Machine learning

Shares spiked on ASML news

Extreme ultraviolet lithography machines (EUVs) didn’t get much of a mention in the Chinese media until Donald Trump brought telecoms equipment giant ZTE to the brink of collapse in 2018 with an export ban involving US tech components (see WiC406). The embargo was subsequently extended to other state-backed champions in China, including Huawei and SMIC. These new constraints then sparked a scramble among Chinese to understand the key technologies in the production of semiconductors, such as the lithography machines that print the circuit elements on the underlying silicon.

That situation goes some way to explaining the enthusiasm among stock investors last week after news broke that SMIC – the Shanghai-headquartered semiconductor foundry – is to purchase a lithography machine as part of a $1.2 billion equipment deal with ASML, the Dutch company that is the world leader in the technology (see WiC480).

SMIC’s Hong Kong-listed shares surged nearly 10% at one point, driven by hopes that the news signalled a softer stance from Washington on the current sanctions, which require firms such as ASML to get export licences from the US government before selling equipment to blacklisted Chinese customers.

But investor euphoria soon withered when ASML clarified that the agreement in question stemmed back to a “volume purchase” pact it had signed with SMIC back in 2018.

The Dutch manufacturer added that the newest of its EUV technology isn’t part of the deal either – only older equipment based on DUV, or deep ultraviolet lithography. SMIC’s share price reacted by dropping more than 12% in the days that followed.

EUV is currently in use at the only two foundries that produce ‘leading edge’ chips at 7nm transistor widths, which are owned by TSMC and Samsung.

As of late last year Intel was said to be experimenting with ASML lithography but struggling to get below 10nm in its fabrication processes.

Two years ago the Trump administration pressed Dutch officials to cancel the sale of an EUV machine to SMIC and the US government has been dragging its feet on approving licences for American companies like Lam Research and Applied Materials to sell other chipmaking equipment to the foundry. Reuters has reported that an estimated $5 billion worth of equipment and materials contracts are yet to be approved.

That’s why commentators on the semiconductor sector don’t believe that Joe Biden’s administration is moving away from the more hawkish stance adopted by the Trump team (see this week’s “Talking Point”).

Xinghai Intelligence, a WeChat blog specialising in coverage of Beijing’s ‘Made in China 2025’ initiative, adds that there is also widespread misunderstanding among the Chinese public about the semiconductor industry. The production line needed to make chips consists of nearly 100 different items of equipment, it explained, and the EUV tooling is just one element.

Even if the export of the latest machines was approved, their Chinese buyers wouldn’t be able to get them working immediately because much of their other equipment is “several generations” behind that of their international counterparts.

The DUV machine that SMIC is about to acquire from ASML is primarily deployed for masking layers in 14nm chips, not the advanced 7nm chips produced by the likes of TSMC and Samsung. Xinghai Intelligence says that Chinese equipment makers such as NAURA Technology and Shanghai Micro Electronics Equipment have also made breakthroughs in producing DUV machines of their own, so restrictions on sales of similar kit from ASML would have less impact.

A source close to Biden’s administration confirmed the point in comments to Reuters, arguing that Washington was more focused on controlling the export of the latest generations of production technology to China.

“This is akin to trying to prevent them from getting a flip-phone. We’re much more interested in the technologies of tomorrow,” he told the news agency.

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