ASML Holding Faces Challenges Amidst Industry Worries

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Investors will closely monitor the future outlook for ASML Holding, a prominent Dutch multinational known for manufacturing semiconductor production machines. The tech giant is currently facing several concerns, including potential sanctions on China and fears of a market saturation in microchip demand.

ASML’s U.S.-listed shares have experienced an 11% increase this year, in comparison to the broader PHLX semiconductor index, which rose by 38%.

These concerns arise from the combined threats of a potential oversupply of semiconductors due to reduced global spending on consumer goods and newly imposed restrictions on ASML’s exports of microchip manufacturing equipment to China.

For its upcoming third-quarter results, ASML is projected to report sales amounting to €6.74 billion ($7.11 billion), according to data from 22 analysts compiled by FactSet. If these estimates materialize, it will signify a 16.5% increase compared to the third quarter of 2022.

Additionally, according to analysts polled by FactSet, ASML is expected to achieve earnings per share of €4.62 in the third quarter of 2023, in comparison to €4.29 in the third quarter of 2022.

Renowned analysts at Liberum have emphasized that ASML’s stock price may be influenced by the company’s outlook for 2024, particularly if it can assuage investors’ concerns regarding sluggish demand for semiconductors and its impact on the Dutch firm.

Liberum’s analysts further explained that the demand for ASML’s deep ultraviolet (DUV) tools is anticipated to remain robust due to continued demand from Chinese electric vehicle manufacturers. However, sales of ASML’s more advanced extreme ultraviolet (EUV) tools are expected to decline this year.

Nevertheless, the Liberum analysts expressed optimism that demand for EUV machines could rebound by 2024, stating, “A global push toward technology upgrades to the 3nm wiring pattern could revive sales growth for EUV tools in 2024.”

ASML’s Positive Outlook Promises to Offset Concerns over Export Restrictions

ASML’s management has conveyed a positive outlook, providing a counterbalance to the considerable pessimism that Berenberg’s analysts have observed weighing down the company’s shares. This negativity stems from apprehensions surrounding the imposition of further restrictions on exports of semiconductor manufacturing equipment to China.

In January, the United States and the Netherlands reached an agreement that requires the Dutch government to implement new regulations in September, preventing firms like ASML from exporting their manufacturing equipment without a permit.

These rules have the potential to curtail ASML’s ability to distribute its deep ultraviolet lithography systems to China, which presently holds the title as the largest importer of semiconductor manufacturing equipment globally. In fact, in 2022 alone, the People’s Republic of China constituted 11% of ASML’s total sales.

A similar deal was struck between the United States and Japan, with Japan subsequently imposing its own restrictions on exports of microchip manufacturing equipment. The United States has been actively endeavoring to limit China’s access to advanced microchips necessary for artificial intelligence technology, citing national security concerns as the primary motivation.

Contrary to these circumstances, Berenberg’s analysts do not anticipate any further export restrictions on microchip manufacturing equipment being imposed on China.

Additionally, Berenberg’s analysts note that investors have already accounted for reduced demand for semiconductor manufacturing equipment worldwide. This decline in demand can be attributed to an oversupply of computer chips resulting from a global slowdown in consumer spending on electronics.

However, analysts at GP. Bullhound hold a contrasting perspective. They believe that the substantial demand for ASML’s technology will persist, aligning with the increasing adoption of AI technology and the growing interest in localizing supply chains due to concerns over tensions between China and Taiwan.

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