ASML’s Persistent Supply of Chip Machines to China

This article was last updated on January 24, 2024

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An Overview of ASML’s Sales

ASML, a prominent chip machine manufacturer, noticed a surge in sales to Chinese manufacturers based on the annual figures revealed recently. Impressively, these sales accrued even amidst strict regulations restricting tech exports to China. ASML’s overall yearly revenue increased to 27.6 billion euros, with profits growing to nearly 8 billion, a sizeable expansion from the previous year’s 5.6 billion. In addition, ASML recorded a notable rise in orders towards the year-end. Investors welcomed this news, leading to a 6 percent increase in ASML’s shares on Damrak. ASML’s consistent revenue source in the third and fourth quarters of last year was largely Chinese manufacturers who capitalized on the reduction in demand from other international markets. ASML underscores that the orders delivered chiefly comprised machines pre-ordered in 2021 and 2022 that could not be fulfilled due to global chip shortages. These were machines that were not affected by export restrictions.

Navigating through Regulatory Limitations

Navigating through 2023 was a rocky road for ASML. Existing restrictions from 2020 on the latest machines, EUV (extreme ultraviolet) grew tighter as additional measures were put in place. Following intense pressure from the U.S., the Dutch cabinet ruled that ASML could no longer deliver certain DUV (deep ultraviolet) machine types to China. However, at the onset of the year, it became obvious that the U.S. had intervened during ASML’s granted ‘cooling-off’ period. ASML had expected to ship current orders to China during this time, but it emerged that the government had revoked issued licenses, impacting a “small number of customers” in China. The US has been endeavoring to impede China’s technological growth for years due to fears that China could secure a dominant position in artificial intelligence (AI) and utilize it for military purposes, which the U.S. is keen on avoiding.

ASML – An Irreplaceable Player

ASML constructs machines that chip manufacturers like American Intel and Taiwanese TSMC rely on for their production processes, developing chips that are incorporated into a varied range of devices. In essence, ASML’s complex machines enable extremely fine lines to be ‘drawn’ onto a wafer (the foundation of a pizza-sized chip). The finer these lines, the more they can fit onto a chip, making it more efficient and enhancing its computing power. Regardless of the multiple steps and machines involved in the production process in factories, ASML’s machines are irreplaceable. Moreover, ASML enjoys a monopoly in the sphere of the latest technology, EUV. It’s virtually impossible to establish a company that can compete with ASML on an equal footing. Despite this, China is attempting exactly this, even though it is significantly behind from a technological standpoint. During a visit by the US Secretary of Commerce last fall, Chinese tech titan Huawei sparked fears by launching a phone with a 5G chip, believed to be beyond their production capabilities.

Surge in Demand

Another noteworthy trend is that ASML received a plethora of new orders in the fourth quarter, amounting to a record value of over 9 billion euros. This trend was particularly striking as the number of orders for the remainder of the year had been comparatively low. Manufacturers who place an order currently wouldn’t receive their order immediately, with delivery times averaging a year or more. Consequently, the number of orders provide insights into the current state of the sector. ASML forecasts that 2024 will witness a similar turnover to 2023, serving as a gap year. However, in 2025, ASML anticipates growth to rebound due to a resurgence in chip demand.