Guangda Securities: Expects the semiconductor industry to be in a slow recovery phase in 2024, optimistic about the sustained strong demand for AI

According to the information from GTJA, Guotai Junan Securities released a research report stating that on April 17 and 18, ASML and TSMC respectively announced their 24Q1 performance as of March 31. There was a divergence in the performance of semiconductor companies, with ASML's performance closely related to the semiconductor cycle and performing poorly, while TSMC benefited from the structural drive of AI demand and showed good performance. The firm indicated that the overall semiconductor industry is recovering slowly, with structural differentiation brought by strong AI demand, and it is expected that the semiconductor industry in 2024 will be in a phase of slow recovery from a downturn. Optimistic about the sustained strong demand for AI, it is recommended to focus on the AI computing power industry chain.

Guotai Junan Securities' views are as follows:

ASML's 24Q1 revenue declined year-on-year, with overseas customer lithography machine demand slowing down.

ASML's 24Q1 revenue was 5.29 billion euros, down 22% YoY and 27% QoQ, which was at the midpoint of the company's previous guidance range of 5 to 5.5 billion euros, lower than the market's expected 5.47 billion euros. Among them, system business revenue was 4 billion euros, down 26% YoY; installation and management business revenue was 1.3 billion euros, down 6% YoY. The decline in system business revenue was mainly due to the slowdown in lithography machine shipments by non-Chinese customers, with 66 new lithography machines shipped in 24Q1, down 42% QoQ. Sales in China in 24Q1 were 1.9 billion euros, down 14% QoQ, with a sequential decline due to export controls by the Dutch government, but the revenue share from China increased by 10 percentage points to 49% QoQ, due to the slowdown in lithography machine shipments in other regions. Profit in 24Q1 exceeded expectations. Gross profit in 24Q1 was 2.7 billion euros, down 21% YoY and 27% QoQ; gross margin was 51%, down 0.4 percentage points QoQ, higher than the market's expected 48.8%, due to improvements in the lithography machine product mix. Net profit was 1.22 billion euros, down 37% YoY and 40% QoQ, exceeding market expectations by over 14%, corresponding to an EPS of 3.11 euros.

ASML has a conservative outlook on semiconductor demand in 2024 and is optimistic about strong growth starting in 2025.

New orders in 24Q1 were 3.6 billion euros, down 61% QoQ, lower than the market's expected 5 billion euros. For 24Q2, the company's revenue guidance range is 5.7 to 6.2 billion euros, with the midpoint lower than the market's expected 6.46 billion euros by over 8%; the gross margin guidance for Q2 is between 50% and 51%. ASML positions 2024 as a "transition year," expecting the semiconductor industry to gradually recover from the downturn, with estimated revenue in 24 matching that of 23, and better performance in 24H2 than in 24H1; strong growth in semiconductor demand is expected in 2025, which will then drive the company's performance.

TSMC's 24Q1 performance exceeded expectations, benefiting from strong demand for AI computing power.

TSMC's 24Q1 revenue was 592.6 billion Taiwanese dollars (about 18.3 billion US dollars), up 17% YoY and down 5% QoQ, exceeding market expectations by over 1.6%; the year-on-year revenue growth was due to the low base in 23 combined with strong AI demand, while the sequential decline was due to seasonal effects on smartphones During 24Q1, the revenue contribution of 3nm/5nm/7nm processes was 9%/37%/19% respectively, with advanced processes accounting for a total of 65%. Profit in 24Q1 exceeded expectations, achieving a gross margin of 53.1%, up 0.1 percentage points QoQ, surpassing the market expectation of 53%, attributed to seasonal adjustments in the smartphone product portfolio; net profit reached 225.5 billion Taiwanese dollars, up 9% YoY, down 6% QoQ, exceeding market expectations by over 5%, corresponding to an EPS of 8.7 Taiwanese dollars. Revenue guidance for 24Q2 exceeded expectations. The revenue guidance range for 24Q2 is $19.6-20.4 billion, with the mid-point corresponding to a YoY increase of 28% and a QoQ increase of 6%, higher than the market expectation of $19.1 billion; gross margin guidance is 51%-53%, basically in line with market expectations, with the sequential decline in gross margin attributed to increased depreciation of 3nm, earthquakes in Taiwan, and rising electricity costs.

TSMC lowers the overall semiconductor industry growth rate for 24 to 10%, with AI becoming a key performance driver.

TSMC is concerned about the uncertainties in the macroeconomy and geopolitics that are dampening consumer confidence and end-market demand. It is expected that the semiconductor industry's recovery pace in 24 will be more moderate and gradual. Therefore, TSMC has lowered the year-on-year growth rates for the semiconductor industry (excluding memory) and foundry industry to 10% and 15% respectively. Breaking down the semiconductor industry into various segments, TSMC expects gradual recovery in the smartphone market, slow recovery in PCs, lukewarm demand for traditional CPU servers, continuous adjustment of automotive inventory, and strong demand for AI-related data centers. With strong demand for AI, TSMC's total revenue for 24 is expected to grow by 20% YoY. Despite the slower-than-expected progress in the semiconductor recovery, TSMC is expected to benefit from its advanced processes and advanced packaging to reap the AI computing power dividend. TSMC expects AI processor-related revenue in 24 to double compared to 23, with revenue contribution expected to increase to 13%; the company expects AI-related business revenue to grow rapidly at a compound annual growth rate of 50% over the next 5 years, with revenue contribution expected to increase to 20%+ by 28.

Investment recommendation: The overall semiconductor industry is recovering slowly, with strong AI demand leading to structural differentiation. The industry expects the semiconductor industry in 24 to be in a slow recovery phase from a downturn. There is a performance differentiation among semiconductor companies, with ASML closely related to the semiconductor cycle but performing poorly, while TSMC benefits from the structural pull of AI demand and shows good performance. The industry is optimistic about the continued strong demand for AI and recommends focusing on the AI computing industry chain.

Risk warning: Consumer electronics market demand recovery falls short of expectations; AI commercialization progress falls short of expectations; CoWoS capacity expansion progress falls short of expectations; domestic and foreign policy risks; escalation of U.S. semiconductor sanctions