Denying China access to ASML’s EUV scanners isn’t enough, says a group of experts advising the US government. Immersion lithography equipment should be subject to export controls as well.
ASML may face additional US-imposed export restrictions to China. In a report published last week, the US National Security Commission on AI recommends that the US, Japan and the Netherlands “establish a policy of presumptive denial of export licenses” for semiconductor manufacturing equipment “capable of producing chips at the 16nm node and below, particularly EUV equipment and ArF immersion lithography equipment.”
Currently, only the supply of EUV scanners to Chinese companies is being restricted. Following US diplomatic pressure, the Dutch government didn’t renew the export license for EUV technology in 2019. Since then, renewal has been under review, but without a date set as to when the procedures should complete, it’s generally assumed that the license has been put on hold indefinitely. Now, it seems the US might push for expanding the restrictions to DUV immersion equipment.
If that happens, ASML’s business could start to suffer from the US-China technology wars. Until now, the financial impact has been negligible because the single EUV scanner ordered by China’s most advanced foundry, SMIC, has been shipped to another customer. It isn’t obvious that there will also be demand for the immersion scanners that ASML isn’t allowed to sell to Chinese chipmakers.
Last year, ASML’s revenue from system sales in China was 1.9 billion euros, representing 13.2 percent of total revenue. That’s a significant market, but it’s unclear how much it would be impacted by an ‘immersion ban’ since Chinese sales partly go to fabs owned by non-Chinese companies in China. Additionally, sales may also include less advanced dry ArF and KrF equipment. The Veldhoven-headquartered company declined to provide more detailed sales data.
Doubling down
The 756-page report, authored by a 15-member commission chaired by former Google CEO Eric Schmidt, is emphatically alarmist. “For the first time since World War II, America’s technological predominance – the backbone of its economic and military power – is under threat. China possesses the might, talent and ambition to surpass the United States as the world’s leader in AI in the next decade if current trends do not change,” states the report. It goes on to present dozens of recommendations to turn the tide.
As advanced semiconductors are crucial for implementing AI, “the United States should commit to a strategy to stay at least two generations ahead of China in state-of-the-art microelectronics.” This is to be achieved partly by bolstering domestic semiconductor research and manufacturing, and partly by “protecting America’s technology advantages” through “modernizing export controls” to slow China’s high-end semiconductor manufacturing ability. As a “critical chokepoint,” the commission considers sophisticated semiconductor manufacturing equipment “an attractive target” to contain China’s AI capabilities.
The report also recommends that the US “doubles down” on funding for semiconductor research and infrastructure for the next generations of microelectronics. “In particular, funding should prioritize the development of manufacturing equipment and tools to reach 3nm and beyond at production scale.” This includes focusing on “next-generation tools beyond extreme ultraviolet lithography.”
Unilateral
ASML’s export license for EUV scanners is currently being withheld by appealing on the Wassenaar Arrangement, which controls Western exports of goods and technology that potentially have military uses. However, the arrangement isn’t an actual treaty and following the recommendations is at the discretion of individual countries.
EUV scanners aren’t specifically included in the Wassenaar List of Dual-Use Goods and Technologies, but lithography equipment featuring a light source wavelength shorter than 193 nanometer is, as is equipment capable of producing patterns with a minimum resolvable feature size (MRF) of 45 nanometers or less. According to ASML, the MRF limit of ArF immersion scanners is 50 nanometer, and hence their export can’t be controlled through the Wassenaar Arrangement.
The phrasing of the report suggests that the US should come to an agreement with its allies about controlling exports, and indeed the Biden team appears more likely to engage in dialogue than the previous administration. Nonetheless, if push comes to shove, the US has multiple options to enforce export controls.
The United States may submit proposals to adapt the Wassenaar Arrangement, which member states would have to discuss and vote on. Alternatively, the US may issue unilateral legislation, as it has done on a number of occasions over the past year. One measure was to start enforcing export controls on foreign-produced goods that contain technology of American origin.
Currently, this doesn’t affect ASML’s immersion scanners, as they aren’t ‘American enough’: goods containing less than 25 percent US-origin technology are exempted. Some components of immersion scanners, such as the light sources, are manufactured in the States, but they don’t add up to 25 percent. However, the US government might decrease the US-origin percentage or scrap the exemption altogether. It already did this last year, though only for Huawei and other blacklisted entities.
Decoupling
ASML doesn’t want to speculate on what the US will or won’t do next. “This is a political process, which will have to run its course. We abide by the laws and regulations of the jurisdictions,” says an emailed statement.
Speaking at a press conference discussing Q4 2020 and FY2020 results, ASML CEO Peter Wennink did warn about “breaking up the current global frictionless semiconductor ecosystem into pockets of innovation. The knowledge to manufacture advanced semiconductors and associated materials and equipment is now concentrated in a few places in the world, which together form this seamless ecosystem. If you think you can replicate that within a very short term – it’s simply not possible. If governments are determined to do this, it will take years.”
A report by the US Chamber of Commerce and the Rhodium Group, published in February, also warns of the high cost, as well as of other risks, associated with decoupling the US and Chinese semiconductor industries. Nevertheless, it considers targeted export controls to be “an effective tool to address national security concerns related to China.”
Unsurprisingly, therefore, the report approves of the US efforts to block EUV shipments to China. “The reported US pressure on the Dutch government not to grant a license for the export of an advanced machine tool used for chip manufacturing to China is the kind of narrow action that can significantly impact China’s ability to fabricate advanced chips.”