Despite the great ASML Q1 2023 earnings, sales of chips to China slowed down within that time period as geopolitical tension between China and the United States took a new twist.
Netherlands-based chipmaker ASML Holding NV (NASDAQ: ASML) has projected its sales and earnings to the Chinese mainland will skyrocket for the rest of 2023 after it recorded a significant slowdown in its business in the region in the first quarter (Q1 2023). The projections came after the company reported a better-than-expected first-quarter result in which its net profit came in at 1.96 billion euros ($2.15 billion).
ASML in Q1 2023
As a sign that the company’s business thrived in the first quarter of the year, the Veldhoven-based chipmaker’s net profit topped the current figure from the more than 695 million euros it raked in this period last year, a 3x growth. The ASML revenue for the quarter topped 6.74 billion euros, up by 91% from the year-ago period.
Judging the performances of companies is often better when profiled alongside expectations from analysts. In the case of ASML, Refinitiv analysts were expecting revenue of 6.31 billion euros and a net profit of 1.62 billion euros. The company surpassed expectations on both fronts at a time when most chipmakers are unsure of their survival owing to slowing demand.
“We continue to see mixed signals on demand from the different end-market segments as the industry works to bring inventory to more healthy levels. Some major customers are making further adjustments to demand timing while we also see other customers absorbing this demand change, particularly in DUV at more mature nodes,” said ASML President and Chief Executive Officer Peter Wennink.
Despite the mixed demand signals, Wennink said the company currently has more orders than it can currently meet demands for at this time. In his statement, he reiterated the commitment to prioritize the focus on maximizing system output.
ASML Outlook: Future Earnings and the Place of China
Despite the great ASML Q1 2023 earnings, sales of chips to China slowed down within that time period as geopolitical tension between China and the United States took a new twist. The US is keen on crushing the military capabilities of China but stiffening the supply of high-end chips to the country.
As ASML is one of the core suppliers to China, its orders have been somewhat impacted but the company said it is going to leverage the demand from domestic China which accounts for 20% of its sales. By capitalizing on this market segment, ASML expects to print a significant momentum for the rest of the year.
With its current investment in Research and Development (R&D), ASML’s Wennink pointed our how bullish the company is with respect to its proposed performance moving forward.
“We expect second-quarter net sales between €6.5 billion and €7.0 billion with a gross margin between 50% and 51%. ASML expects R&D costs of around €990 million and SG&A costs of around €275 million For 2023, ASML expects continued strong growth with a net sales increase of over 25% and a slight improvement in gross margin, relative to 2022,” he said.