ASML Expects Chip Market Recovery, China Export Controls Not Impacting Business

ASML, a critical supplier to the global chip-making industry, said Wednesday that it expects to report more than 25% sales growth this year despite uncertainty in the semiconductor industry amid efforts by the U.S. to restrict China’s access to high-end technology.

ASML is a Dutch company that supplies lithography machines for manufacturing semiconductors. Its customers include Taiwan Semiconductor Manufacturing, Samsung Electronics, and Intel.

Some chip makers are now cutting back on spending in an industry downturn, with semiconductor maker Texas Instruments saying on Tuesday that it was facing softening demand and higher cancellations for orders. Texas Instruments is widely regarded as a bellwether for the technology industry and the economy, so this news is not good for the tech sector as a whole.

The semiconductor company is a leading indicator for the technology industry and the economy.

"We're still seeing some uncertainty in the market due to inflation, rising interest rates, and the risk of recession," ASML CEO Peter Wennink said. "However, our customers are indicating that they expect the market to rebound in the second half of the year."

"Our order lead times and the strategic nature of our lithography investments mean that demand for our systems remains strong," he said.

Wennink said that the U.S. push to restrict exports of high-end chipmaking to Chinese companies hadn't changed business expectations for ASML, which generates around 15% of its sales from China. The company has been prohibited from exporting its extreme ultraviolet lithography machines to China since 2019, due to Dutch restrictions. The U.S. has reportedly been pushing for the Netherlands to also limit exports of older deep ultraviolet lithography equipment.

The United States has taken steps in recent months to block China's ability to buy chips and maintain advanced semiconductor-making capabilities. This is part of a larger effort to prevent China from becoming a leading technological power.

As the United States continues to expand its restrictions on the export of advanced chips and tools to China, the question of how sustainable the compliance of ASML, TSMC, Samsung, and Canon7751+1.14% will be becomes increasingly important. For companies based in Taiwan, South Korea, the Netherlands, or Japan, remaining neutral in this situation will become increasingly difficult, despite the significant economic costs of not doing so.

ASML's net profit for the fourth quarter of 2022 came in at 1.8 billion euros ($1.96 billion), exceeding analyst expectations of 1.71 billion euros. Net sales for the quarter were 6.4 billion euros, up from 4.99 billion euros in the same period a year earlier. The company's gross margin came in at 51.5%.

ASML said it expects first-quarter net sales to be between €6.1 billion and €6.5 billion. For 2023, it forecast a net sales increase of more than 25% and a slight improvement in gross margin relative to 2022.

Analysts at UBS wrote in a research note that the guidance for sales growth was ahead of consensus expectations, and that the results were reassuring.

ASML's American depositary receipts were down 1.7% in recent trading, after a strong run-up to the results that had sent the shares up 23% this year so far.

ASML announced that it would pay a total dividend of €5.80 per share for the year, an increase of 5.5% from the previous year.