Ahead of ASML’s release of its full-year 2022 results next week;

Josep Bori, Research Director on theThematic Intelligence team at GlobalData, a leadig data and analytics company, offers his view:

“ASML investors will be paying particular attention to the ongoing US-China trade dispute in 2023, as the company will continue to be constrained by the US’s export bans to China—both for extreme ultraviolet (EUV) and deep ultraviolet (DUV) lithography tools—as non-compliance with the bans is not an option.

“Recent company statements highlighted the uneven impact of the China export bans on ASML versus its US peers. This could lead some investors to believe ASML’s compliance with these bans is merely a matter of goodwill (and, ultimately, political pressure), and that it may be tempted to change position in 2023.The US has full jurisdiction over ASML’s San Diego subsidiary Cymer—the sole intellectual property (IP) owner and manufacturer of critical component, laser‑produced plasma (LPP) EUV lithography light source— which means that Washington effectively holds the nuclear button. The US can has the power to significantly disrupt ASML’s EUV business if it does not comply to the export bans. Further, the impacts of such a scenario would not only affect ASML’s business in China—even if ‘de minimis rules’ may pose some complications.

“In Q3 2022, total shipment sales to China accounted for 15% of the total—although none were EUV machines. The US is also moving towards banning older DUV machine exports to China, as it escalates its trade war with China, creating a further headwind for ASML. In the long term, GlobalData expects some manufacturing capacity to migrate from China to other regions, where ASML tools could be exported. However, short-term disruption is likely.”

“The US export bans on chip technology transcends the semiconductor industry. In GlobalData’s view, this is about artificial intelligence (AI) dominance, which underpins what many call the fifth industrial revolution, and, ultimately, about global economic leadership in the next few decades.”