Export controls, ASML’s negative earnings report, global semiconductor stocks plummeted

ASML recently faced significant challenges, announcing disappointing earnings that led to a downward revision of its revenue outlook for next year. The company’s stock plummeted by 16% on October 15th, marking its biggest single-day decline in 26 years, which also triggered a widespread drop in semiconductor stocks globally.

While ASML’s stock stabilized on the morning of October 16th with a 4% decline, analysts pointed to several underlying issues contributing to this downturn. A substantial factor has been reduced orders from major clients like Intel and Samsung, coupled with a sharp decrease in sales to mainland China. Analysts specifically highlight that the geopolitical tensions stemming from intensified U.S. export controls on equipment to China have played a pivotal role.

ASML, a leading provider of lithography systems critical for advanced semiconductor fabrication, has adjusted its projected revenues for 2025 to between €30 billion and €35 billion, falling short of market expectations of €35.94 billion. The company’s anticipated gross margin has also been lowered to between 51% and 53%, down from previous estimates of 54% to 56%.

Analysts attribute ASML’s revised outlook to several factors. Firstly, competition among the top three wafer foundries—Intel, Samsung, and TSMC—is intensifying, with Intel facing financial pressures that hinder its progress. Samsung has struggled to scale up its production effectively, missing out on substantial opportunities in the AI sector, while TSMC has postponed its factory plans in the U.S., impacting ASML’s order volumes.

Atif Malik, an analyst at Citigroup, commented that the recent cutbacks in capital expenditures by Intel, Samsung’s challenges in high-bandwidth memory production, and weak demand for non-AI semiconductors made a disappointing outlook for 2025 predictable, though the extent of the revision was surprising. Some Bloomberg analysts suggest that ASML’s weak orders might ultimately benefit TSMC’s mid-term profit growth, indicating a potential slowdown in global advanced chip production and reducing competitive pressures on TSMC.

Another hurdle for ASML is the geopolitical landscape affecting its operations. The ongoing U.S.-China tech war has imposed stringent restrictions on China’s semiconductor development. In addition to controlling advanced equipment for processes below 14 nanometers, diplomatic pressure has led the Dutch government to restrict ASML from selling deep ultraviolet (DUV) lithography equipment at 28 nanometers and below to China, including the cessation of logistical support services.

Previously, Chinese wafer manufacturers scrambled to stock up on equipment ahead of anticipated restrictions. However, as these bans have taken effect, the resulting sharp decline in shipments from China is now evident. Analysts assert that the geopolitical turmoil is indeed a key factor behind ASML’s revised operational outlook for the coming year.