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Interface News reporter | Li Biao

Jiemian News Editor | Song Jianan

Before the U.S. stock market opened on July 17, Dutch lithography giant ASML released its second quarter financial report for 2024. Its net sales reached 6.2 billion euros, exceeding the market expectation of 6 billion euros, an increase of 18% over the same period last year; its gross profit margin was 51.5%, also higher than the expected target.

The company's net profit also maintained positive growth, reaching 1.6 billion euros, compared with 1.224 billion euros in the same period last year.

According to the company's forecast, net sales in the third quarter will be between 6.7 billion and 7.3 billion euros, a further increase from the second quarter, and gross profit margin will be between 50% and 51%.

ASML believes that this year's global semiconductor market is still an "adjustment year" to recover from the downward cycle. After experiencing sluggish market demand and semiconductor manufacturers sacrificing profits to "destock", the industry's overall inventory level has improved and will continue to recover in the second half of this year. The company expects revenue in 2024 to be roughly the same as last year, with a slightly lower gross profit margin.

In its view, the semiconductor industry will enter an upward cycle of comprehensive growth by 2025. As of the end of the second quarter, ASML's total undelivered orders amounted to 39 billion euros. Combining discussions with customers and forecasts of a large number of undelivered orders, the company believes that 2025 will be a strong year.

It is worth noting that according to official introduction, this quarter's unexpected growth mainly came from the increase in sales of the company's DUV lithography machines, and mainland China is currently the largest market driving the growth in DUV sales.

ASML's current lithography machine products are mainly divided into two categories: DUV (deep ultraviolet) and EUV (extreme ultraviolet). DUV lithography machines can meet the chip manufacturing needs of 7 nanometers and above, while EUV lithography machines are generally used for more advanced process technologies, such as 5 nanometers and smaller process nodes.

In the second quarter's lithography system sales data, DUV lithography machines accounted for half of the total sales (ArFi in the figure below corresponds to its DUV product line), and total sales in the second quarter increased by nearly 800 million euros compared to the first quarter, almost all of which came from increased sales of DUV.

Data shows that the sales of lithography systems in the Chinese mainland market accounted for 49% in both the first and second quarters of this year, which is close to half. The sales of lithography systems shipped to the Chinese market in the second quarter reached 2.33 billion euros, while the sales in the first quarter were 1.94 billion euros.

Since 2019, ASML's EUV lithography machines have been banned from sale in the Chinese mainland market, and mainland customers can only purchase DUV. Since last year, the United States has put pressure on the Netherlands to expand the ban on sales to several high-end and mid-to-high-end DUV lithography machine models of ASML. Also since the end of last year, the contribution of DUV lithography machines to ASML's revenue has grown rapidly, and behind this is the obvious acceleration of DUV purchases by mainland Chinese customers.

The latest import and export data also reflects this trend. According to data from China Customs from January to February this year, China imported lithography machines worth US$1.057 billion from the Netherlands, up 256.1% year-on-year. Throughout the first half of the year, China's semiconductor equipment imports soared, with Japan accounting for almost one-third of the import share, and the Netherlands was also one of the important import sources.

China is currently the world's largest market for semiconductor equipment sales. According to SEMI (Semiconductor Equipment and Materials International), with the recovery of demand for chip manufacturing and the stimulation of AI, global semiconductor equipment will grow significantly in 2024 and 2025, and mainland China's equipment shipments to the Chinese market in 2024 are expected to exceed US$35 billion, accounting for 32% of the global share.

ASML management has also recently emphasized the importance of the Chinese market. On July 8, ASML's new CEO Christophe Fouquet said in an interview with German media that China is expanding the production capacity and market share of mature process chips, which is urgently needed by the world. Especially in the automotive industry, a large number of mature process chips are needed, and "Europe cannot even meet half of its own demand."

The lithography equipment used to produce mature process chips is currently one of ASML's important sources of income. Regarding the EU's plan to launch an investigation into China's production of mature process chips, Christophe Fouquet believes that considering the supply and demand relationship, it is more important to find effective alternatives than simply banning them.

"If someone wants to slow down the process for some reason, then alternatives are needed. There is no point in stopping someone from producing a product you need," said Christophe Fouquet.

On July 17, there were reports that the United States was considering taking stricter measures to put pressure on companies in countries such as Japan and the Netherlands to restrict their chip trade with China. In response, Foreign Ministry spokesman Lin Jian said that China has repeatedly expressed its solemn position on the malicious blockade and suppression of China's semiconductor industry by the United States. The United States has politicized, generalized and instrumentalized economic, trade and technological issues, continuously increased chip export controls on China, coerced other countries, suppressed China's semiconductor industry, seriously undermined international trade rules, and damaged the stability of the global production and supply chain, which is not beneficial to any party. China has always firmly opposed this.

Lin Jian said that he hopes relevant countries can distinguish right from wrong, resolutely resist coercion, jointly maintain a fair and open international economic and trade order, and truly safeguard their own long-term interests.

Perhaps affected by the above news, US chip stocks fell across the board before the market opened, with ASML falling more than 6%, TSMC falling more than 3%, and Nvidia and AMD falling more than 2%. ASML fell nearly 8% to 903 euros in Amsterdam, the biggest drop since October 2022.