The semiconductor industry is showing signs of a slowdown as ASML, a Dutch equipment maker that supplies vital machines for chip manufacturing, reported a massive decline in bookings. This news has sent shockwaves through chip stocks, casting a shadow over the sector’s outlook.
ASML Bookings Drop Sharply
ASML is practically the sole provider of the sophisticated machines required to produce the world’s most cutting-edge chips. During the first quarter of the year, the company experienced a staggering 61% sequential drop in bookings, far exceeding forecasts. This drastic decline sent ASML shares crashing over 8% on a day when the broader S&P 500 index barely budged.
Chip Stocks Tumble
In the wake of ASML’s disappointing report, chip stocks across the board took a hit. AMD’s stock plummeted over 4%, Nvidia’s shares sank about 3%, Intel’s stock dropped nearly 2%, and Qualcomm slipped by 2%. Chip technology company Arm suffered the biggest loss, with its shares nosediving nearly 10%.
Foundries Reduce Equipment Purchases
ASML’s bookings decline signals potential trouble for foundries, the companies that physically manufacture chips designed by giants like Nvidia and Apple. A decline in equipment purchases by foundries could indicate a downturn in the cyclical semiconductor industry, which would ultimately impact chip company sales to end consumers.
Arm Bookings Affected
Licensing companies such as Arm earn revenue with every chip manufactured using their technology. The decline in ASML’s bookings could therefore translate into fewer chips being manufactured overall, impacting Arm’s revenue stream.
CEO Forecasts Recovery
ASML CEO Peter Wennink anticipates a stronger second half of 2024, suggesting a recovery from the current downturn. He highlighted “transitional” effects and indicated the absence of some major customers from recent orders.
US Foundries to Bolster Bookings
Wennink predicts an uptick in orders later this year from companies building foundries in the United States, such as Intel and TSMC. Government subsidies for chip factories, like the recently passed CHIPS Act, are also expected to boost ASML’s sales.
China Export Restrictions Uncertain
ASML remained tight-lipped about the impact of export restrictions on its business with China. However, Wennink emphasized the significance of orders from major customers and expressed confidence in future growth.
Data sourced from: cnbc.com
