ASML Holding NV's poor third-quarter financial report was released early on Tuesday due to technical issues, causing its stock and a number of chip stocks to plummet. ASML CEO Christophe Fouquet stated during Wednesday's earnings call that due to disappointing third-quarter performance, the slow recovery in the chip market is expected to &#34;continue until the entire year 2025&#34;.ASML lowered its outlook for 2025 on Tuesday, triggering a 16% plunge in its stock in Amsterdam, the largest drop since June 12, 1998. On Wednesday, its stock fell another 5.8%, losing its position as Europe's most valuable tech company to software company SAP SE. Since the early release of the financial report on Tuesday, ASML's market value has evaporated over 60 billion euros (65 billion US dollars). Since Fouquet took office in April this year, the company's market value has dropped by nearly a quarter.ASML is a bellwether in the global chip industry, and its performance has raised concerns that the AI boom has not addressed the broader slump in chip demand.Fouquet stated, &#34;The slow recovery in demand has made customers more cautious, with some investment plans being postponed.&#34; Although he mentioned that the AI boom, energy transition, and electrification still provide strong growth potential, the company has revised down its earnings expectations. He mentioned that the recovery in the automotive, mobile device, and personal computer markets is particularly slow, and ASML will slow down short-term investment plans to adapt to market demand.<blockquote>&#34;While we continue to see AI as a key driver of industry recovery, with potential upside, we see the recovery in other areas slower than expected.&#34;&#34;Without AI, today's market would be very bleak, and the recovery is not as desired by everyone.&#34;</blockquote><h2>Order Postponements</h2>ASML CFO Roger Dassen stated during the conference call that some orders originally scheduled for 2025 have now been postponed to 2026.When an analyst inquired about the situation of &#34;two customers&#34; delaying demand, Dassen responded that it is not just two customers, but more customers have postponed orders.However, Dassen mentioned that there are no major issues with the demand for the company's extreme ultraviolet lithography (EUV) machines. He stated that EUV is fully booked, with order quantities sufficient to reach the predicted lower end level, but an additional order of around 2 billion US dollars is expected to reach the median level of expected orders.Analysts believe that ASML is facing pressure from multiple directions. While the demand for chips for AI data centers remains strong, key customers including Intel and Samsung are facing challenges.Intel delayed its plans to open new factories in Germany and Poland last month due to declining sales and increased losses. Samsung, on the other hand, caused competitors to take the lead in the high-bandwidth memory chip market for AI by delaying deliveries this month, leading the company to apologize to investorsIn addition, ASML stated that the recovery in the mobile and PC markets is weaker than expected, with media speculating that this may be an estimate of weak demand for Apple's new iPhone. Apple's stock price fell by 1.5% on Wednesday. Analysts indicate that preliminary data on pre-orders and delivery times for the iPhone 16 show weak demand.At the same time, companies producing automotive and industrial chips (which typically use ASML's older machines) are also facing prolonged weakness as their customer inventories are excessive.Analysts are particularly concerned about ASML's expected weakness next year. They point out that order volumes may be unstable - ASML's machines are worth hundreds of millions of dollars, so delays of several months are significant for financial results - but they are worried that next year's forecasts may imply future weak demand. &#34;We are puzzled by the extent of the weakness in orders,&#34; said Jefferies analyst Janardan Menon.Meanwhile, UBS remains optimistic about the entire industry. UBS stated that ASML's weak financial report will not disrupt the growth story of AI.Here are the key points from ASML CEO Christophe Fouquet and CFO Roger Dassen during the earnings conference call:CFO Roger Dassen:I will first review the financial achievements of the third quarter of 2024 and then provide guidance for the fourth quarter of 2024.ASML's total net sales in the third quarter reached 7.5 billion euros, exceeding the high end of our guidance, thanks to more DUV system sales and higher installed base management sales. Net system sales were 5.9 billion euros, including 2.1 billion euros of EUV sales and 3.8 billion euros of non-EUV sales. Logic chip sales accounted for 64% of net system sales, with the remaining 36% coming from memory chips.Installed base management sales were 1.54 billion euros, higher than guidance, mainly due to increased service and upgrade revenue. The gross margin for this quarter was 50.8%, in line with guidance. In terms of operating expenses, R&amp;D expenses were slightly lower than guidance at 1.06 billion euros, while SG&amp;A expenses were in line with guidance at 297 million euros. Net profit for the third quarter was 2.1 billion euros, representing 27.8% of total net sales, with earnings per share of 5.28 euros.Regarding the balance sheet, our cash, cash equivalents, and short-term investments at the end of the third quarter were 5 billion euros, similar to the previous quarter. Our free cash flow in the third quarter was 534 million euros, showing slight improvement.However, as mentioned in the previous quarter, free cash flow is still under pressure. This is mainly due to relatively low order intake, resulting in reduced prepayments and high inventory levels. The increase in inventory levels is mainly attributed to EUV systems, including high numerical aperture and low numerical aperture systems, due to extended manufacturing cycles and inventory to support future expansionsIn terms of orders, the net system orders in the third quarter were 2.6 billion euros, with 1.4 billion euros for EUV orders and 1.2 billion euros for non-EUV orders. Net system orders in the third quarter accounted for 54% in memory chips and 46% in logic chips. The relatively low order intake reflects a slow recovery in the traditional end market, with customers remaining cautious in the current environment. As of the end of the third quarter of 2024, our backlog exceeded 36 billion euros.For the fourth quarter of this year, we expect the total net sales to be between 8.8 billion euros and 9.2 billion euros. Among them, the estimated sales of installed base management in the fourth quarter is around 1.9 billion euros. Net sales include the expected revenue recognition of two high numerical aperture systems, with installed base management revenue expected to increase compared to the third quarter, mainly due to reaching specific EUV performance thresholds and some EUV productivity upgrades.The gross margin for the fourth quarter is expected to be between 49% and 50%. Although revenue in the fourth quarter is higher than the third quarter, the gross margin is expected to be slightly lower than the third quarter, as the revenue recognition of the two high numerical aperture systems dilutes the gross margin, offsetting the positive impact of product upgrade revenue.Based on the guidance for the fourth quarter, we expect revenue in 2024 to be around 28 billion euros, with a gross margin of approximately 50.6%, slightly lower than 2023, as expected. Research and development expenses for the fourth quarter are estimated at around 1.09 billion euros, and SG&amp;A expenses are estimated at around 3 billion euros. We expect the annual effective tax rate for 2024 to be between 16% and 17%.In the third quarter, ASML paid a quarterly interim dividend for the first quarter of 2024, at 1.52 euros per ordinary share. The quarterly interim dividend for the second quarter of 2024 is also 1.52 euros per share and will be paid on November 7, 2024. No shares were repurchased in the third quarter.CEO Christophe Fouquet:It was a solid financial quarter, but there were also some market dynamics this quarter.Firstly, in terms of our technology, we continue to make good progress on two new EUV products. In the low numerical aperture technology, we continued to advance the production of the NXE:3800E system this quarter. Customers are quickly transitioning to this new model as its performance is higher, with a throughput (the number of wafers a lithography machine can process in one hour) increase of over 37% compared to the NXE:3600D.We have demonstrated a throughput of 220 wafers per hour in the factory and set a new overlay accuracy record. We will provide full-spec systems through new system deliveries and upgrades early next year. With customers transitioning to the NXE:3800E, most deliveries in the fourth quarter will be NXE:3800E systems.Regarding high numerical aperture, two systems that have been delivered are undergoing wafer exposure at customer sites, and we expect to recognize the revenue from these systems by the end of the year. A third system is on its way to another major customer. Momentum continues to grow, with approximately 10,000 wafers exposed in ASML-imec's high numerical aperture lab and on-site systems, covering multiple logic and memory chip customersAt the recent industry conference, we released new high numerical aperture data, demonstrating significant performance improvements in imaging, overlay, and contrast. These advantages indicate that logic and DRAM customers can significantly reduce costs.Overall, we have maintained a steady momentum in EUV technology and made good progress within the range expected by customers.Regarding market conditions, while we continue to view AI as a key driver of industry recovery with potential upside, we have observed a slower-than-expected recovery in other areas. This recovery is expected to extend into 2025, leading to customers becoming more cautious in their investments and delaying some capital expenditures.In the logic chip sector, the recovery in end markets (such as mobile devices and PCs) has been slow, coupled with dynamics in specific competitive foundries, resulting in a deceleration in the introduction speed of new nodes for certain customers. As a result, these customers have postponed the construction of some fabs and altered the timing of their lithography equipment demand.In the memory chip sector, the market recovery has also been sluggish, causing customers to only engage in limited capacity expansions, primarily focusing on technological transitions to support the demand for AI-related high-bandwidth memory (HBM) and DDR5.In summary, while the long-term trend remains very strong and positive, the dynamics of the past few months and the situations of specific customers lead us to anticipate a decline in the growth trajectory for 2025 and a reduction in overall lithography demand.Given these dynamics over the past quarter, we believe it is necessary to provide some commentary on 2025 at this point in time rather than waiting for the next Investor Day.Chief Financial Officer Roger Dassen:Based on the latest market dynamics described by Christophe just now, we now expect revenue for 2025 to be in the range of €30 billion to €35 billion at the lower end. This is largely due to our significantly reduced expectations for low numerical aperture shipments in 2025, expected to be below 50 units.Regarding gross margin, we originally anticipated an increase in the number of low numerical aperture systems and the transition to the higher-margin 3800E system as key drivers of margin improvement. While the margin improvement of the 3800E system has been realized, the significant decrease in demand for EUV systems next year has had a significant dilutive effect on margins.Therefore, based on the current lower revenue and less than ideal product mix, we now expect the gross margin for 2025 to be between 51% and 53%.Compared to 2024, the gross margin for 2025 is expected to benefit from higher margins of the 3800E system, gradually improving margins of high numerical aperture systems, and an increase in EUV service margin, but will also be affected by the dilutive impact of recognizing more revenue from high numerical aperture tools.Regarding operating expenses, we expect total operating expenses for 2025 to be at the high end of the range provided at Investor Day, between €5.6 billion and €6.1 billion. We will continue to progress with our R&amp;D roadmap as planned and are able to absorb significant wage inflation impacts since 2022 within this rangeCEO Christophe Fouquet:Looking ahead to the longer-term future, as we have stated before, the long-term growth drivers of the semiconductor end-market remain very solid. Applications such as artificial intelligence, energy transition, electrification, etc., continue to provide very strong and positive prospects for our industry and for ASML's business.The expansion of application areas and the increase in demand for lithography due to future technology nodes are driving the demand for advanced and mainstream nodes. Like most of our industry peers, we continue to view AI as a potential growth area and closely monitor its potential impact on us in the short and long term.Despite discussing some delays, we are still preparing for several new factories being built around the world to meet the future needs of the industry. These factories are located globally, crucial for our customers, and planned to receive our systems.Therefore, we will continue to expand our capacity to meet the expected growth in demand in the coming years

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ASML CEO Christophe Fouquet stated during the financial report conference call that although AI is crucial for industry recovery, the chip market's recovery is slower than expected, leading to customers being more cautious and investment plans being postponed. ASML has lowered its outlook for 2025, causing a 16% plunge in stock price and a market capitalization evaporation of over 60 billion euros. The company will slow down short-term investment plans to adapt to market demand, with the recovery expected to continue until 2025

- ASML Holding NV's disappointing Q3 earnings report, released early due to a technical error, caused a significant drop in its stock and other chip stocks.  
- CEO Christophe Fouquet indicated that the slow recovery in the chip market is expected to continue until 2025, leading to a 16% drop in ASML's stock and a loss of over €60 billion in market value.  
- Despite strong demand for AI-related chips, the overall recovery in the semiconductor market remains sluggish, prompting ASML to lower its revenue forecasts for 2025.

ASML earnings call: Chip industry demand recovery slow, customers more cautious