No Moore sales

ASML’s boss Peter Wennink

Moore’s Law isn’t dead. It’s not slowing down and it’s not even sick. Such is the description from Philip Wong, vice president of corporate research at Taiwan Semiconductor Manufacturing Company (TSMC).

One of the companies benefiting most from the rude health of the famous theorum (that the number of transistors in semiconductor chips will double about every two years) is Holland’s ASML. The semiconductor equipment manufacturer’s stock price has almost doubled over the past year, commanding a valuation premium over much of the sector. The reason is almost entirely because of its Extreme Ultraviolet Lithography (EUV) technology, which helps producers make much smaller chips. ASML commands a massive 83% share of worldwide sales, ahead of Canon on 6% and Nikon on 5%.

TSMC is both a shareholder of ASML and its biggest customer. By contrast, China’s leading chipmaker Semiconductor Manufacturing International Corp (SMIC) isn’t even a customer – because of US government intervention.

Earlier this month Reuters reported that the Americans had held four rounds of talks with the Dutch government, starting in 2018, to persuade it not to extend ASML’s export licence for shipments of its machines to any mainland Chinese customer. The Dutch have complied because the Americans argued that the matter fell under the terms of the Wassenaar Agreement, which restricts exports involving dual commercial and military use.

Lithography is a key part of the process that helps to shrink chips, helping producers to meet Moore’s Law, which brings faster processing power from ever smaller chips. Taiwan’s TSMC is already using EUV for some of its production processes in 7nm (transistor density) nodes and intends to deploy it even further for 5nm. But neither of China’s major semiconductor ‘equipment’ manufacturers Naura and Shanghai Micro-Electronics (SMEE) have mastered the same technology. Nor are they likely to soon. The domestic press estimates that the Chinese producers are 15 years behind ASML.

Naturally, the Chinese government is unhappy about the situation, given its call for the country to become self-sufficient in semiconductor production as soon as possible.

As 163.com warns of China’s vulnerability, the absence of lithography technology “cannot become a running sore at the heart of the technology community”, with a clear threat to companies like Huawei if chip provider TSMC also cuts off supply.

Sina Finance’s commentary attracted the most comments on the situation (17,638 and counting) and it was hard to find any that weren’t unhappy with the American pressure on ASML. Some contributors called for Chinese retaliation through a ban on selling the US rare earths (not always effective, WiC has noted in the past, because of alternative sources of supply). Other comments took a darker turn, with one much-liked contribution suggesting that “China should consider selling some fireworks to Iran to let the Americans experience the [Lunar] New Year holiday atmosphere”.

There were warnings for the Dutch as well, especially that their own businesses could be blocked in China, and that ASML would lose its livelihood entirely when Chinese firms finally caught up.

Yet the Dutch aren’t happy with the situation either. One Netherlands-based website, Bits and Chips, says it isn’t fair for Washington to single out ASML when US tech companies can continue doing Chinese business. Shouldn’t the Americans do more to restrict sales from Applied Materials or Intel? “Surely their chips can be used to power advanced weaponry,” it posited.

ABN AMRO’s chief economist, Sandra Phlippen, also argued that Holland’s technological crown jewel shouldn’t be curtailed by American pressure in this way. Writing in Dutch newspaper Algemeen Dagblad, she acknowledged the “real concerns about stealing technology and the long arm of the Chinese state in Europe”. But she added that stealing from ASML wouldn’t be easy and that the alarm would be raised “as soon as the Chinese unscrew a machine”.

“China deserves its place under the sun, we all benefit from that,” she also concluded.

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