Key Points:
- Influenced by pressure from the U.S., the Dutch government has restricted ASML’s ability to service advanced DUV machines in China.
- JPMorgan and Wells Fargo suggest that the impact on the company’s financial outlook will be minimal.
- Only a small portion of ASML’s domestic China service revenue, which accounts for 10% of the total, is expected to be affected.
- Despite the restrictions, the company’s financial stability is not expected to be significantly altered.
The Dutch government has imposed new restrictions on ASML, limiting the company’s ability to service and provide spare parts for advanced deep ultraviolet (DUV) machines in China. This move appears to be influenced by pressure from the U.S. government, pushing for stricter controls on China’s access to advanced semiconductor technology.
Analysts from JPMorgan and Wells Fargo suggest that while the restrictions could impact ASML’s operations in China, the overall effect on the company’s earnings is expected to be minimal. According to a note from JPMorgan, the Dutch government is set to restrict ASML from renewing certain licenses required to service advanced DUV tools in China. Despite this, analysts believe ASML will still be able to maintain service for its existing regional tools.
JPMorgan analysts estimate that if the restrictions are confined to servicing advanced DUV tools in China, ASML’s revenues in 2025 would see a modest decline of about 1%. However, given that servicing and installed base management are more profitable, the impact on ASML’s 2025 gross margins could be slightly higher, estimated at around 1.25%.
Wells Fargo analysts share a similar view, noting that the extent of the restrictions has been the subject of conflicting reports. Nevertheless, they do not see this development as a major surprise or a significant threat to ASML’s financial outlook. Wells Fargo estimates that ASML’s total domestic China service revenue accounts for 10% of its services, translating to approximately 2%. They believe the new restrictions would affect only a small portion of this 10%.
Both banks conclude that while the Dutch government’s tougher stance on servicing advanced DUV tools in China may create some operational challenges for ASML, the financial impact will likely be limited. ASML’s robust global operations and diversified customer base are expected to help mitigate the impact of these new restrictions.
