The value of shares of ASML Holding NV showed a decrease, which turned out to be the largest in the last 26 years, after it became known this Dutch company specializing in the production of equipment necessary for making chips, including advanced categories, booked only half of the orders from the indicator predicted by analysts.
It is worth noting that currently the mentioned firm, which is one of the leaders in the global semiconductor industry, is experiencing what can be described as a slowdown, which has a frightening scale from the point of view of the prospects for the further dynamic of the business of the brand.
ASML, which manufactures the world’s most advanced machines for making microcircuits, has also lowered guidance for 2025. Moreover, the company reported bookings totaling 2.6 billion euros ($2.8 billion) in the third quarter of the current year. It is worth noting that analysts interviewed by the media predicted that the corresponding figure would be fixed at more than 5.3 billion euros.
Against the background of the mentioned results, which cannot be described as positive and which significant in a negative sense did not coincide with preliminary expectations, the value of the company’s shares on the Amsterdam stock exchange showed a drop of 16%. It is worth noting that this movement of ASML’s performance indicators along a downward trajectory turned out to be the most intense since June 12, 1998. Also, against the background of unfavorable results from the manufacturer of advanced equipment for making microcircuits, a drop in the value of shares of other companies that are players in the chip industry was recorded. For example, Nvidia Corp. securities fell by 4.5%. The benchmark Philadelphia Semiconductor Index decreased by 5.3%.
The tendency of falling equities value has largely affected other manufacturers of chip-producing equipment. For example, securities of United States-based Applied Materials Inc. and Lam Research Corp. demonstrated such a decline in cost, which turned out to be the largest in the last four years. The value of shares of US KLA Corp. within one day, fell in price in the framework of the pace of intensity, which is the fastest in almost decades. It is worth noting that in this case, a comparison with previous declines is implied in the context of a one-day drop in value.
Shares of Dutch-listed semiconductor company STMicroelectronics lost 1.2% in price. Securities of Infineon, a German-based chip manufacturer, fell 1.1%. The value of shares of French semiconductor materials maker Soitec declined by 0.9%.
The tendency to decrease has also spread to Asian markets. The value of shares of Tokyo Electron, specializing in the production of semiconductors, showed a drop of almost 10%. Securities of Renesas Electronics, another Japanese semiconductor manufacturer, fell by more than 3%. The value of shares of Advantest, a testing equipment supplier based in the same country, decreased by 0.8%.
Securities of Taiwan Semiconductor Manufacturing Company fell by 3.3%. A similar figure for Foxconn, a Taiwan-based contract electronics manufacturer, fell 1.6%.
The value of shares of South Korean microcircuits maker SK Hynix, which also produces high-bandwidth memory chips for artificial intelligence apps for Nvidia, decreased by 1.6%. Securities of Samsung Electronics, based in the same country and which is the world’s largest manufacturer of dynamic random-access memory microcircuits, fell by 1.9%.
It is worth noting separately that the downward dynamic in the semiconductor area has become a factor impacting the vector of major Asian indexes. Japan’s Nikkei 225 lost more than 2%. South Korea’s Kospi fell 0.6%. The Taiwan Weighted Index fell 0.7%.
So far, there is no reason to claim that the currently observed downturn in the semiconductor area is likely to become what can be described as a long-term process. At the same time, there is no guarantee that the corresponding scenario will not be implemented. If the current circumstances and conditions intensify, the downward tendency will become the main vector of the dynamic of the semiconductor area.
ASML chief executive officer Christophe Fouquet said that at present it seems that the recovery process is taking place more gradually than initial expectations envisaged. He also drew attention to forecasts that the corresponding tendency will continue next year, at the background of which the company’s customers will act within the framework of an approach that implies caution as the main guideline for decision-making.
The ASML results, which did not contain reason for optimism, were compounded by the fact that the firm published the relevant information a day ahead of schedule. The company released this data on Tuesday, October 15. ASML stated that the information was published ahead of schedule due to a technical error.
It is worth noting that the current period in the history of the chip development and manufacturing industry is complex and does not contain such circumstances that can form an unambiguously positive situation. In sectors such as artificial intelligence, there is a problem of keeping up consumer demand. Nvidia, which develops the most popular graphics processing units for training and ensuring the process of subsequent operation of machine intelligence systems, and other similar companies are still unable to cope with the mentioned task. Currently, the so-called artificial intelligence boom is being observed in the world as a technological dimension of the space of human civilization development. The corresponding process began after a machine intelligence-based chatbot called ChatGPT, developed by OpenAI, was presented in 2022. This digital product has demonstrated impressive cognitive abilities that allow it to process information and generate original content. At the same time, artificial intelligence has even greater development potential. If the relevant perspectives are realized at the maximum level, AI can become a new autonomous and independent form of consciousness existing in the digital dimension of being matter. It is also possible that in the course of its technological evolution, artificial intelligence will surpass the capabilities of the human mind in terms of cognitive abilities. Such a probability is assessed as realistic, for example, by Elon Musk and Masayoshi Son. The implementation of the most ambitious futurological scenarios regarding the prospects for the development of artificial intelligence will mean that AI will actually become the highest form of consciousness, which will be able to better understand the world as a space of life in the global, cosmological sense of the corresponding definition, not limited by the boarders of the space of the being of humanity. At the same time, for these impressive probabilities to become a kind of virtual fact of objective reality, a material basis is needed, the fundamental component of which is chips. Significant global interest in artificial intelligence and massive amounts of investment in AI are natural, taking into account the potential of advanced technology, which in fact literally can change the world as a space of economic processes, the social environment, the territory of the materialization of complexes of political ideas and the cultural plane. At the same time, there is still no answer to the question of exactly where the horizon of machine intelligence capabilities lies and when this limit of evolution will be reached.
It is also worth noting that microcircuits are currently actively used in many industries, including the automotive industry. Besides, chips are an element of the equipment of smartphones, personal computers, laptops, and tablets. Against this background, in a certain sense, it is logical that the current state of affairs in the political and socio-economic dimensions of reality, within which microcircuits become an area of competition between countries. Access to chips and the ability to independently manufacture the appropriate products are already beginning to determine the prospects of the states. Likely, the importance of microcircuits as an impact factor on economic prospects will increase as technological progress continues and digitalization is on a growth trajectory. It is also worth noting that the potential of countries in the context of their capabilities related to the production of chips is important from the point of view of the positions of world capitals in the international area.
Returning to the issue of consumer demand for chips, it is worth paying attention to that currently the corresponding indicator is uneven. In the artificial intelligence sector, demand is excessively high, which is why meeting it is becoming an increasingly difficult task. At the same time, the industrial sector is reducing the number of orders for these products due to very big inventories. Intel Corp. is cutting its expenses as part of its restructuring plan. Besides, in this case, delays related to projects for the factories in Germany and Poland are a factor impacting the company’s actions.
Samsung and SK Hynix are also currently taking a cautious approach to their spending.
Bernstein analyst Sara Russo stated that, even though bookings are typically lumpy, it should be conceded that given the lowered guidance, it seems that the delayed cyclical recovery and specific customer challenges are having a strong impact on how ASML perceives its prospects for 2025.
The mentioned manufacturer of advanced chip-producing equipment is expected to have total net sales ranging from 30 billion to 35 billion euros next year. It is worth noting that the previous version of this forecast provided that the corresponding figure would be fixed at around 40 billion euros. The company also expects its gross margin to range from 51% to 53% in 2025. The previous version of the forecast provided that this indicator would range from 54% to 56%. The deterioration in expectations is mainly due to delayed timing for top-end extreme ultraviolet machines. The corresponding statement was made by Christophe Fouquet.
ASML did not provide detailed explanations as to why the volume of bookings was below preliminary expectations. In this case, only such an explanation as delays in the construction of the plant was mentioned. At the same time, as noted by the media, referring to experts, the corresponding explanation cannot be the only one that definitively clarifies the drop in indicators.
It is worth noting that the ASML indicators are significantly affected by the restrictions of the United States regarding China. In this case, it should be paid attention that Washington is meant to tighten the export control regime regarding the supply of advanced chips and equipment necessary for the production of microcircuits of the appropriate category to the Asian country. Some allies of the United States, including the Netherlands, have joined these measures. In January, ASML announced that it had received an order from the Dutch government to stop supplying some products to China. It is worth noting that the Asian country is a very large market from which companies can derive significant financial benefits. A decrease in the scale of interaction with this market or the complete cessation of activities in the relevant geographical area means considerable material losses.
In July, the value of ASML shares fell significantly amid the risk of the United States deciding to tighten export controls on product shipments to China. For the company, the corresponding prospects mean a reduction in the scale of interaction with the Asian market.
It’s worth noting that the policymakers in Washington explain the restrictive measures are national security considerations. In their opinion, Beijing can use advanced chips to enhance its military capabilities. China demonstrates categorical disagreement with the mentioned decisions of the United States. Beijing characterizes Washington’s measures as politically motivated and contrary to the principles of free global trade.
Cantor Fitzgerald analyst C. J. Muse stated the likelihood of discussions about whether the earlier release of the ASML activity in the last quarter report was an accident related to a technical error or an intentional act and said that these data are clearly disappointing. Also, according to the expert, the current weakness of Intel and Samsung signals that the figures for 2025 will be worse than expected.
Last month, the Netherlands published new export control rules. These regulations stipulate that ASML must apply for licenses to supply some of its older machines to The Hague, and not to the United States. It is worth mentioning that in August, the media published information that the Dutch government would partially limit the company’s ability to repair and maintain its semiconductor equipment in China. At the same time, the Asian country continues to be the largest market for ASML. China accounted for 47% of the company’s sales last quarter. ASML sales in the Asian country for July-September of the current year in monetary terms amounted to 2.79 billion euros. This indicator increased by almost 20% compared to the figure for the previous quarter.
It is worth noting that in the foreseeable future, the demand for ASML products from China may decrease. This assumption is because tensions between Beijing and Washington continue to grow. The corresponding process applies, among other things, to areas of trade and technological cooperation between China and the United States. It is also worth noting that Beijing is gradually developing the homegrown semiconductor industry to decrease dependence on supplies from other countries at a time of increasing geopolitical tensions. It is worth noting that the current condition of relations between the United States and China is gradually becoming a factor of structural impact on the dynamic of the value of ASML shares.
UBS analyst Francois-Xavier Bouvignies said the company, led by Christophe Fouquet, could lose almost a quarter of its sales in the Asian country next year. The expert also noted that 45% of the total revenue ASML generated in China is under threat, due to the likelihood of further tightening of export control standards.
This week, the media reported that officials of the administration of the President of the United States Joe Biden are discussing limiting sales of advanced artificial intelligence chips from Nvidia to some countries. In this case, the thesis of the need to tighten export standards due to national security considerations was also mentioned.
On Tuesday, ASML chief financial officer Roger Dassen said he expects the company’s Chinese business to show a more normalized percentage in its order book. According to him, the firm expects that about 20% of its total revenue will be generated in the Asian country next year.
Eugene Hsiao, head of China equity strategy at Macquarie Capital, said ASML’s business in Asia is likely to continue to face headwinds. The expert noted that for the company, further working with China makes a lot of sense, but there are broader issues between governments related to economic problems.
After the negative data on the results of ASML’s activities in the last quarter were released, the company’s market capitalization indicator decreased by more than $60 billion. Also, against this background, investors began to revise their estimates regarding the current condition of the semiconductor industry.
It is worth noting that difficulties in this case should not be perceived as a signal of the total impossibility of positive prospects or some kind of doom. The semiconductor industry is now objectively necessary. Chips, as it was above-mentioned, are a critically important component in several categories of technological products and in the area of artificial intelligence, containing a kind of revolutionary potential in terms of likely impact on the world as a space of human civilization. At the same time, this does not mean that the semiconductor industry cannot plunge into periods of particularly sensitive difficulties.
Currently, not only China but also other countries are developing the homegrown chip manufacturing sector. For example, in 2022 Joe Biden signed the Chips and Science Act. In this case, $280 billion in funding is provided to boost homegrown research and semiconductor manufacturing. The importance of autonomous production has grown against the background of the coronavirus pandemic, which caused international supply chains to be disrupted due to a variety of restrictive measures related to a difficult sanitary and epidemiological situation. The growth of geopolitical tensions also actualizes the mentioned importance. As for the likely prospects of the semiconductor industry, in this case, it is worth noting that it may face severe problems, but in a kind of existential sense, nothing threatens it, since there is no alternative, and without chips, further technological progress, which can be conditionally characterized as the material evolution of human civilization, is impossible.
