A US plan to further restrict the sale to China of crucial equipment for making semiconductors may be a hammer blow to the nation’s chipmaking ambitions.
Dutch semiconductor equipment supplier ASML (ASML) was already blocked from selling China its most advanced extreme ultraviolet (EUV) equipment, but new reports indicate the US aims to prevent the company from selling to China its older, deep ultraviolet (DUV) equipment as well. The majority of chips worldwide are made using this DUV technology.
Shares of Nasdaq-listed ASML fell as much as 7% before closing down 3.8% on Tuesday, while shares of China’s domestic chipmakers surged today.
“ASML comprises 95% of the global DUV market, and China does not have any local alternative,” said Edison Lee, an equity analyst at Jefferies in Hong Kong. “The knee-jerk logic is likely that the tighter the US restrictions, the faster China has to localise,” he said, adding that confidence in Chinese chipmaking equipment was “misplaced.”
A total ban on DUV equipment is “highly unlikely” but further restrictions for equipment makers could be tied to China’s foreign policy “escalations with Russia or incursions into Taiwan,” said Citibank analysts.
China Unable to Expand
If China does not have access to DUV and other key technologies, domestic foundries would not be able to expand capacity, Lee said, adding that domestic companies lacked the kind of technology to keep China at the forefront of chip design and manufacture.
China’s chip industry is ASML’s third-largest market, after Taiwan and South Korea, representing about 16% of 2021 sales, or $2.15 billion. A spokesperson for ASML said the company was unaware of any policy change.
The Dutch firm has a near-monopoly on the manufacture of state-of-the-art lithography systems, which are machines vital for chipmakers such as Intel, Taiwan Semiconducting Manufacturing Company (TSMC) and Samsung. It is the only maker of chip manufacturing equipment that uses EUV light waves.
Lithography systems cost hundreds of millions of dollars and use focused beams of light to create the circuitry of computer chips. The equipment requires an export licence because computer chips are considered “dual use” technology with military as well as commercial applications.
In 2021, the US National Security Commission on Artificial Intelligence, led by former Google CEO Eric Schmidt, recommended that the departments of State and Commerce should push allies to deny China access to top DUV and EUVand related equipment. ASML plans to sell TSMC an EUV machine by 2024.
Shares in Chinese Chipmakers Rise
Shares in Chinese chipmakers rose sharply on Wednesday, with Shanghai-listed Piotech gaining almost 16% and Advanced Micro-Fabrication Equipment rising more than 13%. Kingsemi posted an 8% rise.
That helped the tech-focused Star 50 index gain 10.8%.
- George Russell, Reuters