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ASML earnings drag semiconductor stocks lower

Workers at Carl Zeiss ZMT are seen outside giant vacuum chambers where optical systems for ASML's new High NA EUV instrument are being tested.

ASML

Chip stocks fell on Wednesday after ASML, a major developer of semiconductor manufacturing equipment, said bookings fell 61% sequentially during the first quarter, a steeper decline than investors expected.

AMD shares fell nearly 6%, Nvidia shares fell more than 3%, Intel shares fell less than 2%, and Qualcomm shares fell more than 2%. But the biggest decline affected chip technology company Arm, which was trading down nearly 12% on Wednesday.

The ASML fell more than 7% on a day when the entire S&P 500 index fell just less than 1%.

ASML is essentially the sole supplier of the machinery needed to build the world's most advanced chips, which often cost hundreds of millions of dollars each. The Dutch company shipped 449 “lithography” machines in 2023, and among its main customers are the world's best processor foundries: TSMC, Samsung and Intel.

Its two largest customers account for more than half of its 2023 sales. Sales fell in Taiwan and South Korea, where TSMC and Samsung are based, respectively.

Foundries actually make chips designed by companies like Nvidia or Apple, so any sign that they are buying less equipment could signal a downturn in the highly cyclical semiconductor industry, which could then impact chip companies' sales to end customers. Since licensing companies like Arm lock in a few cents of revenue whenever a chip is manufactured using their technology, a decline in manufacturing machine sales could signal a lower number of chips coming to market overall.

Total bookings for ASML machines fell 4% year-over-year, and CEO Peter Wennink said in a statement that he expects the second half of 2024 to be stronger than the first half as the semiconductor industry “manages to recover from the economic downturn.” Adding that the company was in a “transitional year.”

“You know it's very clear that there are a few of the usual suspects absent from receiving the order,” Wennink said on a call with analysts.

Wennink will retire at the end of the month, he said on the earnings call. He will be replaced by Christophe Fouquet, the current Chief Business Officer.

Wennink said he expects U.S. foundry builders, such as Intel and TSMC, to place more orders for lithography machines later this year. ASML also said it expects government support for chip factories, such as the CHIPS law in the US, would boost its sales. The company did not say how China's export controls affected its business.

“If you look at the announced plans of some of our big customers, it's pretty clear that in the next couple of quarters, big orders should come in,” Wennink said.