ASML's recent forecast has sent ripples through the stock market, hinting at potential overcapacity in chip factories. These factories, having stocked up on ASML's costly machines during the pandemic, are now better equipped to churn out more chips, some analysts suggest. ASML shares plummeted by 16% in a single session, marking a record-breaking drop in its 26-year history. ASM International, a fellow Dutch company, wasn't spared either, with its shares falling by 14%. The drama intensified when ASML's results were accidentally released during trading hours, instead of the scheduled 7:00 am announcement. ASML projected total net sales of 30 to 35 billion euros for 2025, falling short of the market's 36 billion euro expectation. The gross margin forecast, at best 53%, also missed the consensus of 53.9%. Jefferies analyst William Beavington expressed surprise at the weak third-quarter orders, stating, "I don't know anyone, anywhere, who thought such a low figure was possible." He also urged caution regarding orders from China, which might decline more rapidly than anticipated.

Dans le rang

Back in line?

The revision of targets has led to the collapse of a large part of the semiconductor industry, as ASML holds a virtual monopoly on the essential tools used by TSMC, Intel and Samsung Electronics to manufacture cutting-edge chips. American groups with exposure to chipmaking, such as Applied Materials, LAM Research and KLA Corporation, all lost more than 10% in the process. Even AI star Nvidia (-4.7%) was hit.

Rising capacities

Spurred on by strong demand for chips during the pandemic, manufacturers increased their production capacity. This growth stabilized as supply chains eased, allowing them to wait to order new tools until their factories seemed ready to overflow with orders.

According to analysts, ASML's forecasts are a belated indicator of what has been going on for months in these chip factories.

The company said in a press release that, despite the boom in artificial intelligence chips, other sectors of the semiconductor market remained weaker than expected, leading companies to focus on their core business.seen, leading companies making logic chips to delay orders and customers making memory chips to expect only "limited" increases in production capacity.

81% utilization rate

According to Dan Hutcheson, Vice President of analyst firm TechInsights, Intel, TSMC and Samsung are reducing their orders with ASML because they have realized that capacity is sufficient. The chip fab utilization rate is around 81% this year, but manufacturers tend to buy tools when that rate reaches the mid-90% range, Hutcheson said. Intel has slowed factory expansion, suggesting that Samsung and TSMC will also be cautious.

Chip inventories remain high, and chipmakers have become more efficient with ASML tools, meaning they can make more chips without having to order more.

"In the long term, we'll be fine"

Handel Jones, CEO of International Business Strategies, which tracks developments in the chip manufacturing industry, has reduced the number of stages in which ASML's flagship machines are used, sometimes by as much as a third.

According to Jones, Samsung, for example, might be able to use advanced chip etching technology to reduce the number of stages in which ASML's flagship machines are used from five or six to one or two. If successful, Samsung could have significant excess capacity for these machines, known as extreme ultraviolet lithography machines. Jones said he had not changed any of his overall chip industry forecasts, which predict booming demand for AI chips and AI-specific memory chips. "This is a short-term incident. In the long term, we'll be fine," said Jones.