New Delhi

Advanced Semiconductor Materials Lithography Holdings (ASML), one of the world’s leading suppliers of semiconductor equipment, has revised its 2025 sales forecast, revealing that US export restrictions on chip technology are expected to significantly impact its sales to China.

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This comes as geopolitical tensions between the US and China continue to affect the global semiconductor market, with ASML now anticipating a decline in revenue from its Chinese customers over the next year as detailed in a report by CNBC.

US restrictions taking a toll

The US government's ongoing efforts to limit China’s access to advanced semiconductor technology have hit one of the world's most crucial industries the report further elaborated. ASML, a key player in supplying lithography machines used to manufacture cutting-edge chips, is directly feeling the pinch. The Dutch company, which has already faced restrictions on its most advanced extreme ultraviolet (EUV) machines, said its future sales in China are set to decline due to these curbs.

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Roger Dassen, ASML’s chief financial officer, said on a call with analysts Wednesday that the company expects China sales to drop next year, citing U.S. export restrictions as one of the reasons.

“We all read newspapers, right? We all see that there is speculation around around export control,” Dassen said in response to an analyst question on why the company sees revenue in China slumping next year. “That is a driver for us to take a more cautious view on the China sales.”

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Impact on the semiconductor industry

The CNBC report further stated that, last year ASML sourced 29 per cent of its sales from China. It now expects that contribution from China to drop to around 20 per cent of its total revenue in 2025.

Sales to China grew dramatically in the first three quarters of 2024 as customers scrambled to buy ASML’s DUV machines in bulk head of U.S. and Dutch export restrictions.

In the company’s second-quarter 2024 earnings presentation, ASML said that it sourced as much as 49 per cent of its sales from China.

“China is a very important market for ASML,” Chris Miller, assistant professor of international history at the Fletcher School of Law and Diplomacy at Tufts University and author of the book “Chip War,” told CNBC in emailed comments. “Most of this revenue is from older-generation chipmaking tools.”

Ironically, restrictions on exports of DUV machines to China “have probably helped ASML on net, because China has accelerated purchases of older generation DUV tools as a result,” Miller added.

Now, ASML is expecting a drop-off in sales to China as a result of US trade restrictions. The firm expects China to return to taking up a smaller share of its overall global sales in 2025, CFO Dassen said in a transcript of a video interview Tuesday.

“We do see China trending towards more historically normal percentages in our business,” Dassen said. “So we expect China to come in at around 20 per cent of our total revenue for next year. Which would also be in line with its representation in our backlog.” 

Take of Analysts

Analysts at Bank of America said the firm faces a “sharp decline in China revenues.” They added that ASML’s forecast of China accounting for around 20 per cent of its revenue in 2025, implies a 48 per cent revenue decline year-over-year, more severe than the 3 per cent they had anticipated.

Hence, as the US-China relationship goes through a difficult time, with the US putting in place chip import curbs investors will keenly follow these developments and how things evolve between the two biggest economies in the world. These developments will immensely help aspirational investors in taking better investment decisions in the future.