The Netherlands Enters the Semiconductor Chip Fight - Top Chip Equipment Manufacturer ASML Limited to Repairing Machines in China

ASML Holding N.V. is facing increased limitations in its collaboration with Chinese clients. This signifies a further escalation in the technology dispute between Washington and Beijing.

Previously, export restrictions imposed by U.S. and Dutch authorities primarily affected ASML’s supply of certain equipment to China.

However, with the new restrictions, the company would face limitations on its ability to maintain, repair, and supply parts for controlled equipment to countries, including China, without prior approval.

ASML Faces Tougher Restriction

ASML Holding N.V., a prominent Dutch supplier of chipmaking equipment, is facing more stringent limitations in its collaboration with Chinese clients. This situation arises amid the escalating technology rivalry between Washington and Beijing.

According to sources familiar with the matter, recent Dutch export control regulations now mandate that ASML obtain government approval for the maintenance, repair, and provision of spare parts for controlled equipment.

These regulations, recently published in June, explicitly prohibit ASML from exporting certain highly advanced immersion deep ultraviolet lithography machines, which are its second-most capable machinery, to China without a license. The restrictions are scheduled to take effect in September 2023.

In addition, the anonymous source also revealed that the U.S. plans to prohibit ASML from selling older DUV lithography equipment to Chinese plants without approval from Washington.

These restricted DUV models include the TWINSCAN NXT:2000i and other advanced machines.

As a result, China will face difficulties in manufacturing chips below 28nm, particularly 5nm, which is crucial for the operation of cutting-edge technologies such as advanced computers, smartphones, AI, and other applications.

These restrictions specifically target around six Chinese companies, including the facilities of SMIC, which happens to be China’s largest contract chipmaker.

Although ASML could still engage in discussions with U.S. authorities regarding these deliveries, the likelihood of obtaining permission is low.

Under U.S. law, authorities can limit technology and equipment supply between countries if the exported items contain US-origin elements or software.

The situation concerning ASML lithography equipment being shipped to China falls within the purview of this U.S. control system.

Due to this, ASML, under the new regulation, might need distinct authorizations for maintaining and repairing equipment that has already been sold and is currently in operation in China.

ASML is globally renowned as the sole company possessing the technology and manufacturing capabilities to build the machines that produce physical chips from silicon wafers.

Prominent chipmakers like TSMC, NVIDIA, and Intel heavily rely on its EUV technology for their chip manufacturing processes.

China Frowns at US Clampdown

The Biden administration is leading an initiative to restrict technology exports to China and hinder its entry into the chip industry.

In October 2022, the United States imposed export limitations on American chipmaking tools destined for China, citing national security concerns.

Lam Research, Applied Materials, and other companies were affected, and the U.S. urged other countries with key suppliers to adopt similar restrictions.

Significant suppliers of semiconductor manufacturing equipment from the Netherlands and Japan are also joining this effort.

China is particularly concerned about the Netherlands’ compliance with these sanctions, as it is home to ASML Holdings.

Without access to cutting-edge products and technologies from ASML, Tokyo Electron, and other U.S. companies, Chinese chip makers would find it extremely difficult to produce current-generation processors.

Unsurprisingly, China is highly dissatisfied with this development and has lodged a formal complaint with the World Trade Organization.

The country expressed concern that the restrictions imposed by the United States threatened the stability of the global industrial supply chains.

In response, China plans to inject over 1 trillion yuan (approximately $143 billion) into its semiconductor industry, striving for self-sufficiency in chip production.

This move aims to counter the United States’ efforts to impede China’s technological advancements.

China’s plan, including the initial phase of the package, was projected to kick off in the first quarter of 2023.

Most of the financial support will be directed towards subsidizing domestic semiconductor equipment acquisition by Chinese firms, particularly semiconductor fabrication plants (fabs).

Additionally, a significant portion of the funds will be allocated to establishing China’s lithography system and employing UV light technology in semiconductor manufacturing.

Chip Leaders Seeks Relief for China

As tensions in the chip war continue to rise, top executives from leading American semiconductor companies are gearing up for a final attempt to prevent the implementation of new sales restrictions to China.

They will be heading to Washington next week to engage in discussions with government officials and lawmakers.

According to individuals familiar with the matter, the CEOs of Intel, Qualcomm, and Nvidia plan to advocate against expanding limitations on selling certain chips and semiconductor manufacturing equipment to China.

This aligns with a plan that the Biden administration intends to introduce soon.

While the companies do not expect to avert these measures completely, they believe there is a chance to convince the Biden administration.

They hope further escalation would undermine ongoing diplomatic efforts and hinder establishing a more constructive relationship with Chinese officials.

These details were shared by the sources who requested confidentiality, as the trip has not yet been publicly announced.

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