Dutch 'semiconductor' dilemma

ASML, an indispensable name in the global semiconductor industry, is in a dilemma under pressure from the US and interests from China.

The Netherlands - a country with a population of 17 million - is being noticed by both the US and China, because of the presence of a "star" that plays an important role in the global semiconductor production and supply chain: ASML .

ASML, based in the town of Veldhoven, does not make chips. However, they play a near-monopoly role and are likened to a bottleneck as they account for 80-85% of the global lithography market share. This figure is even 100% with the ultra-ultraviolet (EUV) lithography line, which caters to semiconductor manufacturers, such as Taiwan's TSMC.

As a result, ASML has become one of the most important chip companies in the world, and is considered to hold the key to the future of China's advanced semiconductor manufacturing sector. This caught America's attention.

ASML workers operate an EUV photolithography machine in Veldhoven (Netherlands) in April 2019. Photo: Reuters

US urges Netherlands on ASML issue

US pressure on the Netherlands regarding ASML is said to have started in 2018, under former president Donald Trump. By 2020, according to Reuters , the Netherlands will withdraw ASML's license to export EUV machines to China. This comes after the US government lobbied and expressed concern that if ASML shipped the machines to China, the country's chipmakers could create products with greater power, applications. AI and military uses.

In fact, the prohibition of ASML from selling photolithography machines to China had a lot of impact afterwards. Huawei is the company hardest hit, as its semiconductor subsidiary, HiSilicon, is unable to create new chips for smartphones and smart devices. The capacity of China's largest chipmaker SMIC was also limited following the bans.

Recently, US President Biden's administration took another step forward in its attack on China's chip industry. In October, the U.S. Department of Commerce's Bureau of Industry and Security introduced a series of new rules that require companies globally that use American technology or are related to the United States to apply for a permit before sell products to China.

According to CNBC , there is currently no EUV system in China. Meanwhile, the ASML representative confirmed that it was not possible to bring EUV machines to China since 2019 due to the export restrictions of the Netherlands. However, the company hopes "to limit the direct effects of the new series of export control measures in 2023".

In a mid-year report last year, consulting firm Boston Consulting Group warned that this situation could spur China's determination to build a business to replace ASML. At that time, ASML CEO Peter Wenninck admitted this was a concern for the company, but believed it would not be affected much because they still had large customers around the world.

However, according to Wired , the big concern with ASML is the risk of losing its unique and dominant position if an opponent from China or another country emerges. As a precaution, the Dutch company is investing heavily in new technology. In 2021, it spends 13.7% of its revenue on research and development and is expected to grow to 14% this year.

The pressure continues

The US is said to be increasing its influence on the Netherlands. Earlier this month, Alan Estevez, head of industry and security for the US Department of Commerce, and Tarun Chhabra, senior director of technology and security for the US National Security Council, were reported to have spoken. with Dutch officials.

"Now, the US government has unilaterally imposed controls on the use of US technology. However, they will be useless if China can get machines with similar technology from ASML or Tokyo Electron ( Therefore, the US wants to transform unilateral control measures into multilateral ones, by involving countries such as the Netherlands, South Korea and Japan," said Pranay Kotasthane, head of research. on tech and geopolitics at the Takshashila Institute, told CNBC .

US Secretary of State Antony Blinken is the latest to praise Europe's efforts to work with the US to contain China. According to him, there has been "increasing convergence in approaches" of countries to "challenges posed by China".

"We are considering our interests, national security interests - things that are very important. Economic interests and geopolitical factors also always play a certain role," Liesje Schreinemacher, Minister Foreign Trade and Development Cooperation of the Netherlands, said last week. She also added that Beijing is "an important trading partner".

According to ASML's announcement, about 30% of the company's revenue in 2020 will be from China but only 10% in the second quarter of 2022. This number is expected to continue to shrink throughout this year and in the coming years due to impacts from the US.

China's chip industry faces 'semiconductor winter' 93
The harshness caused the US chip industry to "evaporate" $1.5 trillion 94
The US lost billions of dollars by banning Chinese semiconductors 98