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ASML looks to calm fears over 2026 growth as it warns of China sales decline

Daniel Nenni

Admin
Staff member

ASML China Headwinds 2025.jpg

ASML's Q3 2025 Earnings: Balancing AI Strength with China Headwinds​


ASML Holding NV, the Dutch semiconductor equipment giant and key supplier of lithography machines for chip manufacturing, released its third-quarter 2025 earnings on October 15, 2025. The results showed robust order intake driven by AI demand but included a stark warning about a sharp drop in sales to China in 2026. While the company sought to reassure investors that overall growth would hold steady, the news highlighted escalating geopolitical tensions in the chip sector. Here's a breakdown of the key highlights.

Financial Performance​

ASML reported solid Q3 results, exceeding expectations on bookings despite flat net profits:
  • Net Sales: €7.7 billion, up 8% year-over-year but slightly below analyst forecasts.
  • Net Income: €2.13 billion, a modest increase from €2.08 billion in Q3 2024 and ahead of the €2.11 billion consensus.
  • Net Bookings: €5.4 billion, beating estimates of €5.36 billion and signaling strong future demand, particularly from AI investments.
  • Gross Margin: 52.5%, in line with guidance.
For the full year 2025, ASML reaffirmed its outlook:
  • Total net sales growth of ~15% from 2024 (targeting €30–35 billion).
  • Gross margin of ~52%.
Looking to Q4 2025, the company expects net sales of €9.2–9.8 billion with a gross margin of 51–53%, pointing to a strong year-end ramp-up.

China Sales Warning and 2026 Outlook​

CEO Christophe Fouquet explicitly addressed concerns about the company's heavy reliance on China, which has been a growth engine amid U.S. and Dutch export restrictions on advanced tools. Key points:
  • China accounted for 42% of Q3 net sales (up from 27% in Q2 2025), making it ASML's largest market this quarter.
  • However, Fouquet warned: "We expect China customer demand, and therefore our China total net sales in 2026, to decline significantly compared to our very strong business there in 2024 and 2025."

  • This drop is attributed to Beijing's push for domestic alternatives (e.g., in deep ultraviolet or DUV lithography) and tightening export curbs, including recent rare-earth restrictions.

  • Despite the China headwind, ASML calmed investor fears by stating: "We do not expect 2026 total net sales to be below 2025." More detailed 2026 guidance will come in January, with analysts anticipating flat to slight growth overall.
The company emphasized that AI-driven demand from non-China markets—like expansions by Nvidia, Intel, and TSMC—should offset the decline, particularly in extreme ultraviolet (EUV) systems for advanced chips.

Market Reaction and Analyst Views​

ASML's shares rose over 3% in early European trading following the release, as investors focused on the bookings beat and AI tailwinds rather than the China caution. Analysts offered a mixed but cautiously optimistic take:
  • Positive: Strong Q4 guidance and steady EUV demand signal resilience; AI chip foundries and memory growth (e.g., from better-than-expected smartphone/PC sales) are key drivers.
  • Cautious: The lack of a clear 2026 acceleration story, combined with China risks, tempers enthusiasm. Valuation at ~35x 2026 earnings leaves limited upside, per Jefferies.
  • Broader context: Geopolitical tensions, including potential new U.S. restrictions, could exacerbate the China slowdown.

Implications for the Semiconductor Industry​

ASML's warning underscores the chip war's intensification, with China (historically ~30–40% of ASML's sales) accelerating self-sufficiency. Yet, the firm's long-term view remains bullish: AI could drive annual sales to €44–60 billion by 2030. Upcoming earnings from major customers like TSMC (due later this week) will provide further clues on global demand trends.


 
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