On Tuesday, the performance of Europe's largest technology company and lithography giant ASML exploded, triggering a general sell-off in global chip stocks due to concerns that global chip demand may decline.Many industry analysts said that ASML's weak financial forecast may reflect the overcapacity of some chip factories around the world. These factories have accumulated ASML's expensive lithography machines during the epidemic and have used them to produce more chips.

ASML's financial report release process on Tuesday was extremely rare - it mistakenly released its financial report one day early due to a "technical glitch."

In this financial report that was accidentally leaked in advance, ASML announced that its orders for the third quarter of this year were only 2.6 billion euros, which was nearly half of the 5.4 billion euros expected by the market. At the same time, the company expects total net sales to grow to between 30 billion and 35 billion euros by 2025 (previous guidance was 30-40 billion euros), a figure in the lower half of the guidance provided at the 2022 investor day.

As a result of the lowered financial forecast, ASML's U.S. stock ADR suffered a sharp decline on Tuesday, eventually closing down 16.26% to $730.43, the largest single-day decline since 1998.


This has also dragged down the entire global semiconductor industry, because ASML has a near monopoly on the supply of key lithography machines used by major manufacturers such as TSMC, Intel and Samsung Electronics to manufacture advanced chips. The U.S. Philadelphia Semiconductor Index closed down 5.24% overnight, the largest drop in more than a month.

In this regard, many analysts have interpreted that chip manufacturers such as TSMC have previously established additional production capacity, stimulated by the large demand for chips during the epidemic. But that growth has stabilized as supply chain tensions have eased. This has caused these manufacturers to suspend orders for more new lithography equipment until their factories need to expand production capacity again.

andThe information reflected in ASML's financial report can only be regarded as a lagging representation of the actual conditions of these chip factories in recent months.

ASML also admitted in a statement released on Tuesday that although demand for artificial intelligence-related chips did surge, other parts of the semiconductor market were weaker than expected, causing logic chip manufacturers to postpone orders, while memory chip manufacturers only planned to add "limited" capacity.

What do industry analysts think?

Dan Hutcheson, vice chairman of research firm TechInsights, said Intel, TSMC and Samsung are reducing orders for ASML equipment because they have realized they have sufficient production capacity.

Hutcheson pointed out that the utilization rate of chip factories this year is about 81%, and chip manufacturers usually prefer to purchase new equipment when utilization reaches about 90%. He said Intel has slowed the pace of factory expansion, suggesting Samsung and TSMC will also remain cautious.

At present, chip inventories remain high, and chip manufacturers have become more efficient in using ASML lithography machines, which also means they can produce more chips without ordering more equipment.

Handel Jones, CEO of International Business Strategies, which tracks the chipmaking industry, said some chipmakers have reduced the number of steps they use on ASML's flagship lithography machines, sometimes by almost a third. Taking Samsung as an example, he believes that Samsung may be able to use cutting-edge chip etching technology in the future to reduce the steps of using ASML's flagship equipment from five or six to one or two.

He said that if successful, Samsung may have a large amount of excess capacity in these extreme ultraviolet lithography equipment.

However, Jones noted that he has not changed his forecast for the entire chip industry, which is that demand for AI chips and AI-specific memory chips will boom.

"This is just a short-term blip. In the long run, everything is going to be fine," Jones said.