Analysis ASML, the sole provider of extreme ultraviolet (EUV) lithography machines, is navigating market and geopolitical challenges that are hammering its business operations.

Despite its critical role in supplying advanced lithography equipment, the company has been grappling with a sharp decline in stock value. This drop, coupled with delays from key clients such as Samsung and ongoing US-led export bans targeting China, is putting severe pressure on ASML and these obstacles may alter the company's trajectory in the near term.

There are also other factors at play here aside from export controls, that make us think China sales will move back to normal levels ...

Last week, ASML shares plummeted by 15 percent in a single trading session – the company's largest single-day drop since 1998. The plunge followed a disappointing update on its 2025 sales forecast, which unsettled investors who had previously viewed ASML as a reliable performer in the semiconductor industry.

During the company's Q3 earnings call, CEO Christophe Fouquet cited "softer demand" for advanced chipmaking equipment outside of the AI sector. While demand for AI-related products remains robust, other areas of the market, particularly consumer electronics, are recovering more slowly.

The recent downturn in ASML's stock highlights a broader realization of emerging challenges with regard to ASML's EUV machines. As supply chains stabilize and demand for non-AI sectors softens, growth rates are slowing, particularly in consumer electronics and memory chips. Fouquet noted: "We are seeing some of our customers delay their expansion plans, particularly in the memory and logic segments," underscoring the uncertain market conditions ahead.

One notable development is Samsung's reported decision to delay shipments of ASML's lithography equipment for its $17 billion fabrication plant in Taylor, Texas. This facility is a critical component of Samsung's strategy to strengthen its foothold in the US semiconductor market and compete with rival TSMC. However, recent reports suggest Samsung is struggling to attract customers to the new facility, leading to a halt in capital investment.

This delay comes amid a broader slowdown in the memory chip market, where prices have been falling due to oversupply and weakening demand.

As one of the leading producers of DRAM and NAND memory chips, Samsung has been particularly affected by this downturn. The memory sector's cyclical nature has forced Samsung to reconsider its expansion plans, a decision that directly impacts ASML as it relies on timely equipment deliveries to generate revenue. The cautious approach adopted by Samsung reflects a more conservative industry stance as semiconductor manufacturers reassess their aggressive growth strategies amid uncertain market conditions. Given that it is still playing catch-up in HBM3E, Samsung cannot afford to make more mistakes.

In addition to customer delays, ASML is also contending with ongoing US-led export controls, which have restricted the company from selling its advanced EUV equipment to China. These controls, part of a broader geopolitical effort to limit China's advancements in semiconductor technology, have been in place for several years and continue to affect ASML's potential sales. High-NA EUV lithography machines, essential for producing the most advanced semiconductor designs, are priced at over $200 million each. As chipmakers curb investments in advanced equipment, ASML feels the financial strain, which has contributed to the recent stock market reaction.

An ASML spokesperson told The Register: "Export controls are a fact of life that affect everyone in the industry and so far we have stated in the past when export controls were announced that they did not impact our outlook. We have now taken it into account for our China sales in 2025 but there are also other factors at play here, not just export controls, that make us think China sales will move back to normal levels."

In a further complication, Taiwan's TSMC, the world's largest contract chipmaker, is also slowing its adoption of new equipment. During its Q3 2024 earnings call, TSMC CEO C.C. Wei acknowledged that while demand for AI-related chips remains strong, other sectors, particularly consumer electronics, are experiencing a downturn. As a result, TSMC is scaling back investments in advanced chip production, including its 3 nm nodes, due to weaker-than-expected demand. This has further complicated ASML's financial outlook.

Despite these challenges, ASML remains a key player in the semiconductor industry as no other company can supply the high-NA EUV machines that TSMC, Samsung, and other chipmakers depend on. Recent reports indicate that Intel has successfully assembled its second high-NA EUV machine at its facility in Portland, suggesting that while the market is volatile, business is still moving forward for ASML.

Looking ahead, ASML is set to discuss its long term outlook during an investor day on November 14. The company is undoubtedly hoping that the current market headwinds will subside, allowing it to continue its crucial role in advancing semiconductor technology. While the road ahead may be uncertain, ASML's unique position in the industry ensures that it remains an indispensable player. ®

https://www.theregister.com//2024/10/21/asml_setbacks/