ASML Collapses!

ASML's stock crumbled.

Following the release of its third-quarter results, ASML's share price plummeted rapidly, dropping by 16.26%, with a market value loss of $55 billion, equivalent to approximately 400 billion yuan; the next day, ASML's stock fell another 6.42%, with a market value loss of $18 billion, equivalent to approximately 130 billion yuan.

In other words, within just two days, the global photolithography giant saw a market value evaporation of over 500 billion yuan, marking the largest decline in nearly 26 years!

What kind of performance was this?

According to the financial report, ASML's operating revenue for the first three quarters was 19 billion euros, a year-on-year decrease of 6.5%; net profit was 4.878 billion euros, a year-on-year decrease of 15.76%. Looking solely at the third quarter, ASML's operating revenue was 7.47 billion euros, with a net profit of 2.077 billion euros, and gross and net profit margins were 50.8% and 28%, respectively.

Note that, looking purely at the third-quarter operating performance, ASML is not doing badly!

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The issue lies in the orders.

In the third quarter of this year, ASML's order value was only 2.63 billion euros, about half of the market expectation. What does this mean? It means that although the current performance will not be affected, the impact of the decline in orders will become apparent starting next year.

According to ASML's disclosure, the company's net sales are expected to be between 30 billion and 35 billion euros by 2025, lower than market expectations; the gross margin will be between 51% and 53%, also lower than market expectations.

Note that ASML's operating performance will affect the nerves of the global chip market.As the largest technology company in Europe and the world's largest manufacturer of photolithography machines, ASML's customers include TSMC, Intel, Samsung, Micron, and SK Hynix, among others. In other words, ASML's photolithography machine sales are often seen as a barometer for global chip industry investment and prosperity.

Therefore, the decline in ASML's orders can be interpreted in two ways: one is the decline in the global chip market's prosperity, and the other is that Mainland China is no longer purchasing ASML's photolithography machines.

Regarding the former, the International Semiconductor Industry Association released a report stating that the total global sales of semiconductor manufacturing equipment will reach $109 billion in 2024, a year-on-year increase of 3.4%, and is expected to reach $128 billion in 2025, a year-on-year increase of about 17%. This means that with the rapid development of AI technology, the semiconductor industry is still growing rapidly.

So, it might be that Mainland China is no longer buying ASML's photolithography machines.

In 2023, ASML's revenue from Mainland China was €7.252 billion, a year-on-year increase of 148.69%, accounting for 26.3% of the total. In the first half of this year, ASML's sales to China further increased to 49%, meaning that half of the revenue was contributed by Mainland China. However, according to ASML's official statement, this figure will drop to around 20% by 2025.

Clearly, orders from China have significantly decreased. Of course, this is partly voluntary and partly involuntary. Under the unreasonable suppression of the United States, we have no choice but to embark on the path of "domestic substitution" and "self-reliance."

In 2018, SMIC signed a contract with ASML for 11 extreme ultraviolet lithography machines, and then the well-known events occurred, with the United States initiating a "chip war" against us. However, SMIC's plan to expand production did not change as a result, with one important consideration being the hope to increase investment in mature processes, compete in quantity with process technology, and seize the market.

Behind this, there is an acceleration in the localization of semiconductor equipment!

Take Huawei's developed Kirin 9000s, for example, which uses advanced 7-nanometer production technology, marking a significant breakthrough in China's chip industry and belonging to a milestone event in the localization of semiconductor equipment.

Let's look at the performance of some listed companies.For the first three quarters of this year, North Hua Chuang is expected to report operating income of 18.83 billion yuan to 21.68 billion yuan, a year-on-year increase of 29% to 48.6%, and an expected net profit of 4.13 billion yuan to 4.75 billion yuan, a year-on-year increase of 43.2% to 64.7%; Wei Er shares are expected to report a net profit of 270 million yuan to 300 million yuan, a year-on-year increase of 744% to 837.8%. In addition, companies such as Xin Lian Integration, Jing He Integration, and Ding Long Shares have all seen a significant increase in performance.

Let me share two more numbers with you.

In the second quarter of this year, the global semiconductor equipment shipment value increased by 4% year-on-year, but the Mainland China's year-on-year growth rate was 62%, far exceeding the global average growth rate.

In 2000, the United States and Japan dominated the global semiconductor capacity, with Mainland China's capacity accounting for only 2% at that time; by 2010, Mainland China's capacity had increased to 9%; by 2020, it further increased to 17%; it is expected that by 2026, it will further increase to 26%.

Admittedly, we still have many shortcomings in advanced capacity, but against the backdrop of "bottlenecks," the domestic replacement of semiconductors is accelerating. Therefore, although ASML's order volume has decreased significantly, partly due to Chinese mainland companies stocking up in advance, just like the 7-nanometer Kirin 9000S chip, local companies are continuously breaking through technical blockades, and domestic replacement is gaining momentum.

In a word, an era has ended, and a new era has begun.