ASML loses significant stock market value due to potential US export restrictions

Chip machine manufacturer ASML lost almost 43 billion worth of stock market value on Wednesday. Investors are lowering the share of the Dutch stock market darling by around 11 percent because stricter American rules may be introduced for exports to China. This is the most significant share price drop for ASML since March 2020.

The United States government is considering implementing the toughest export rules possible for China if companies keep giving the country access to advanced chip technologies. President Joe Biden's government allegedly told his allies about this, and the press agency Bloomberg reported this after information was obtained from anonymous sources. These measures would apply to companies like the Japanese chip equipment manufacturer Tokyo Electron and the Dutch chip machine manufacturer ASML.

The US is discussing whether to impose a measure called the Foreign Direct Product Rule, or FDPR. This provision was implemented in 1959. It gives the United States government the power to prevent a product from being sold to a country if it has been made with the help of American technology. This also applies to products made abroad.

According to the sources, the United States presented these measures to government officials in Tokyo and The Hague as something that would likely happen if the countries did not toughen their own Chinese measures.

The Dutch government previously expanded export restrictions for ASML at the Americans' insistence. In addition to the advanced EUV machines, the company is also not allowed to sell certain models of the second newest generation to China. The US fears China's military could become too strong with the latest modern chip technology.

Other Dutch chip machine manufacturers also lost a lot on the stock exchange. ASMI and Besi dropped by almost 8 percent. Elsewhere in Europe, price losses in the chip sector were significantly smaller. The German Infineon was down nearly 1 percent at the end of the trading day, and STMicroelectronics lost around 1 percent in Paris.

ASML announced that it received many more orders from clients in the last quarter than it did at the start of the year. According to recently appointed CEO Christophe Fouquet, this growth is mainly due to the fast development of new artificial intelligence applications (AI).

"We are seeing strong developments in AI, which is causing the largest part of the recovery and growth in the sector," said Fouquet in an explanation of the numbers.

Orders worth almost 5.6 billion euros came in in the second quarter, which is much more than the 3.6 billion euros worth of orders that they received in the first three months of the year. The most modern lithography machines made by ASML, which work with extreme ultraviolet light to sign patterns on chips, were good for 2.5 billion euros worth of orders.

ASML also recorded an 18 percent higher turnover of 6.2 billion euros than in the first quarter. Subsequently, the company recorded a net profit of 1.6 billion euros. ASML maintains that its turnover will remain roughly the same as last year.

It was also noticeable that almost half the turnover came from China. Despite the restrictions above, Chinese companies are still investing heavily in machines to produce chips from older generations.

ASML's turnover and profits are lower compared to the second quarter of last year. The chip industry has struggled with a drop in demand in the last year after a period of huge demand for electronics during the coronavirus pandemic.

This is the reason that ASML sees 2024 as a transitional year. The company from Veldhoven is mainly investing in expanding its production capacity and furthering technological developments to play in on the expected growth of clients like Samsung, Intel, and TSMC.