ASML, the Dutch chip giant that is key in the US-China tech war | Business

The Dutch company ASML leads the production of photolithographic equipment for the semiconductor industry and is the pearl of the business of the Netherlands. Its shares have risen by 420% in the last five years, it has a capitalization of 340,000 million euros and ranks 22nd among the most valuable companies on the stock market in the world. The secret to your success? It creates sophisticated machines for the production of chips, key in the transition to the digital economy, on which giants such as TSMC, Samsung or Intel depend.

ASML’s exponential growth has even more merit given the impact of geopolitics on its business. Restrictions on the export of some of its equipment to the Chinese market, which the United States is demanding from the Dutch government, go beyond the financial aspect. Washington wants to counter Beijing’s technological development also for geostrategic reasons, and this has led to the chip dispute. A Sino-American struggle in which the European Commission and its 27 EU partners may eventually play a bigger role.

The United States does not want China to copy technology and apply high-end microcircuits in the military field. So it blocked the sale of its own advanced semiconductor manufacturing machines. He is asking his allies to do the same, through agreements, diplomatic pressure or even unilaterally. For the latter, rules were provided that allowed it to be done if the devices contained one American part. ASML’s near-monopoly on advanced lithography systems put it in the spotlight in Washington. In this context, the Dutch executive in 2023 added more types of machines to the export restriction of certain photolithography systems to several Chinese customers of ASML. The license block was supposed to come into effect on January 1. China previously imported $1.1 billion worth of chip technology from the Netherlands, according to Bloomberg estimates. Beijing’s response to the restrictions was clear: “The Netherlands must respect the law.”

In October of last year, then-Dutch Trade Minister Lisieur Schreinemacher admitted in parliament that, although to date they had been negotiating alone with the United States, she believed that the issue “needs to be resolved at the European level and in coordination with other states- EU members. “. The Dutch Ministry of the Interior declined to comment on “specific permits or issues related to our national security.”

Long distance race

This is the Dutch journalist Mark Hijink, the author of the book Spotlight: The world of ASML (Focus: ASML World) to be published in April, “the ultimate use of microprocessors cannot be determined.” In a phone conversation, he explains that it took the company at least 15 years to develop its most advanced technology and is now the most valuable technology company in Europe. “The Netherlands usually aligns itself with the United States on aspects such as semiconductor export controls, but since ASML’s latest technology is light years ahead of its competitors, policymakers could be a little more assertive in their negotiations with Washington,” he points out. How? “Through cooperation with other European countries. Joining forces is the way to tackle challenges of this magnitude.” ​​​​​​While Hijink believes the collaboration could eventually come together, he says it will take time and “will require policymakers who are able to understand ASML’s role in the global economy. And such are rare”

In 2023, the company’s turnover was 27,558 million euros, which is 30% more than the previous year, and it earned 7,839 million, compared to the profit of 5,621 million obtained the year before. ASML may be less well-known to the general public than other Dutch-born firms such as Shell or Philips, “because it doesn’t sell consumer technology,” says Hidjink. However, their machines create the chips that appear in most of the devices we use, from cars and phones to computers or ChatGPT. Photolithography, which is at the heart of this geopolitical conflict, uses shorter wavelength light to etch very fine lines on the basis of a microprocessor: a type of silicon wafer, with great precision. The thinner they are, the more they can fit on the chip, and this increases its power and speed.

In this story of industrial innovation transformed into a struggle for economic and military power, two models are contested. Regarding the former, from 2020, the export of ultraviolet (EUV) photolithography machine to China has been blocked. This is an exclusive ASML technology, which has a monopoly here, and is used to create very complex patterns on plates. “It uses light with a wavelength of 13.5 nanometers: the shorter it is, the smaller the characteristics of the microchip can be printed,” the information service of the company reports. A nanometer (nm) is equivalent to one billionth of a meter, and this machine can create chips smaller than 10 nanometers. An EUV machine costs about 200 million euros, and the new generation will cost about 400 million.

Another model is deep ultraviolet (DUV) photolithography, with wavelengths of 248 and 193 nm. Each machine costs between 80 and 90 million euros, and the new restrictions could affect 10% to 15% of sales to China, as acknowledged by Roger Dassen, ASML’s chief financial officer. In a video released by the company, he added that he expects demand for old equipment from Beijing to remain “very, very strong this year and into the future.” In 2023, the firm made 29% of its sales in China. It was the second customer after Taiwan (30%). The third place was taken by South Korea (24%).

Currently, ASML is a company in the hands of major global investment funds such as Capital World Investors, Price or Fisher Asset. It was founded in 1984 by multinational corporations Philips and Advanced Semiconductor Materials (ASM), and is headquartered in Veldhoven, a city near Eindhoven. About half of its more than 42,000 employees work there, 40% of whom come from abroad. In 1995, it went public and Philips sold half of its shares in the listing. In the following years he did the same with the rest. The company’s forecasts for 2024, despite business constraints, are optimistic. It expects to bill similar to those in 2023, thanks to increased demand for chips due to the artificial intelligence boom.

ASML operates almost like a monopoly. It is still not easy to compete in your business. But in technology everything is a matter of time. “China could accelerate its own chip industry, boosted by negative exports,” chief executive Peter Wennink warned after learning of the new hurdles. ASML wants to trade with everyone. Also with China. Will it be possible?

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