Implications for ASML as the Dutch government takes a tougher stance on China

Reports state that the Dutch government’s has imposed new restrictions on ASML (AS:ASML)’s ability to service and provide spare parts for advanced deep ultraviolet (DUV) machines in China. However, analysts from JPMorgan and Wells Fargo suggest the impact on ASML’s overall earnings might be limited.

JPMorgan explains in a note Friday that the Dutch government is reportedly set to restrict ASML from renewing certain licenses required to service advanced DUV tools in China, likely due to pressure from the U.S. government.

The U.S. had earlier indicated that it might impose stricter Foreign Direct Product Rules (FDPR) on partner countries, including the Netherlands, to limit China’s access to advanced semiconductor technology.

JPMorgan analysts believe that while the restrictions will affect tools already shipped to China, they do not expect this to prevent ASML from servicing its current tools in the country.

“We believe if the current set of restrictions is limited to servicing only advanced DUV tools in China, the impact to ASML 2025 revenues would be -1%,” writes the bank. “However, since the tool servicing/Installed base management is a higher profitability business, the impact on the company’s 2025 gross margins would be -1.25%+ in our view.”

Wells Fargo analysts offer a similar perspective, noting that while there have been conflicting reports about the extent of these restrictions, they do not view this development as a significant surprise.

“We estimate a limited revenue impact with total Domestic China service revenue at 10% of total services (2% of total revenue),” says Wells Fargo.

“We view these restrictions as likely impacting a small portion of the 10%,” they add.

Both JPMorgan and Wells Fargo suggest that while the Dutch government’s tougher stance on China may have some impact on ASML, it is not expected to be significant enough to drastically alter the company’s financial outlook.