Analyst Robert Maire previously noted in ASML's earnings statement that they have long viewed the semiconductor industry through two different components of supply on the one hand, and demand on the other.

To that end, they believe that the "first round" of declines in the current down cycle is largely supply-side driven, as the industry has been building capacity like crazy after the Covid and supply chain crises. The industry built and built, apparently recklessly giving up until we "outgrew" the required supply and now finds itself in a state of oversupply, starting the current down cycle.

Meanwhile, the demand side has weakened, perhaps with global macroeconomic concerns, downward pressure on demand has accelerated.

In their view, the current "second phase" of the chip cycle is likely to be driven more by weak demand, rather than the first half of the year is driven by oversupply.

This could be worse, because supply issues tend to be easier to solve than demand issues, because if you are a chip maker, you can control the supply, as we saw in the memory market, Micron and Samsung will be capacity and product off-line to support pricing.

The problem is that the industry can't do anything to stimulate demand for chips. Lowering the price of automotive chips does not stimulate demand.

The reason for this judgment. Is what they predicted from ASML's earnings report.

They said the industry has long believed that any chipmaker in its right mind would not cancel or delay lithography tools for fear that they would later return to the end of a very long line and be in a worse position.

But that fear seems to have disappeared as there has been a noticeable change in ASML's order book, with tools being rolled out and other customers pulling in to fill otherwise vacant slots.

There is very much another point where chipmakers such as TSMC, Intel and Samsung who are willing to delay critical lithography tools are certainly feeling that demand is not going to improve any time soon. This indicates that the recession in the semiconductor industry is more serious and longer lasting than currently or previously thought. If you think the industry will "bounce back", you will not postpone new lithography tools. This has a very ominous effect on the industry as a whole, as it masks the idea of a rapid recovery.

Robert Maire reiterated his view after today's reading of Lam research's earnings report. He said Lam's memory business fell to lows we haven't seen in a long time, as memory represents 32% of the overall business and foundry business represents 46%. The larger part of the memory business is likely to be services, which are also down sequentially, as new tool shipments to memory customers could fall to relatively near-zero levels.

Lam made it clear that memory capex has not yet bottomed out, as they commented that memory spending is expected to "decline further. The company estimates that memory capex is already down 50% as memory manufacturers continue to reduce bit growth and bit output in an attempt to support declining prices.

It seems fairly clear to us that given the trajectory and momentum that memory will not recover before the end of the year, and when it finally does, the strength of the recovery will be weak and slow.

Memory manufacturers will have plenty of existing capacity to get back online before they buy a new piece of equipment or even consider expanding or adding new fabs.

In addition to the idle memory manufacturing equipment that fabs are discontinuing, there is also technology scaling down to increase capacity without buying new equipment.

Ultimately, due to idle equipment, declining production and potential technology changes, memory manufacturers can easily survive for a year or two based on the current demand trajectory without any additional spending.

The bigger problem is that in the current loss-making environment, in another year, perhaps only Samsung will have the financial ability to weather it.

And whenever the current down cycle ends, it's certainly not memory that leads the way out.