Nandini Roy Choudhury, writer
Brief news
- ASML anticipates a significant decline in sales to China, projecting that the country will contribute around 20% of its total revenue by 2025, down from 29% last year, due to U.S. export restrictions.
- The company’s third-quarter net sales exceeded expectations at 7.5 billion euros, but net bookings fell short, leading to a 16% drop in shares and a $50 billion market value loss.
- Analysts attribute the sales decline to geopolitical pressures and delays in new fabrication facilities by major clients like Intel and Samsung.
Detailed news
On Tuesday, ASML provided its initial indication of the potential impact of U.S. export restrictions on its advanced semiconductor manufacturing tools to China on its sales in the Asian nation.
In its earnings report, which was released on Tuesday, the Netherlands-based semiconductor equipment manufacturer stated that it anticipates net sales for 2025 to fall within the range of 30 billion euros to 35 billion euros ($32.7 billion to $38.1 billion). The report was released a day early as a result of a “technical error.” This is within the bottom segment of the range originally indicated by ASML.
ASML is an essential component of the worldwide semiconductor supply chain. The company’s intense UV lithography equipment are utilized by several leading chip manufacturers, including Nvidia and Taiwan Semiconductor Manufacturing, to fabricate innovative semiconductors.
In the third quarter, the company’s net sales amounted to 7.5 billion euros, exceeding projections, while net bookings totaled 2.6 billion euros ($2.83 billion), according to the corporation. That figure was far lower than the 5.6 billion euro average forecast from LSEG.
ASML shares declined by as much as 16% on Tuesday, resulting in a loss of approximately $50 billion in market value in one day, according to CNBC calculations based on LSEG data.
In addition to the disappointment about bookings—attributed by experts to weaknesses among certain clients, such as Intel and Samsung—AMSL also indicated that geopolitical concerns are exerting pressure on its 2025 forecast.
Roger Dassen, ASML’s chief financial officer, stated on Tuesday that he anticipates the company’s operations in China to exhibit a “more normalized percentage in our order book and also in our business.”
UBS analysts indicated that the revision of ASML’s 2025 projection was mostly attributable to delays in the establishment of new logic fabrication facilities by Intel and Samsung, noting that the updated guidance suggests a 25% to 30% decline in sales to China in 2025.
What is the significance of China to ASML?
Customers in China have been accumulating ASML’s less sophisticated machinery to circumvent U.S. export restrictions on the Dutch company and to maintain access to its essential technology, which facilitates chip production for the electronics sector.
ASML has not supplied its most advanced extreme ultraviolet lithography (EUV) machines to Chinese clients because to prior prohibitions.
Conversely, semiconductor companies in the nation have chosen to acquire ASML’s deep ultraviolet lithography (DUV) equipment. DUV machines are ASML’s secondary lithography equipment essential for fabricating chip circuits.
In the previous year, ASML derived 29% of its revenue from China. It anticipates that China’s contribution would decrease to around 20% of its overall income by 2025.
Sales to China surged significantly in the first three quarters of 2024 as clients rushed to purchase ASML’s DUV equipment in large quantities ahead of U.S. and Dutch export limitations.
In its second-quarter 2024 results presentation, ASML reported that up to 49% of their sales originated from China.
In September, the Netherlands intensified export restrictions on sophisticated chip manufacturing equipment by including license requirements for ASML’s machines, therefore assuming authority from the U.S. over the exportation of ASML’s machinery to other nations.
The action enabled the Dutch government to essentially prevent ASML from servicing the DUV equipment it had previously supplied to China.
“China is a crucial market for China,” stated Chris Miller, assistant professor of international history at the Fletcher School of Law and Diplomacy at Tufts University and author of the book “Chip War,” in remarks sent to CNBC via email. “The majority of this revenue derives from legacy chipmaking equipment.”
Miller said that, ironically, the limits on DUV machine shipments to China have likely benefitted ASML overall, since China has intensified its acquisition of older generation DUV equipment in response.
ASML anticipates a decline in sales to China due to U.S. trade restrictions. The company anticipates that China will account for a diminished proportion of its total worldwide revenues in 2025, stated CFO Dassen in a transcript of a video interview on Tuesday.
Dassen stated, “We observe China moving towards historically typical percentages in our business.” “We anticipate that China will constitute approximately 20% of our total revenue for the upcoming year.” This would also align with its depiction in our backlog.
Bank of America analysts said that the company is seeing a significant reduction in sales from China. They noted that ASML’s projection of China representing around 20% of its business in 2025 indicates a 48% year-over-year revenue decrease, which is more drastic than the 3% they had previously expected.
Abishur Prakash, founder of the Toronto-based advice business The Geopolitical Business, stated that demand from China for ASML’s machinery is expected to decline markedly because to the company’s “severe restrictions imposed by export controls.”
“Similar to Intel, which considers China its largest market, ASML is significantly dependent on China,” Prakash said CNBC over email. “ASML is monitoring developments in China due to potential business restrictions.”
Prakash stated, “As the semiconductor industry is severed from China, ASML may experience a decline in demand for its equipment, both from China and other regions.”
Source: CNBC News
