TMTPost -- Netherlands-listed shares of ASML Holding NV shed 5.1% Wednesday after the world’s leading lithography machine manufacturer warned the recovery of the semiconductor industry will be slower than expected, which will hit sales in China, despite increasing demand from the artificiality intelligence (AI) boom these years.

Credit：Chinese social media blog Niutanqin created by former Xinhua correspondent Liu Hong

“With regards to market condition, while we continue to view AI as a key driver of the industry recovery with potential upside, we see other segments recovering more slowly than anticipated. The recovery will extend well into 2025, which is leading to customer cautiousness and some push outs in their investment,” ASML President and CEO Christophe Fouquet said in an earnings call with analysts Wednesday.

In conclusion, Fouquet commented while the long-term trends are still very strong and positive, the developments over the past few months combined with customer specific circumstances has led to a reduced growth curve in 2025 and an over overall reduction of our lithography demand. “Due to this dynamics over the last quarter, we felt it'll be appropriate to make some comments on 2025 at this time versus waiting until our Investor Day next month,” said Fouquet.

Fouquet effectively reconfirmed his remarks in a statement of financial results for the third quarter of the year, which was published a day earlier than its schedule in what a spokesperson called a “technical error”.   “While there continue to be strong developments and upside potential in AI, other market segments are taking longer to recover. It now appears the recovery is more gradual than previously expected. This is expected to continue in 2025, which is leading to customer cautiousness,” said Fouquet in the statement.

ASML posted weaker-than-expected bookings and guidance, along with the downward sales outlook in its major market China. Its net bookings slumped 53% quarter-over-quarter (QoQ) to 2.63 billion euros, less than half of the value forecast of 5.39 billion euros by Wall Street analysts.  ASML now expects the net sales for the year 2025 to come in between 30 billion euros and 35 billion euros, representing the lower half of the range of 30 billion euros and 40 billion euros it previously provided. Analysts anticipated the annual net sales would be 35.94 billion euros.

China remains ASML’s largest market with a 47% of system sales in the September quarter, down from 49% in the quarter ended June. ASML is bracing further decline in sales contribution of China in 2025.  ASML Chief Financial Officer (CFO) Roger Dassen said Tuesday he expects the company’s China business to show a “more normalized percentage in our order book and also in our business.” “We do see China trending towards more historically normal percentages in our business,” Dassen said.“So we expect China to come in at around 20% of our total revenue for next year. Which would also be in line with its representation in our backlog.”

In Wednesday’s earnings call,  ASML's management said the slower-than-expected recovery will mainly impact sales of its less advanced deep ultraviolet, or DUV, lithography systems to China.

When asked about the normalization of the demand from China and what the 2025 guidance implies for non-China DUV revenue,  Dassen said ASML had indicated it anticipated sales in China will become normalized following the high sales volume in the past two years, partially due to the backlog build-up. Then Dassen pointed out the speculation about export controls drove ASML to take a more cautious view on the China sales. As to the DUV business, Dassen said sales in China is expected to go down while those in markets outside China will go up.

Dassen told analysts that 20% is what ASML consider to be a normal percentage of its business, and is also a number that the company assumed on a go-forward basis that it believes would be realistic for China, which of course is subject to any development of export controls. “But simply looking at the market, we believe, that the China market structurally would be able to accommodate about 20% of our revenue,” Dassen said.

ASML management said it expects AI, the energy transition, and electrification will continue to drive demand for its lithography systems outside of China as the company said it is currently preparing "for a number of new fabs that are being built across the globe."

As to why did ASML lower the planned shipment of Extreme Ultraviolet (EUV) products next year, Fouquet said the slower recovery affects every single customer though the condition is mixed.  "We are still quite optimistic about AI. Today, without AI, the market would be very sad," Fouquet said. "We continue to see AI as an upside." Fouquet explained the slump in the global semiconductor market is largely a result of lower demand from the automobile and consumer electronics industries. "When it comes to PCs, when it comes to automotives, the recovery is not what everybody would have wished for," the CEO said.