Investors will be closely eyeing the outlook for ASML Holding, the Dutch multinational that makes the machines used to manufacture semiconductors, as the tech giant faces worries ranging from sanctions on China to fears of a glut in demand for microchips.
ASML’s U.S.-listed shares
This negativity is the result of the combined threats of a glut in the market for semiconductors, caused by lower global spending on consumer goods, as well as the imposition of new restrictions on ASML’s exports of microchip manufacturing equipment to China.
In Its upcoming third quarter results, ASML is now expected to post sales worth €6.74 billion ($7.11 billion), according to data from 22 analysts compiled by FactSet. If realized, the sales estimates would mark a 16.5% increase compared to the third quarter of 2022.
Analysts polled by FactSet forecasted ASML will generate earnings per share of €4.62 in the third quarter of 2023, compared to €4.29 in the third quarter of 2022.
Analysts at Liberum explained that ASML’s share price could now be shifted by the company’s outlook for 2024, particularly if it assuages investors’ fears around the threat of slow demand for semiconductors on the Dutch firm’s business.
Liberum’s analysts said demand for ASML’s deep ultraviolet (DUV) tools is expected to remain strong due to continued demand from Chinese electric vehicle manufacturers. They noted sales of ASML’s more advanced extreme ultraviolet (EUV) are expected to be lower this year.
However, the Liberum analysts said demand for EUV machines could be on track to recover in 2024. “A global push toward technology upgrades to the 3nm wiring pattern could revive sales growth for EUV tools in 2024,” Liberum’s analysts explained.
A positive outlook from ASML’s management could also counteract what Berenberg’s analysts described as “significant negativity” that has been priced into the company’s shares amid concerns about further restrictions on exports of semiconductor manufacturing equipment to China.
The concerns follow the striking of a deal between the U.S. and the Netherlands in January, which saw the Dutch government agree to introduce new rules the following September that block firms, including ASML, from exporting their manufacturing equipment without a permit.
The rules could limit ASML’s ability to export its deep ultraviolet lithography systems to China, which is currently the world’s top importer of semiconductor manufacturing equipment. In 2022, the People’s Republic of China accounted for 11% of ASML’s total sales.
A similar deal was struck between the U.S. and Japan, which saw the east Asian powerhouse impose its own restrictions on exports of microchip manufacturing equipment. The U.S. efforts are aimed at restricting China’s access to the advanced microchips needed for artificial intelligence technology amid concerns about national security.
Analysts at Berenberg said they do not expect the introduction of any further restrictions on exports of microchip manufacturing equipment to China.
Berenberg’s analysts said investors had also priced in reduced demand for semiconductor manufacturing equipment worldwide. The lower demand is a result of an oversupply of computer chips due a global slowdown in consumer spending on electronics.
Analysts at GP. Bullhound, however, said fundamental demand for ASML’s tech is set to remain strong, in line with adoption of AI technology and the push towards localization of supply chains amid concerns about tensions between China and Taiwan.