The new CEO must navigate the AI-driven booming market and prepare for a potential recession.

ASML has welcomed its new boss Christophe Fouquet, who takes the helm of Europe's largest technology company. Fouquet faces a tricky balancing act, helping to steer Europe's largest tech firm through the "chip war" between the United States and China, where export restrictions have impacted half of the company's product sales. At the same time, he must maintain the group's competitive edge and manage the current AI boom.

Fouquet was appointed as ASML's Chief Executive Officer at the annual semiconductor equipment manufacturer's conference on Wednesday. He inherits a company that is profitable and dominant in its field, but potential pitfalls should not be underestimated.

Export restrictions imposed by the United States and the Netherlands mean that a significant portion of ASML's product range cannot be sold in one of its largest markets, China.

With Fouquet at the helm, ASML's stock valuation remains high, reflecting the market's optimistic expectations, but there are risks of disappointment in product launches and capacity expansion.

Advertisement

The outgoing former CEO, Peter Wennink, increased the company's market valuation more than tenfold over the past decade to 320 billion euros (340 billion US dollars). In his farewell speech, he stated that ASML's expansion will continue under Fouquet's leadership.

In its 50-year history, the global semiconductor industry's annual sales have grown to 600 billion US dollars. However, Wennink said, "Within the next 6 to 8 years, we need to nearly double this figure. This is why we need to further enhance our capabilities. This is why our customer base will grow... This is why ASML will thrive and expand."

Fouquet must maintain ASML's industry position as the leading supplier of lithography systems, which use beams to manufacture integrated circuits, and collaborate with companies such as TSMC, Intel, and Samsung Electronics to continuously advance advanced process technology development.Analysts indicate that photolithography equipment accounts for about one-third of the semiconductor equipment market, with ASML holding a market share exceeding 90%, as it is the sole company possessing the "EUV" (Extreme Ultraviolet) lithography technology, which is utilized in the fabrication of the world's most advanced chips.

Competitors in the older generation "DUV" (Deep Ultraviolet) lithography include Japan's Nikon and Canon, but Fouquet will also have to keep an eye on Chinese lithography equipment manufacturer SMEE and other potential entrants.

Chinese Restrictions

Chinese chipmakers have a strong incentive to develop alternatives to ASML's equipment, which are inaccessible under U.S.-led restrictions. Since 2018, this has become a headache for ASML, as the U.S. attempts to curb China's ability to manufacture its own advanced chips.

By sales, Mainland China is ASML's second-largest market in 2023.

Furthermore, Chinese chipmakers will continue to enhance the quality of chips they produce using ASML's DUV equipment. ASML is not allowed to sell EUV tools in China.

Fouquet explained to shareholders on Wednesday that as chips become more advanced, the efficiency of using DUV instead of EUV tools becomes increasingly lower, until it becomes very costly.

"So 'technically you can, economically you can't. I think that's the short answer,'" said Fouquet, who also has to present this argument to governments seeking further restrictions.

Fouquet was in charge of overseeing ASML's EUV program from 2018 to 2022, including the development of a new type of "high numerical aperture" EUV equipment, valued at $375 million, which is currently being tested by Intel and is expected to support sales growth into the 2030s.A source who has worked with Fouquet said that even when exerting pressure on a key supplier to improve technology and simultaneously increase production by a factor of two, he is able to keep things running smoothly.

The source said: "He understands the technology, he understands the business, and he knows how to make things work," referring to operations involving an American IC design company, European suppliers, and Asian customers.

Fouquet, a trained physicist, also needs to employ diplomatic skills, especially if Donald Trump wins the U.S. presidential election in November and has unpredictable effects on China policy.

The Rise of ASML

The number of ASML employees has grown from 13,000 in 2014 to the current 43,000. On Monday, the company announced plans to build a new factory in Eindhoven to accommodate an additional 20,000 employees.

The company's stock price is 40 times the price-to-earnings ratio for 2023, slightly higher than other top semiconductor equipment suppliers such as Applied Materials (AMAT) and KLA. Fouquet worked at these two companies early in his career.

Nick Rossolillo, an investor who has held ASML shares since 2022 and hosts the Chip Stock Investor podcast, said one concern is that governments are supporting the construction of new chip factories in the United States, Japan, Europe, Mainland China, Taiwan, and South Korea.

"What does government subsidization mean for equipment suppliers like ASML in this wave of fab construction? What will happen in 2028-2030 when all the additional capacity is released?" said Rossolillo.