Chip industry’s China crisis hammers lam but may spare ASML
THE Biden administration’s trade restrictions on China are wreaking havoc with the chip-equipment industry, but a pair of company forecasts shows that the pain won’t be spread evenly.
ASML Holding, a Dutch maker of semiconductor manufacturing gear, reassured investors with its latest outlook on Wednesday (Oct 19), saying it sees “fairly limited” impact from the export controls. As a European company, ASML expects to be spared from the brunt of the restrictions, which are aimed at keeping cutting-edge technology out of China and away from the country’s military.
Later in the day, Lam Research gave a less upbeat assessment. Revenue from China, which accounts for about 30 per cent of the US company’s sales, will be US$2 billion to US$2.5 billion lower in 2023, Lam said. The chip-equipment maker has to halt supplying gear and services to some customers in the country, marring its otherwise-positive performance.
ASML’s remarks helped send its shares up more than 8 per cent on Wednesday, marking their biggest one-day gain of 2022. Lam, meanwhile, slipped 1.2 per cent in late trading following its report.
Washington unveiled the sweeping regulations earlier this month, aiming to curb the sale of advanced semiconductors and equipment to China and ban Americans from helping with the country’s development of chip technologies.
The move sent shockwaves through the US$550 billion industry, and companies are still evaluating the impact. Already, US businesses such as Lam, Applied Materials and KLA have stopped employees from working with China’s top memory chipmaker.
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The Biden administration is pushing for allies to collaborate on export controls, which could spread the impact further.
ASML, based in Veldhoven, Netherlands, has told its workers in the US to refrain from servicing customers in China. The company expects the total indirect impact from US measures to be roughly 5 per cent of its backlog, chief executive officer Peter Wennink said on Wednesday.
While ASML still cannot ship its most advanced machines to China, chief financial officer Roger Dassen said that the company can continue to offer less sophisticated tools to Chinese customers.
“The fact that we are a European company with limited US technology in it of course creates this situation where a direct impact on us is fairly limited,” he said in a video that the company released with its earnings. He added that ASML will comply with US regulations.
The company said its fourth-quarter sales would likely be higher than analyst estimates, helped by strong demand for its advanced chipmaking machines.
It’s a different situation for Lam, which is based in Fremont, California. Though its latest results handily beat expectations - with both earnings and sales topping Wall Street projections - its remarks about China cast a pall on the report.
Sales in the current period will be about US$5.1 billion, but that number would have been “decently higher” without the new restrictions, chief financial officer Doug Bettinger said.
Gross margin, the percentage of revenue remaining after deducting the cost of production, will narrow as the company loses profitable Chinese customers, it said. The outlook suggests the impact on sales will be more than twice as big for Lam as for ASML.
Lam follows Applied Materials - its larger US peer - in detailing the financial hit from the restrictions. That company, based in Santa Clara, California, said last week that the restrictions would reduce revenue by US$400 million in the current quarter. Its fiscal first quarter, which ends next January, will be hurt to a similar extent.
Lam’s machines are used to deposit materials on disks of silicon, part of the process of building semiconductors. The company has a relatively high dependence on China and memory chipmakers for its orders, making it vulnerable to the new rules. The curbs limit the supply of machines used for advanced manufacturing of both types of memory.
“We now have additional restrictions for certain domestic Chinese customers and expect the revenue in this region will be significantly lower as we go into next year,” Bettinger said. BLOOMBERG
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