ASML's lowered outlook points to factory overcapacity, not the demise of the chip industry

(Reuters) – Computer chip equipment maker ASML's (ASML, ASML.AS) drastic cuts to its 2025 sales forecast sparked a sell-off in chip stocks on Tuesday amid fears global chip demand could weaken .

The weaker outlook may instead reflect some excess capacity at chip factories, which had already stocked up on ASML's expensive tools during the pandemic and were now better able to use them to produce larger numbers of chips, analysts said.

ASML shares plunged to their biggest daily loss in a quarter century on its downgraded forecast. In results that the company accidentally released a day earlier than planned, ASML said it expects total net sales of 30 billion to 35 billion euros in 2025, near the low point of its previous forecast.

This has affected much of the semiconductor industry, as ASML has a near monopoly on critical tools used by TSMC (TSM), Intel (INTC) and Samsung Electronics (005930.KS) to make advanced chips.

Spurred by huge demand for chips during the pandemic, these chipmakers added additional capacity. That growth stabilized as supply chains relaxed, forcing them to wait to order new tools until their factories seemed ready to flood with orders.

ASML's forecast is a lagging indicator of what has been going on at these chip factories for months, analysts said.

The company said in a statement that despite a boom in AI-related chips, other parts of the semiconductor market were weaker than expected for longer than expected, causing leading companies that make logic chips to delay orders and customers that make memory chips to have only “limited “planned. new capacity expansions.

Intel, TSMC and Samsung are withdrawing their orders from ASML because they realize there is enough capacity, said Dan Hutcheson, vice chairman of analyst firm TechInsights.

Chip fab utilization is about 81% this year, but manufacturers tend to buy tools when it's in the mid-90% range, Hutcheson said. Intel has slowed its factory expansion, suggesting Samsung and TSMC will also be cautious, he said.

Chip supplies remain high and chipmakers have become more efficient with ASML's tools, meaning they can make more chips without having to order more.

Handel Jones, CEO of International Business Strategies, which tracks the chipmaking industry, has partially reduced the number of steps in which ASML's flagship machines are used by almost a third.

Jones said Samsung, for example, might be able to use cutting-edge chip-etching technology to reduce the number of steps from five or six to one or two when using ASML's flagship machines.

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If successful, Samsung could have significant excess capacity for these machines, known as extreme ultraviolet lithography machines, he said.

Jones said he hasn't changed any of his overall chip industry forecasts, which call for booming demand for AI chips and AI-specific memory chips.

“This is a short-term blip. In the long run, everything will be fine,” Jones said.

(Reporting by Max A. Cherney and Stephen Nellis in San Francisco; Editing by Sayantani Ghosh and Sonali Paul)