The Chip Insider®– ASML's Miss: Is it an industry problem or is it just ASML?
Author: G. Dan Hutcheson
Is ASML's recent miss an industry issue or just their problem? Explore how early Q3 results triggered a stock plunge, affecting ASML and the broader wafer fabrication equipment (WFE) market.
Normally, when predicting the future when you’re wrong, you are wrong. The curious anomaly in forecasting is that investment analysts are never wrong. Instead, the companies they cover have wronged because they missed analyst expectations. So ASML was punished Tuesday, when it accidentally posted its Q3 results early showing its orders had missed analyst expectations by more than half. Its stock closed off more than 16% for the day, wiping out $56B in market value – roughly equivalent to more than half a year’s WFE revenues. It took most other WFE stocks down double-digits as well, giving the total industry a market value haircut equal to more than a year’s WFE revenues. This hinted that the problem was more than just ASML’s.
It should not have been a surprise a miss was coming. The potential for weak orders has been there for some time. You may recall my warning in the July 26, 2024 Chip Insider (Soft Landing or Hard Landing?) about this cycle having the potential for a big upset. And it was far more than what you read about softness in everything that’s not AI, such as mobile and industrial.
As you know, the IC equipment market has continued to boom for more than three years at very high levels relative to semiconductor sales. Buoyed by geopolitical and shortage angst, last year the equipment content rate reached levels not seen for 20 years... it was enough for investors to run for the doors. The economics behind content rates is simple… In 2023, utilization crashed- landed at … peak-capacity-plus-planned being able to meet 2029’s expected demand for chip production. So, the fab pushouts ASML talked about Wednesday morning will result in planned capacity additions being stretched out… There are details that cloud this 10,000-meter view. One is... Two is the degree to which AI chips are …
ASML: what’s specific to it… Obviously the centrality of China restrictions… Progress in EUV is another uncertainty aspect that is specific to ASML… One indicator is ASML expects … In the case of Hi-NA, the obvious advantage … But shadowing … forced a field size halving … This stayed buried in the lithography community for a good 10 years… fabless engineers were caught off guard. Some revolted …
As for what happened this week in the stock market, often such events are not priced in. But the bottom line is investors should have seen it coming. It was only a question of when, not if.
“Forecasting is difficult… Especially when it's about the future” — Yogi Berra
