepper industry's #2 spot. Also that year the company formed a unit to develop lithography equipment for makers of thin-film heads (used in recording and data storage), MEMS (microelectromechanical systems), and compound semiconductors.
In 1999 ASML joined with Applied Materials and Lucent Technologies (now Alcatel-Lucent) to form SCALPEL, an alliance formed to speed development of electron beam lithography. Also that year the company bought MicroUnity Systems' MaskTools unit (optical proximity correction technology). In 2000 Doug Dunn, a former CEO of the Philips Consumer Electronics Division, became ASML's president and CEO.
ASML later agreed to acquire Silicon Valley Group (SVG) in a deal valued at about $1.6 billion. In 2001, after many delays -- and opposition from some US business groups -- the US government cleared the way for the merger. As part of the deal, ASML and SVG were given six months to sell SVG's Tinsley unit, which made highly specialized optical gear for sensitive aerospace and military applications. Late in the year, ASML sold Tinsley to privately held SSG Precision Optronics (now L-3 SSG-Tinsley).
Also in 2001 Philips sold off nearly three-fourths of its remaining 24% stake in ASML. Later that year ASML cut 1,400 jobs -- about one-sixth of its workforce -- in the face of the worst downturn yet in the worldwide chip industry. That year the company also changed its name from ASM Lithography Holding to ASML Holding.
In 2004 Dunn retired as CEO. He was succeeded by Eric Meurice, a veteran executive of THOMSON, Dell, and Intel. ASML and Nikon reached a legal settlement on global patent litigation that year, including a cross-licensing agreement. The settlement called for ASML to make an initial payment of $60 million to Nikon, followed by payments of $9 million a year for three years.
Intel and Toshiba, two of the biggest chip makers in the world, licensed ASML's Scattering Bar Technology in 2005, technology that helped improve wafer yield results using ASML equipment. In 2007 ASML acquired Brion Technologies, a developer of software for photolithography optimization, for $270 million in cash. Founded in 2002, Brion became a wholly owned subsidiary of ASML.
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