ASML just gave us a first glimpse into how U.S. chip export curbs will dent its China sales
ASML on Tuesday offered the first glimpse into how U.S. restrictions on exports of its advanced chip manufacturing tools to China will impact its sales in the Asian country.
ASML finally offered a first glimpse into how U.S. restrictions on exports of its advanced chip manufacturing tools to China will impact its sales in the Asian country.
ASML's Earnings Report Reveals the Devastating Impact of Geopolitical Tensions on Chip Equipment Sales
ASML, a Netherlands-based chip equipment maker, has released its latest earnings report, which reveals the significant impact of geopolitical tensions on its sales. The company's net sales for 2025 are expected to range between 30 billion euros and 35 billion euros, which is at the lower half of the range ASML had previously guided. The company's third-quarter net sales reached 7.5 billion euros, beating expectations, but net bookings came in at 2.6 billion euros, well below the 5.6 billion EURO consensus estimate.
ASML's shares plummeted as much as 16% on Tuesday, resulting in a loss of over $50 billion in market capitalization in a single day.
The disappointing bookings were attributed to weakness in a select number of customers, including Intel and Samsung. Additionally, ASML's chief financial officer, Roger Dassen, indicated that the company expects China sales to drop significantly next year due to U.S. export restrictions. This decline is expected to be severe, with China's contribution to ASML's revenue expected to drop from 29% in 2024 to around 20% in 2025.
The Impact of U.S. Export Restrictions on ASML's Sales
ASML's China-based customers have been stockpiling the company's less advanced machines, such as deep ultra violet lithography (DUV) machines, to get ahead of U.S. export restrictions on the Dutch firm and to continue accessing its critical technology. ASML has never sold its most advanced extreme ultraviolet lithography (EUV) machines to Chinese customers due to previous restrictions. Instead, Chinese chip firms have opted to order ASML's DUV machines, which are critical to making the circuitry of chips.
Last year, ASML sourced 29% of its sales from China, but it nOW expects that contribution to drop to around 20% of its total revenue in 2025. This decline is expected to be driven by a sharp decline in China revenues, according to analysts at Bank of America, who noted that ASML's forecast implies a 48% revenue decline year-over-year, more severe than the 3% they had anticipated.
The Rise and Fall of ASML's China Sales
ASML's sales to China grew dramatically in the first three quarters of 2024 as customers scrambled to buy ASML's DUV machines in bulk ahead of U.S. and Dutch export restrictions. In the company's second-quarter 2024 earnings presentation, ASML said that it sourced as much as 49% of its sales from China. However, in September, the Netherlands expanded export restrictions on advanced chip manufacturing equipment by bringing licensing requirements of ASML's machines under its purview, taking over from the U.S. on controlling what machines ASML is able to export to other countries.
The Impact on ASML's Business
The restrictions on exports of DUV machines to China "have probably helped ASML on net, because China has accelerated purchases of older generation DUV tools as a result," said 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." However, ASML is now expecting a drop-off in sales to China as a result of U.S. trade restrictions.
Analyst Insights
Abishur Prakash, founder of Toronto-based advisory firm The Geopolitical business, said that demand from China for ASML's machines is likely to drop significantly as the Firm is "severely restricted by export controls." He added that ASML could see demand for its equipment drop — from China and elsewhere — as the chip world is cut from China.
Conclusion
ASML's earnings report reveals the devastating impact of geopolitical tensions on its sales, with the company expecting a significant drop-off in sales to China due to U.S. export restrictions. The firm's reliance on China for a significant portion of its revenue makes it vulnerable to changes in the global chip market. As the chip world is cut from China, ASML could see demand for its equipment drop — from China and elsewhere.
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