ASML managed to wipe $50 billion off its market capitalization a few days back when it revealed that it managed to book only around half of the orders that analysts expected for its just-concluded quarter, sowing market-wide chaos in the process as the investors immediately started doubting the strength of the ongoing AI-related tailwind.
Of course, the company's earnings call helped to stabilize the macro sentiment when it emerged that ASML's abnormal order pipeline weakness was largely due to idiosyncratic factors affecting Intel and Samsung, with the company's forward guidance curtailed by China's return to normalcy after it rushed to front-run a possible strenhgthening of US export controls by binge-buying ASML's DUV lithography machines - which currently do not fall under US export controls, as opposed to their EUV counterparts - and their related components.
$ASML's CEO believes that while China 🇨🇳 might manage to produce some 5nm or 3nm chips, but it would only be on a limited scale using older technology.
The CEO also mentioned that China’s typical demand accounts for about 20-25% of ASML’s sales, and he anticipates that demand… https://t.co/Usw8mMDDHr
— Wall St Engine (@wallstengine) October 22, 2024
Now, ASML's CEO has asserted that China might be able to produce some chips on the more advanced 5nm and 3nm nodes, albeit in a limited capacity, and by leveraging older DUV lithography tech.
This comes as reports have recently emerged that Xiaomi has purportedly completed the tape-out of its first 3nm SoC, with a possible launch expected next year. Of course, Xiaomi's 3nm chip will likely be manufactured by TSMC. However, the risk remains that Huawei's HiSilicon and other sanctioned Chinese entities might use this chip design innovation to improve the yields on their bespoke advanced silicon fabrication efforts.
Elsewhere, ASML's CEO has also highlighted his belief that the US will likely further tighten its chip-related export controls in relation to Chinese entities. Combined with the already-saturated DUV inventories within the country, ASML expects its China-exposed revenue to normalize to ~20 percent of its total sales in 2025, down from the current ~50 percent level. Bear in mind that China imported 3.4 billion euros worth of lithography equipment in Q3'24 alone, with contributions from ASML, Canon, and Nikon.
Of course, ASML's broad miss was not due to China alone. The lithography equipment manufacturer continues to be affected by Intel's ongoing efforts to sequester its 2024 CapEx by 20 percent amid delays related to its 3nm and 4nm node processes. Also, Samsung continues to contend with yield-related issues in relation to its 3nm Gate-All-Around (GAA) process, which has led to a retrenchment in its orders to ASML.
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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