ASML has finally reached its breaking point, with a sharp decrease of over 60% in new orders in the first quarter, and its market value plummeted by approximately 200 billion yuan overnight, leading to a Waterloo for the stock prices of American chip companies. Faced with strong demand from Chinese customers on one hand, and yet unable to export, while on the other hand experiencing a sharp decline in performance, where should ASML go from here? Will the Netherlands continue to enforce America's chip "bullying clauses"?

Massive plunge in American chip companies

The world's largest photolithography giant, Dutch ASML, has finally had a significant setback. Without much speculation, it is clear that this is directly related to China.

On April 18th, ASML's market value plummeted by approximately 200 billion yuan, equivalent to the total profits of ASML from 2019 to 2023.

The profits for ASML over these five years were $2.901 billion, $4.051 billion, $6.954 billion, $5.911 billion, and $8.475 billion, totaling about $28.3 billion, or approximately 205.9 billion yuan in Chinese currency.

Advertisement

This is truly five years of hard work, only to return to square one overnight.

As ASML is a barometer for the global chip industry, its plummet also led to a massive drop in the market value of major American chip companies. AMD plummeted by 6%, with a 30% drop over 28 trading days, NVIDIA plummeted by 4%, with a market value loss of about 100 billion yuan, and Synopsys, Qualcomm, ARM all experienced significant drops.So, why has ASML's valuation plummeted?

The direct cause is the sharp decline in both revenue and net profit in the first quarter. ASML announced its financial statements for the first quarter of 2024 on April 17th.

The report shows that the company's net sales for the quarter were 5.3 billion euros, a year-on-year decrease of 22%, and a sequential decline of 27%; net profit plummeted by 40% sequentially.

This is the biggest crisis ASML has encountered in nearly five years, even the impact of the 2022 pandemic was not as significant as this.

There is also a more fatal point, which is the direct trigger for ASML's plummet, that is, the new orders decreased by 60% sequentially.

The positive development of a company, as long as the expected growth is good, the valuation will rise with the tide, once the upward expectation is reversed, the company is likely to go downhill.

Precisely because of this, the decline in future demand leading to a decline in performance, and then a decrease in valuation, is also the reason for the plummet of other American chip companies.

I have always emphasized that the virtual economy and the physical manufacturing industry, represented by virtual reality and controllable nuclear fusion, new energy, etc., are the guiding directions of the fourth industrial revolution, that is, Industry 4.0.

However, the representative of the virtual economy, the AI industry, must be based on the foundation of physical manufacturing, otherwise it can only be a bubble. At present, the valuations of American AI chip companies, including Nvidia and AMD, have already shown bubbles.So, to delve further, what is the reason behind the reduction in new orders for ASML?

Given the dramatic increase in demand for AI computing chips, the demand for photolithography machines should have skyrocketed, so why has there been a decline?

The most significant variable in this equation is the Chinese market. Although ASML still exports photolithography machines to China, they are not the most advanced EUV machines but rather relatively outdated DUV or even earlier generation products.

These products, on one hand, have many alternative models available, and on the other hand, they are priced lower, which naturally reduces their added value.

Originally, China was the largest market for ASML's demand growth, but now it has been stifled by the United States, leading to a sharp drop in valuation and a sudden decrease in orders.

Is ASML really willing to let things go on like this?

I don't think so. Several recent events have indicated to the outside world that ASML is beginning to resist, as the company has reached a critical juncture for its survival.

ASML's executives are well aware that their current products can still be exported to China. If there is a complete restriction, or even under pressure from the United States to stop providing after-sales services such as spare parts replacement, it will inevitably prompt China to accelerate the development of advanced photolithography machines. Once China makes a significant breakthrough, that will be the real doomsday for ASML and a hellish moment for the Netherlands as a country.

Currently, the Netherlands is the fifth-largest economy in Europe, following Germany, France, Italy, and Spain, and ASML alone accounts for more than 30% of the Netherlands' Gross Domestic Product.Thus, we observe that from the Dutch Prime Minister to the CEO of ASML, statements have been made that China would not have dared to imagine in the past, much like what the former German Vice President Friedrich once said: without China's participation, global challenges will not be resolved.

ASML Begins to Resist

The United States not only demands that ASML cease exports of photolithography machines to China but also insists that ASML should not provide after-sales service for the photolithography machines exported to China, with extremely malicious intentions.

They will not rest until they see Chinese chips dead, because if so, the photolithography machines imported by China will likely become a pile of scrap iron. Without proper maintenance and replacement parts, photolithography machines will be paralyzed.

In this way, the photolithography machines that China has bought at a high price will have to stop working. The United States wants China to be the sucker. After all, the current price of ASML's third-generation extreme ultraviolet (EUV) photolithography machines is as high as $180 million, equivalent to about 1.3 billion yuan.

However, ASML CEO Wenkening recently made a strong statement, indicating that there is currently no reason not to provide after-sales service for Chinese customers.

Some time ago, ASML even demonstrated its resistance by "leaving" to protest against the Dutch government. Subsequently, Dutch Prime Minister Rutte urgently visited China, where he clearly stated that restrictive measures would be "treated equally" and would not be aimed solely at China.

Although Rutte's words were somewhat vague, this means that ASML's counterattack has had an effect, after all, as ASML's performance declines, the Netherlands will also feel it.

The United States wants to bring manufacturing, especially high-end manufacturing, back to the United States. The Netherlands, Germany, France, and others are not fools and cannot put all their core industries in the United States.It is well known that the governments of the United States and the Netherlands are deeply discussing how to limit ASML from providing after-sales maintenance and repair services for advanced equipment sold to Chinese chip manufacturers. According to the new trade policy established by the Dutch government last year, these devices must obtain an export license to be legally shipped to China. The United States is actively lobbying allies such as the Netherlands, hoping to increase the difficulty of manufacturing advanced chips in China. In response, Wennink stated, "We have communicated with the governments of the Netherlands and the United States and will also express our views. At least for now, there are no factors that can prevent us from serving our customers in China." It is worth mentioning that in the first quarter of this year, ASML's sales in the Chinese mainland market accounted for 49% of the company's total sales, reaching an unprecedented level. If high-end lithography is not restricted, ASML will not encounter a performance crisis. Moreover, in recent years, the Chinese mainland has become the third-largest market for the company, following China Taiwan and South Korea. Chief Financial Officer Roger Dassen also revealed that Chinese customers account for about 20% of the company's pending orders. He said that Chinese chip manufacturers are vigorously expanding the production of "mature" chips - that is, those that are not subject to any export restrictions but are still widely used in various products such as refrigerators, mobile phones, toys, and automobiles. China's growth in mature capacity is reasonable and in line with the overall requirements of the world, and there is no issue of overcapacity. In recent years, as the hegemony of the US dollar and US debt has gradually weakened, there have been attempts to establish a new semiconductor dollar hegemony to curb China's high-tech industry and restrict China's rise.To this end, there is a tendency to increase export control efforts, attempting to draw some Western countries into a collective crackdown on Chinese enterprises involved.

The United States is currently busy pressuring its allies such as the Netherlands, Germany, South Korea, and Japan to impose stricter restrictions on China's access to semiconductor technology.

However, the United States' approach has encountered resistance in some countries, with the Netherlands and Japan appearing more composed, hoping to avoid introducing new measures that could harm manufacturers' interests.

Mark Higgin, a Dutch official journalist who has long reported on ASML, stated that Dutch authorities should be more assertive in negotiations with the United States.

ASML's senior management has repeatedly expressed that the U.S. pressure policy has had a significant negative impact on their company's operations.

ASML CEO Peter Wennink has emphasized on several occasions that their company must continue to develop in the Chinese market, and ASML's Supervisory Board Chairman, Niels, also said that their company has faced "destructive" and "unfortunate" restrictions on exporting chip manufacturing equipment to China. In the long term, this could have irreversible effects on ASML's development and research.

Therefore, the idea that the United States is asking ASML to abandon the Chinese market is clearly something that ASML will not succumb to under U.S. pressure.

Regarding the United States' coercion of the Netherlands to impose a technological blockade on us, China has made it clear that we have always opposed the United States using various pretexts to threaten other countries to isolate China. The United States' painstaking efforts to suppress the development of China's chip industry violate the rules of global trade.

Recently, the attitudes of both Rutte and Wennink have changed, and he may not be as eager to distance himself from China, indicating that the Netherlands actually values cooperation with China.

Therefore, on the issue of the United States not allowing ASML to sell photolithography machines to China, the Netherlands may not fully comply with the United States' orders.If we consider ASML's current performance, it's not hard to guess the reason for their recent urgency. If the United States continues to act unreasonably and without logic, it will only lead to more countries feeling dissatisfied. At that point, the United States will have no one to blame but itself.

Of course, for us, the need for ASML is only temporary. We are preparing on two fronts, continuing to intensify our efforts in the field of photolithography machines. Once we completely master the photolithography machine, it means that the United States' leading advantage will be gone, and the dividends of a rising power will follow one after another.