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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.


 
China is the biggest market in terms of revenue, but not profit. The Chinese only can buy less advanced DUV machines, which have a much smaller profit margin compared to EUV machines. So, gross margin will actually go up because of this.

Surely ASML like a lot of folks in the Semicon manufacturing world hope that India can over come and start buying Billions of dollars of everything
 
China is the biggest market in terms of revenue, but not profit. The Chinese only can buy less advanced DUV machines, which have a much smaller profit margin compared to EUV machines. So, gross margin will actually go up because of this.
Surprsingly, CFO wanted to wait until January for a more firm statement on it:

Stephane Houri
ODDO BHF Corporate & Markets, Research Division

Okay. And the follow-up would be about the gross margin in 2026. I know you're not giving guidance and you will say more in January. But given what you have described, i.e., less China, more EUV, but also at the same time, more EUV High-NA, can we expect some increase in the gross margin next year?


R.J.M. Dassen
Executive VP, CFO & Member of the Management Board

Yes, Stephane, indeed, I will give -- we will give more clarity on that, obviously, in January. But I think you're right, that product mix, obviously, is very in what drives it. And then as you know, what we ship to China today to a very large extent is immersion. Immersion comes with a very good gross margin. So less China business would be dilutive on that front. But you're right, EUV comes in with very strong gross margin. So therefore, if we predict that EUV, particularly low-NA goes up, that would be a positive again on the other hand. And then there is the question on the number of tools that we're going to recognize for High-NA, which, of course, is still dilutive to the corporate gross margin.

So I think that's an important one. And the other one is our expectation on the installed base business. You know that particularly the upgrade business is pretty important when it comes to gross margin. So it's all those moving parts, exactly where they land will eventually determine what the expectation is. But those are indeed the moving parts. It's product mix and it's the expectation on the composition of the installed base business, which, first and foremost, is going to drive that perspective.
 
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