Dutch China Export Curbs Faces Chip Tech Giant ASML

As yet another setback for China's under-pressure tech sector, the Dutch government is anticipated to put export restrictions on chip equipment firm ASML. Even after being prevented from selling its most cutting-edge machines there in 2019 due to pressure from the US, ASML, a major supplier to chipmakers globally, still earns around 15% of its sales in China, a significant growth area.

Tensions between Washington and Beijing over semiconductors have since steadily worsened. Washington in October imposed export restrictions on its own chip equipment companies aimed at hobbling China’s ability to make chips and to blunt its military progress. US officials said they expected the Netherlands to follow suit. 

Dutch Prime Minister Mark Rutte on January 17 said he expected a “good outcome” to discussions with the United States on the matter after meeting with President Joe Biden in Washington. But Dutch trade minister Liesje Schreinemacher stressed that the Netherlands would not simply adopt US rules.

“I know there’s a lot of pressure internationally but I will be fighting for open trade and against protectionism,” she told a panel in Davos on January 19. The government source said The Hague has been working to resolve several concerns. One is making sure Dutch rules are drafted in such a way that they are not actually more restrictive for ASML than for US companies.

Another is that Japan, home to ASML competitor Nikon, have similar rules, and a third is that new restrictions do not upend the global chip market, which is just emerging from Covid-19 era shortages and needs Chinese production, especially for less-advanced chips. ASML is expected to post fourth-quarter net income of 1.68 billion euros ($1.82 billion) on record revenue of 6.37 billion euros, according to Refinitiv Eikon data.

In November ASML raised its annual revenue estimates by 25% to at least 30 billion euros by 2025. The company’s top customers including TSMC, Samsung and Intel are engaged in major expansions, so any loss of Chinese sales could initially be offset elsewhere. Still, the US restrictions are expected to impact 5% of ASML’s 38-billion-euro order backlog.

When, instance, restrictions are reapplied to sales to China of deep ultraviolet lithography (DUV) equipment with older technology, there may be additional losses as a result of stricter Dutch regulations. Since DUV was removed from international lists of commodities considered to be of potential military use in 2014, ASML has sold such equipment in China for more than 8 billion euros. To impose restrictions on DUV, the government would have to enlarge the definition of "sensitive technology," which might not explicitly target China.