4.17.24
Memory revenue in the quarter was an all-time record for the company, just above what was seen two quarters ago. That quarter, Q4 of 2023, was inflated by shipments to China, ahead of new export restrictions coming into effect at the end of the year. These results are concerning for memory investors. It could be the higher cost intensity of lithography is most of the reason for the higher memory spending. This thesis is supported by the fact that in the latter half of 2022 and most of 2023, ASML shipments to memory were comparable to the prior upturn levels. The concern is that this higher revenue is supporting bit growth that will soon tip the memory industry into oversupply. I think it is more the former than the latter, but I would much rather seen lower ASML sales to memory customers. Bookings are a better story. Following the China-driven surge in Q4, memory bookings were lower in Q2-24 than in Q1-24. Those bookings, €1.5B, are similar to the memory revenue seen in most of the quarters of the last downturn. These two data points are in conflict for this part of the cycle. Higher sales today yet lower bookings for the future. I expect to see higher bookings coming on with rising revenue. There is not a clear signal of pending overinvestment, nor of continued restrained spending by memory customers. The executives commented that there is a lot of investment in AI right now without matching revenue from these applications. Thus, they are cautiously optimistic about 2025 for memory. They also said the fourth quarter of 2024 will be over €9B in revenue, a rise of more than 25% in two quarters. They also said that memory recovery is a large factor in their believe that 2025 will be a record year. Combining these two comments leaves me with a high degree of confidence that the memory downturn will hit in 2025, most likely before the second half of the year. The big question now for memory investors is whether or not the investments in place now and coming in the next two quarters will cause ASPs to level off. I continue to believe the memory company executives need to see much higher margins and profits than are evident today before adding meaningful capacity, but those executives have little better visibility beyond a quarter out than the rest of us. These results from ASML leave me with the same level of uncertainty about the rest of calendar 2024 that I had before they were released.
-Smooth Hughes (cyclical long MU)