New US export restrictions sideline Dutch government

By redefining what ‘US technology’ means, the US is restricting ASML’s sales in China more than the Dutch government is prepared to do. In new rules announced last week, the Biden administration has lowered the minimum requirement for certain devices or equipment to be considered ‘American’ to zero percent. This means ASML will now have to get Washington’s approval to sell certain tools to Chinese entities.

The new rule applies to all scanners with a dedicated chuck overlay (DCO) of 2.4 nanometers or better, whereas the Dutch restrictions allow for 1.5 nanometers. DCO is a measurement of overlay performance, the ability to align one chip layer to the next. A low overlay is essential to perform double or multipatterning, which is currently China’s only option to domestically manufacture advanced chips. A recently launched Huawei smartphone is reportedly powered by a 7nm chip, well below the 14nm capability that the US considers ‘safe’ for China to have.

It’s not yet clear which companies the curbs target. In an initial assessment, ASML CEO Peter Wennink suggested that only a limited number of Chinese chipmakers will be cut off from ASML’s complete immersion DUV product line. “The NXT:1980 is off limits for a handful of fabs, but not for the vast majority of our Chinese customers, for which we don’t need an export control license,” he told analysts on a conference call discussing Q3 results. The NXT:1980Di is the only immersion scanner that isn’t covered by the current Dutch restrictions. It has a DCO of ≤ 1.6 nanometers.

An ASML spokesperson said on Monday that the company is still studying the extent of the new rules.

Longer term

The latest move by Washington was expected. Already when the Dutch government announced its new export controls in June, it was reported that the US was preparing to take matters in its own hands. Through the so-called Foreign-Direct Product Rule (FDPR), the US claims jurisdiction over every piece of technology that contains or is manufactured using technology of US origin. Until now, it didn’t affect ASML’s products because items with less than 25 percent US content were exempt.

Previously, the US invoked the FDPR to prevent TSMC and other foundries from supplying Huawei with advanced chips. Huawei’s smartphone sales plummeted, which is why the launch of a smartphone powered by a domestically produced 7nm chip made a lot of waves recently.

In a statement regarding the new restrictions, ASML writes that they’ll likely lower sales opportunities in China but won’t affect overall demand. “We don’t expect these measures to have a material impact on our financial outlook for 2023 and for our longer-term scenarios for 2025 and 2030,” the company states, referring to revenue projections made public late last year.