Does ASML really not care about the Chinese market?

In recent years, with the development of electronics, automobiles, semiconductors and other industries, China’s chip demand has surged, and China has become the world’s largest chip consumer market. With the restrictions and suppression of the United States, Chinese companies have started “domestic substitution” to reduce their dependence on foreign products and technologies. However, in the field of chip manufacturing, it is still difficult to break through in the short term, so it needs to rely on giants with advanced lithography technology to provide related equipment.

And ASML happens to be one of several companies dominating the semiconductor manufacturing equipment market. ASML occupies more than 60% of the global lithography machine market share, and is also the only manufacturer in the world that can supply EUV lithography machines required for 7nm and below chips. Affected by the U.S. export ban to China, the lithography machine giant ASML in the Netherlands reduced its orders in the third quarter, and its stock price on the Amsterdam Stock Exchange once plummeted.

Even if it is difficult to export EUV (extreme ultraviolet lithography) lithography machines to China, the Netherlands seems unwilling to give up the vast Chinese market, and has therefore repeatedly become the focus of “struggle”.

ASML does not want to give up China business

The Netherlands will defend its economic interests when it comes to selling chip equipment to China, a senior Dutch official said in recent days, sending a strong signal that it will not bow to U.S. coercion despite heightened U.S. pressure.

South Korea’s emphasis on not disrupting exports to China as a precondition for joining the U.S.-led “Chip 4” alliance may have bolstered resistance in Japan and other concerned members to comply with U.S. orders, industry sources said, as they learned that yielding Pressure on Washington will yield nothing, but instead risks ceding one of the world’s most lucrative semiconductor markets to rivals and even creating discord in bilateral economic relations with Beijing.

Dutch Foreign Trade Minister Liesje Schreinemacher told lawmakers on Tuesday that the Netherlands will make its own decisions on ASML’s sales of chip equipment to China during trade rules negotiations with the United States, Bloomberg reported.

We have to defend our interests — our national security, but also our economic interests,” Schreinemacher was quoted by Bloomberg as saying. Schreinemacher noted that it would be “worse” if the Netherlands “put this interest in the EU basket and negotiated with the US that we end up gifting DUV (deep ultraviolet lithography) to the US”.

The move came after the Biden administration stepped up pressure on allies including Japan and the Netherlands to align with a sweeping ban issued in early October that banned exports of a wider range of advanced chip-making equipment to China. Industry watchers said the Dutch government’s comments were critical because it was a clear expression of growing dissatisfaction with the United States, which has been reverberating among its allies, and would reinforce other countries’ decision not to bow to U.S. coercion.

Analysts also said the move was partly due to South Korea’s hardline stance on joining the “Chip 4” alliance, a small semiconductor circle led by the United States with the ultimate goal of creating a “semiconductor barrier” against mainland China.

In August, Seoul reportedly laid out conditions for joining the coalition, largely downplaying the clique’s anti-Chinese overtones. Seoul reasoned that the four members “should respect the one-China policy and not mention any export barriers to China,” South Korean news portal Pulse News reported.

Although ASML has not sold any of its state-of-the-art extreme ultraviolet lithography machines to China because the Dutch government refused to grant it a license under pressure from the United States, the company can still sell less complex chip-making systems to the Asian country.

However, U.S. officials have been pressuring the Dutch government to ban the sale of immersion lithography machines, the most advanced equipment in ASML’s deep-UV product line, according to Bloomberg. The Biden administration has been trying to get allies including the Netherlands and Japan to adopt sweeping measures it announced in early October to ban more chip machines for China.

Top U.S. officials, including Commerce Undersecretary for Industry and Security Alan Estevez, will travel to the Netherlands this month to discuss export controls. But the talks are not expected to lead to an immediate deal, according to Bloomberg.

EU negotiators are in talks with Washington on some contentious trade issues. Some countries, notably France, said the measures could hurt the European economy and raised the possibility of a complaint to the World Trade Organization. These issues will be the subject of conversation at the trade and technology committee early next month.

Ma Yun has a view that the public remarks of the Netherlands show that the benefits of resisting US pressure are “far greater than” surrender, which will provide a demonstration effect and allow more US allies such as Japan to follow suit.

China may find another way

Subject to the previous US ban, ASML will not sell its EUV lithography machines to China. But in the case of advanced DUV lithography machines, which have a high share of the mainland China market, the “decoupling” could cut off much of the company’s profits and undermine its research and development investments in future technologies, analysts said.

According to ASML’s 2021 financial report, the Chinese market is its third largest market, accounting for 14.7% of global revenue last year. In 2021, its equipment shipped to China accounted for 16% of the world.

Although it is impossible to export EUV lithography machines to China, China has become one of the most important markets for ASML’s DUV lithography machines. According to public information, the main difference between DUV lithography machines and EUV lithography machines is the wavelength of the light source, which determines the chip manufacturing process. DUV lithography machines are currently unable to manufacture chips with a process of 7 nanometers and below, but they are sufficient for the manufacture of mature process chips with greater demand.

Unlike ASML’s near monopoly on EUV, the competition in the DUV industry is fierce. If ASML pulls out, this gap will be quickly filled by other competitors such as Japan and South Korea. Ma Yun said that Chinese chip companies have also made a major breakthrough in chip manufacturing, and they are about to provide local alternatives, which may mean the “permanent loss” of ASML.

It is reported that TSMC has achieved 7nm mass production with multiple exposures by DUV lithography machine, which proves the feasibility of multiple exposure technology. Not only that, American memory chip giant Micron Technology has also adopted multiple exposures, using DUV lithography machines to develop high-performance DRAM chips. The energy efficiency of the chip has increased by 25%, power consumption has been reduced by 20%, and the density has increased by 35%.

The industry is actively exploring advanced packaging technology, using 2.5D or 3D packaging technology to continuously expand chip performance. At present, chip stacking, core particles and other pioneering paths have emerged, and advanced packaging will become the mainstream technology in the post-Moore era, which will reduce the participation of EUV lithography machines to a certain extent. Japan’s Kioxia’s nanoimprint technology, Micron’s EUV multiple exposure and advanced packaging technology are all expected to get rid of the dependence on EUV lithography machines.

During the fifth China International Import Expo in Shanghai, Japanese firms were wary of showing off their semiconductor manufacturing equipment amid escalating U.S. technological restrictions on China. Nikon showcased its latest ArF and KrF scanning lithography machines, as well as i-line steppers. Canon brought the application of optical semiconductor industry equipment such as vapor deposition machines.

ASML’s struggles are not alone. Industry watchers said the new measures, if strictly enforced, could put at risk some 30 percent of total revenue for some U.S. and global chip industry giants, as China accounts for a third of their total revenue.

At a regular press conference in early November, Chinese Foreign Ministry spokesman Zhao Lijian emphasized that the formation and development of the global chip industry chain supply chain is the result of the combined effect of market laws and corporate choices. Malicious suppression of China will not only severely damage global trade rules, but also destabilize the global industrial chain.

In recent years, many domestic companies have tackled key problems in the field of lithography machines. According to statistics from the China Electronic Special Equipment Industry Association and the International Semiconductor Industry Association, the sales of China’s semiconductor equipment market will be US$18.72 billion in 2021, a year-on-year increase of 39.2%, but the localization rate of China’s semiconductor equipment is only 20.2%. According to some media, Shanghai Microelectronics has been able to realize the commercial production of 90nm lithography machine, and is continuing to carry out research and development towards the global advanced level, but it will still take some time. If it can continue to supply the Chinese market before China’s semiconductor manufacturing technology has made significant progress, it is believed that ASML can further maintain stable profits.

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