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China does not kneel before the US: it knows that without its market the western chip industry will suffer
by RuetirApril 21, 2023
in Technology
Breaking an economic power like China is not easy. The sanctions that the Western alliance led by the United States has implemented seek to prevent this Asian country of continental proportions from being able to manufacture cutting edge semiconductors. And the most effective a priori strategy to achieve this is to prevent it from being able to get hold of the most sophisticated lithography equipment produced by the Dutch ASML and the Japanese Tokyo Electron, among other companies.
In recent months, the Joe Biden Administration has increased the pressure it is exerting on the Netherlands, Japan and South Korea to get them to close ranks around the United States and prevent the arrival of their most advanced lithography machines in China. This equipment cannot be obtained in parallel markets, not only because of its high cost and large dimensions; also because its implementation requires the joint effort of the manufacturer of the lithography machine and the company that is going to use it to manufacture chips.
However, the tensions that are shaping the behavior of the semiconductor industry today do not spread in only one direction. The governments of the United States, the Netherlands, Japan and South Korea are enduring pressure from their own companies. For them, losing a client with the economic capacity that China has is not an option, so their demands on their respective governments have caused the latter to be forced to limit the scope of sanctions to what is strictly necessary.
Despite sanctions, China’s chip industry continues to grow
At the end of last March Peter Wennink, the general director of ASML, traveled to China with one purpose: to massage the Xi Jinping government to relax the tension that the sanctions have unleashed between his company and the latter. The Government of the Netherlands has prohibited ASML from selling its extreme ultraviolet (UVE) and deep ultraviolet (UVP) lithography equipment to China. These are their most sophisticated photolithography machines, but they are by no means the only ones made by this Dutch company.30% of the orders that ASML will deliver in the future come from Chinese customers
ASML also produces the lithographic equipment used to manufacture the integrated circuits required by the automotive industry and manufacturers of devices equipped with an Internet connection, such as mobile phones, tablets or personal computers. These machines do not allow to produce cutting-edge chipssuch as the 3nm semiconductors that TSMC and Samsung are already manufacturing thanks to ASML’s UVE teams.
However, they do serve to fine-tune basic general purpose processors, controllers and communications chips, among other semiconductors, which require a very wide range of devices. Wennink confirmed after his trip to China that 30% of the orders that ASML will deliver in the future come from Chinese customers. This lawsuit is free of the sanctions imposed by the US-led alliance because these customers want to buy mature lithography machines, and not UVE and UVP equipment, which, as we have recalled a few lines above, is what ASML cannot sell. to China.
What is surprising is that the Chinese semiconductor industry continues to grow at a good pace despite the aggressive economic situation that hangs over it. In fact, in November 2022 ASML confirmed that 18% of the 38,000 million euros that he had sold at that time are associated with Chinese customers. In practice, this means that much of the lithography equipment that it has to deliver over the next two years will go to the semiconductor plants of Chinese companies, such as SMIC or Hua Hong Semiconductor.
Much of the lithography equipment that ASML has to deliver over the next two years will go to the semiconductor plants of Chinese companies
ASML has a leading role in the semiconductor industry because it is the only company that makes UVE equipment, but it is by no means the only company that is heavily dependent on Chinese customers. Other firms, such as the American Lam Research, which also develops lithography equipment and technologies, will hardly be able to face a prosperous future without China. Xi Jinping’s government knows that large foreign companies in the semiconductor industry are highly dependent on their own companies, and this has put it in a position of strength that will surely help it better weather Western sanctions.
China does not kneel before the US: it knows that without its market the western chip industry will suffer
Breaking an economic power like China is not easy. The sanctions that the Western alliance led by the United States has implemented seek to prevent this Asian country of continental proportions from being able to manufacture cutting edge semiconductors. And the most effective a priori strategy...
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