ASML shares fall after proposed U.S. export curbs target an already fragile China market

Shares of ASML experienced a decline on Tuesday, following the introduction of new export control measures aimed at the Chinese semiconductor industry by U.S. lawmakers last week. The proposals are part of an effort to restrict China’s access to essential chipmaking tools, which could further impact ASML's already weakened sales in the region. At approximately 6:11 a.m. ET, ASML's stock in the Netherlands dropped by about 2.6%. The bipartisan group of lawmakers unveiled the Multilateral Alignment of Technology Controls on Hardware (MATCH) Act on Thursday, which seeks to sever China's connection to critical semiconductor manufacturing tools. Rep. Michael Baumgartner, R-Wash., who spearheaded the bill, stated, "While the United States has enacted extensive export controls to hinder China's semiconductor self-sufficiency, our allies have not fully aligned with these measures, creating significant gaps that China continues to exploit." ASML, known for its extreme ultraviolet (EUV) lithography machines essential for producing cutting-edge chips, has not sold any of these machines to China to date. The company also manufactures deep ultraviolet (DUV) lithography machines, which, although less advanced, are crucial for producing various semiconductor types, including memory chips used in devices like laptops and smartphones. Currently, some of ASML's DUV machines require Dutch export licenses. If the MATCH Act is enacted, it could prohibit the sale of these DUV lithography machines to China, which has so far been able to acquire them from ASML's offerings. Earlier this year, ASML projected that China would account for around 20% of its total sales, a decrease from 33% initially anticipated for 2025, prior to the announcement of these new U.S. restrictions. The potential implementation of these export curbs could intensify the pressure on ASML’s declining sales in China. Stephane Houri, head of equity research at ODDO BHF, commented, "While the bill is still in its early stages and its outcome remains uncertain, it creates a geopolitical uncertainty. It is unclear whether all DUV tools would be affected or if existing restrictions on certain DUV immersion tools would be expanded." Houri further noted that a broad ban on DUV tools could lead to volatility in ASML's financial performance, potentially increasing short-term orders before restrictions take effect but adversely affecting results in the midterm. Ben Barringer, head of technology research at Quilter Cheviot, indicated that the legislative proposals could significantly impact ASML’s operations. He estimated that older versions of the company’s lithography tools, which account for roughly 10%-15% of total sales, would be affected, with China representing about 50% of that segment, translating to a potential 5% hit to overall sales that could diminish over time. Despite the uncertainty surrounding the proposals, analysts have observed that previous U.S. restrictions have inadvertently bolstered China's domestic semiconductor sector, with several firms reporting record earnings last year. However, companies like Semiconductor Manufacturing International Co. (SMIC) and Hua Hong still depend on ASML’s DUV tools for producing less advanced chips. With no local alternatives for EUV technology and limited options globally for DUV lithography, the approval of U.S. export restrictions could severely disrupt China’s semiconductor manufacturing capabilities, as they currently rely heavily on ASML’s equipment.