Oct 18, 2023

ASML’s Orders Fall Amid Continued Slump in Semiconductor Sector

Cagan Koc, Bloomberg News

A building under construction at the ASML Holding NV headquarters in Veldhoven, Netherlands, on Wednesday, July 19, 2023. ASML Holding NV’s orders rose in the second quarter on demand for chip-making machines in China, defying a slump in the semiconductor industry. Photographer: Peter Boer/Bloomberg , Bloomberg

(Bloomberg) -- ASML Holding NV orders plunged in the third quarter amid a sector-wide slump in the semiconductor industry that has left the company increasingly reliant on revenue from China.

Bookings fell 42% to €2.6 billion ($2.8 billion) in July through September from the previous quarter, ASML — the only producer of the lithography equipment needed to make the world’s most advanced semiconductors — said in a statement Wednesday. That compares with an average estimate of €4.5 billion among analysts polled by Bloomberg.

While ASML maintains a sizable order backlog, the semiconductor industry has been experiencing a slowdown after inflation and recession fears hit consumer spending. Sales at Taiwan Semiconductor Manufacturing Co., ASML’s biggest customer, dropped 11% in the third quarter, according to Bloomberg calculations. Earlier this year, ASML said it plans to slow hiring amid the downturn.

Slumping demand elsewhere made China ASML’s biggest market last quarter, overtaking Taiwan. ASML, Europe’s most valuable technology company, has experienced a jump in business from China this year as chipmakers there boosted orders ahead of looming export controls.

ASML dropped as much as 5% in Amsterdam, the steepest decline since July. Shares were down 4% to €550.30 as of 3:58 p.m. local time.

“All in all, on the macro front it’s quite dynamic and quite challenging,” Chief Financial Officer Roger Dassen said in a video interview on the results. “If you then specifically look into the semiconductor industry, I think it’s plain to say that our customers are really going through the cycle trough.”

China accounted for 46% of ASML’s sales in the third quarter, compared to 24% in the previous quarter and 8% in January to March. Taiwan was 24%, down from 34% in the second quarter.

“Our Chinese customers say: We are happy to take the machines that others don’t want,” Chief Executive Officer Peter Wennink had said earlier this year. “Because their fabs are ready. They can take the tools.”

Veldhoven-based ASML has been targeted by the US effort to curb exports of cutting-edge technology to China. Earlier this year, US President Joe Biden’s administration convinced the Dutch government to prevent ASML from shipping some immersion deep ultraviolet lithography machines, its second-most advanced product line, to China without a license. The Dutch restrictions are set to take full effect from Jan. 1.

The US announced additional export curbs on Tuesday that are designed to block China’s access to advanced semiconductor technology. ASML said the new measures will hit its sales there in the medium to long term.

ASML is already barred from selling its most advanced equipment, known as extreme ultraviolet machines, to China. The firm says it doesn’t expect the Dutch and US measures to have a material impact on its financial outlook for the year or in the longer term.

As much as 15% of the machines shipped to China this year would be subject to the new US or Dutch export restrictions, Wennink said during an investor call on Wednesday.

The semiconductor industry has struggled this year, hurt by sluggish demand for smartphones and personal computers. TSMC, the world’s biggest chipmaker, will report third-quarter earnings on Thursday and is projected to report a sharp decline in profit in the period.

Samsung Electronics Co., another major customer of ASML, posted better-than-expected operating profit last week that boosted optimism that the global semiconductor market may have turned the corner. ASML’s top US client, Intel Corp., will report earnings next week.

Read More: ASML Says New US Curbs May Hit China Sales in Medium Term

ASML’s revenue next year will be similar to 2023, according to Dassen. “On the other hand, we believe 2024 is going to be a pivotal year in preparing us for what we think will be very significant growth in 2025,” he said.

The company’s order book dropped by around €3 billion from the previous period to more than €35 billion in the third quarter, according to Dassen.

Revenue is on track for €6.7 billion to €7.1 billion in the fourth quarter, compared to net sales of €6.7 billion in the previous period, the Dutch company said. The forecast compares to analysts’ average estimate of €6.91 billion, according to a Bloomberg survey.

“We continue to see the industry as being in the early stages of a new upcycle, with industry fundamentals and ASML’s orders expected to steadily improve,” Jefferies analyst Janardan Menon said in an emailed note.

(Updates with CEO comment in twelfth paragraph.)