ASML reveals how U.S. chip export restrictions will impact its sales in China.

• ASML, a Netherlands-based chip equipment manufacturer, announced on Tuesday that it anticipates its net sales for 2025 to fall within the lower half of the previously stated range.
• ASML's China business is expected to have a "more normalized percentage" in both its order book and business, according to Roger Dassen, the company's chief financial officer.
• The restrictions on sales of advanced chipmaking tools to China are affecting the Dutch tech giant.
• The demand for less advanced ASML machines in China is expected to decrease significantly, as China's customers had already stockpiled these machines to gain an advantage over U.S. exports.

On Tuesday, ASML provided the first insight into how U.S. export restrictions on its advanced chip manufacturing equipment to China will affect its sales in the Asian country.

ASML, a Netherlands-based chip equipment manufacturer, announced in its earnings report on Tuesday that it anticipates net sales for 2025 to fall between 30 billion euros and 35 billion euros ($32.7 billion and $38.1 billion), which is below the upper half of the range it had previously forecast.

The global chip supply chain relies heavily on ASML, whose extreme ultraviolet lithography machines are utilized by major chip manufacturers such as Intel, Samsung, and TSMC to produce cutting-edge chips.

Despite exceeding expectations with third-quarter net sales of 7.5 billion euros, the company fell short of its net bookings target with a total of 2.6 billion euros ($2.83 billion), which was below the 5.6 billion euro consensus estimate from LSEG.

On Tuesday, ASML's shares dropped by up to 16%, resulting in a loss of over $50 billion in market capitalization, as calculated by CNBC using LSEG data.

Geopolitical tensions are putting pressure on AMSL's 2025 outlook, in addition to the disappointment on bookings caused by weakness in a select number of customers, including Samsung.

ASML's China business is expected to have a "more normalized percentage" in both its order book and business, according to Roger Dassen, the company's chief financial officer, who made the statement on Tuesday.

The change in ASML's 2025 guidance is mainly due to delays in the development of new logic fabrication facilities from Intel and Samsung, resulting in a 25% to 30% decline in sales to China in 2025, according to UBS analysts.

How important is China to ASML?

To circumvent U.S. export restrictions, ASML's China-based customers have been hoarding the company's less advanced machines and maintaining access to its critical technology, which is essential for manufacturing chips in the electronics industry.

EUV machines have never been sold by ASML to Chinese customers due to past restrictions.

Instead of ASML's advanced lithography systems, chip firms in the country have chosen to purchase DUV machines, which are ASML's second-tier lithography systems. These machines are crucial for creating the circuitry of chips.

In 2025, ASML anticipates that its sales from China will decrease from the current 29% to approximately 20%.

In the first three quarters of 2024, sales to China surged due to customers' rush to purchase ASML's DUV machines in bulk before U.S. and Dutch export restrictions took effect.

In its Q2 2024 earnings presentation, ASML revealed that it obtained 49% of its sales from China.

The Netherlands tightened export restrictions on advanced chip manufacturing equipment in September by assuming control over licensing requirements for ASML's machines, effectively taking over from the U.S. in regulating what machines ASML can export to other countries.

The move would enable the Dutch government to prevent ASML from continuing to supply DUV machines to China.

"China is a crucial market for China, with most of its revenue coming from older-generation chipmaking tools, according to Chris Miller, assistant professor of international history at the Fletcher School of Law and Diplomacy at Tufts University and author of the book 'Chip War,' as he told CNBC in emailed comments."

"Ironically, restrictions on exports of DUV machines to China may have benefited ASML, as China has increased its purchases of older generation DUV tools due to these restrictions," Miller stated.

CFO Dassen stated in a transcript of a video interview Tuesday that ASML anticipates a decline in sales to China due to U.S. trade restrictions, resulting in China taking up a smaller share of its global sales in 2025.

"Dassen stated that China is moving towards more typical revenue percentages in our business. As a result, we anticipate China to account for approximately 20% of our total revenue next year, which is consistent with its representation in our backlog."

Bank of America analysts stated that the firm's revenues in China are expected to decline sharply, with ASML forecasting China to account for 20% of its revenue in 2025, resulting in a 48% revenue decline year-over-year, which is more severe than the previously anticipated 3%.

The Geopolitical Business founder Abishur Prakash stated that the demand for ASML's machines from China is likely to decrease significantly due to the company's severe export control restrictions.

"ASML, like Intel, heavily depends on China as its largest market, and is closely monitoring the situation in China as a potential restriction on business, according to Prakash, who spoke to CNBC via email."

"If China cuts off the chip industry, ASML could experience a decline in demand for its equipment not only from China but also from other countries," Prakash stated.