Explainer: Why maintaining ASML equipment is the new front in US-China chip war
04/04/2024 14:42
By Toby Sterling
AMSTERDAM, April 4 (Reuters) - The U.S. government has
called on allies to force computer chip manufacturing equipment
companies to stop maintaining some of the tools they have sold
in China, part of Washington's efforts to undermine China's
ability to produce its own advanced computer chips.
As the largest maker of chipmaking equipment globally, ASML
ASML.AS of the Netherlands is in focus.
Here are questions and answers about the scope of the issue
and what is at stake for the U.S., Netherlands, ASML, and
Chinese chipmakers.
WHY DOES ASML EQUIPMENT MATTER?
ASML dominates the market for lithography tools - huge
expensive, complex machines that perform one step in the
chipmaking process, helping to create circuitry.
WHY WOULD THE U.S. NOT WANT ASML TO MAINTAIN EQUIPMENT IT
HAS ALREADY SOLD?
To stop a targeted Chinese chipmaking plant or "fab" from
being able to operate. ASML machines are somewhere between
difficult and impossible to replace. If an owner is denied spare
parts and maintenance, at some point the machine would stop
working and the fab would be unable to produce chips.
WOULD THE DUTCH GOVERNMENT DENY MAINTENANCE LICENCES?
The Dutch government, a close U.S. ally, has not ruled out
denying export licences - which cover both exports and
maintenance - to ASML in some cases where it sees a security
risk. However, it has no plans for a blanket ban.
Dutch export licensing policy is not aimed at China, an
important trading partner, and the Dutch government does not
want to harm ASML, its biggest company.
In addition, much of the equipment ASML sells in China is
used in less advanced chipmaking processes and does not require
a Dutch licence to export or maintain.
HOW MUCH ASML EQUIPMENT IS IN CHINA?
Lots. ASML sold more than 6 billion euros ($6.5 billion)
worth of equipment to Chinese customers last year alone.
The company does not disclose how much falls into categories
that require a licence - in industry terms, the "immersion"
segment of DUV lithography tools. That's ASML's upper middle
range. Its best tools are not sold in China.
WHAT DOES ASML SAY?
ASML has export licences in place to service the majority of
its Chinese customers until Dec. 31 this year, the company said
in an emailed answer to Reuters' questions last month.
WHAT MIGHT THE IMPACT BE ON CHINESE CHIPMAKERS?
This is uncertain. Take the fictional example of a Chinese
chipmaker that has bought one of ASML's best immersion
lithography DUV tools for $60 million, but does not have its
licence renewed.
U.S. expert Paul Triolo, who notes that Chinese companies
have generally found ways around U.S.-led restrictions,
described a process of decline over weeks or months.
Without software updates, the system would not operate
optimally. But Chinese engineers know how to operate their
machines, and could be rehired if they are unable to work for
ASML.
Some of the thousands of parts in an ASML tool are
replaceable or repairable if they break down. However, when it
comes to highly specialized lenses and lasers, there are no
known alternatives.
Some parts could arguably be cannibalized from existing ASML
machines. Most of the machines ASML has ever made are still in
service - but nobody has ever tried running an advanced machine
without the company's help.
WHAT ARE THE CONSEQUENCES FOR ASML?
Likely minor, at least at first. China was ASML's second
market in 2023 after Taiwan, with 29% of sales, slightly ahead
of South Korea. About 20% of ASML's total revenues comes from
the servicing of installed machines.
While ASML dominates its market, it faces competition at the
lower end of its product range from Nikon 7731.T and Canon
7739.T of Japan, and from domestic Chinese firm SMEE.
Chinese chipmakers will be highly motivated over time to
develop alternatives to using ASML gear.
($1 = 0.9203 euros)
(Reporting by Toby Sterling; Editing by Jan Harvey)
((toby.sterling@thomsonreuters.com;))