ASML warns of flat 2024 sales tied to U.S. chip restrictions

ASML Holding (ASML) shares start Wednesday lower after posting mixed third-quarter earnings results. The Netherlands-based chipmaker warned of flattening sales in 2024 following the Biden administration's new restrictions placed on semiconductor exports to China. Yahoo Finance Tech Editor Dan Howley breaks down the challenges ASML is facing.

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Video Transcript

RACHELLE AKUFFO: Well, in a major hit to the chip sector, ASML Holdings saw bookings plunge 42% in its third quarter. The company, which is the only producer of the equipment needed to make the world's most advanced semiconductors, said it had to rely mostly on China, as sales everywhere else dipped. Well, here with some more insight into the chip sector is Yahoo Finance's own Dan Howley. Hey, Dan.

DAN HOWLEY: That's right, Rachelle. There's this kind of ongoing story with the chip industry, where we're seeing declines in some areas and huge demand in others, and really, it comes down to this difference between what we're seeing with AI chips and what we're seeing with other types of chips in general, and this kind of push that we're seeing on the AI side isn't having the same effect for the other side, where we see kind of general purpose computing and servers for companies like Intel, TSMC, Samsung, and others.

So let's just kind of break down what's going on here with ASML. They're the company that produces the machines that actually goes ahead and allows companies to create chips. They use technology, the most advanced is a lithography machine, and that's where you're going to be able to create the most high end processors on the market.

Now, apparently what's going on here is orders for those machines are running low. China, though, had the ability to bring them in because they have the plants already set up to go that need these kinds of chips, and so-- these kinds of machines, and so that's why we're seeing that kind of growth out of China. There's supposed to be more growth coming from the US as that CHIPS Act rolls out and we start to see more companies produce their own factories here, but some of them have been stalled or are running behind schedule or are dealing with other issues, and so the machines just aren't ready to come to the US.

The other side of the chip problem is that we had seen such a large decline in consumer spending because of high interest rates and inflation, so people didn't necessarily need to go out and buy devices, or even if they did, they were figuring, well, I might as well hold off for now and we'll see how things rebound or don't in the coming weeks and months. And so that's why we're seeing a decline in sales for consumer chips, the interest rates and high inflation obviously also impacting general server sales. Anything that's not AI really doesn't seem to be blowing up as much as it should, but we'll get a better read on how AI is doing when we get NVIDIA's results later next month.

AKIKO FUJITA: Meantime, Dan, we are continuing to see AI or chip stocks down broadly today, extending the losses from yesterday. We saw some steep declines on the back of these additional restrictions that were placed on AI chip exports to China yesterday. What does that mean for a company like ASML? What's the broader impact here?

DAN HOWLEY: Yeah, look, I mean, they wouldn't be able to ship some of their machines to China. They would have to get some kind of registration or pass from the government, you know, to be able to actually get them shipped over there, and so that's going to potentially impact their bottom line, though they're saying that it wouldn't have a massive impact overall, and this is kind of the phrasing that we're getting from other companies as well.

NVIDIA had previously said that they wouldn't run into any real problems in the near term with the restrictions, although they said, you know, if we can't get access to the Chinese market overall, it'll give us kind of a-- it'll hurt them in the long term compared to potential Chinese competitors.

So it really comes down to how these companies can navigate these restrictions and how they can continue to work with the Chinese companies that want to get their products, whether that means producing machines that create chips that aren't as advanced as what are around now, or with chip companies, whether it means producing less advanced chips than are around now. NVIDIA has already tried this, but even those chips seem to be on the chopping block for shipment to China, so we'll just have to see if they can come up with other solutions to get around this.

AKIKO FUJITA: Yeah, points to some tougher circumstances, given that these restrictions are meant to make it a little tougher to navigate this environment. Dan Howley, thanks so much for that.