Opportunities and challenges in the Chinese market for lithography machine giant ASML
On the map of the semiconductor industry, Dutch lithography machine manufacturer ASML undoubtedly plays a pivotal role. As the only company in the world that can produce extreme ultraviolet (EUV lithography machines), ASML's products are known as the "crown jewel of chip manufacturing". The Chinese market is an important strategic territory for ASML's future development.
In the rapid development of China's semiconductor industry, ASML has taken deep roots and become an important partner of Chinese chip manufacturers. However, under the influence of geopolitics, ASML's business in China is also facing unprecedented challenges. The intensification of the technological confrontation between China and the United States has put ASML, a "sandwich biscuit" company, in a dilemma. On the one hand, it needs to comply with the export controls of the United States and its allies; On the other hand, they hope to get a share of the huge market in China.
The importance of the Chinese market
For ASML, the importance of the Chinese market cannot be overstated. This is not only because China is the world's largest chip consumer market, but also because the demand of China's local chip manufacturers is being released rapidly.
According to the data, by the end of 2023, ASML's installed capacity of lithography machines and metrology machines in China will be close to 1,400 units. In the 2023 quarter, the Chinese market contributed 46% of ASML's revenue.
The Chinese government's strong support for the development of the local semiconductor industry has injected strong impetus into ASML's business growth in China. Since 2023, many places in China have introduced preferential policies to support the development of the chip industry, with a maximum subsidy amount of 500 million yuan.
The demand in China's mature process chip market also brings important opportunities for ASML. Due to the impact of export controls, Chinese manufacturers are unable to purchase ASML's state-of-the-art EUV lithography machines, but ASML's DUV lithography products are still favored in the mature process field.
Impact of Export Controls
The export control measures imposed by the United States and its allies on China have undoubtedly brought serious challenges to ASML's business in China.
In September 2023, the Dutch government took effect new chip export control measures, and ASML is no longer allowed to export advanced DUV lithography products to China. At the end of 2023, the Dutch government also revoked previously issued export licenses.
In October 2023, the United States once again escalated its sanctions on Chinese chips, restricting ASML's export of the most advanced DUV lithography machine NXT1980Di to China.
According to ASML's estimates, its business in the Chinese market may be affected by 10%-15% in 2024. ASML believes that demand in the Chinese market will remain strong.
ASML's coping strategy
In the face of the challenge of export controls, ASML has not stopped. Instead, the lithography giant is adopting a variety of strategies to stay ahead of the Chinese market.
On the one hand, ASML has increased its investment in China, expanded its local team, and improved its service and R&D capabilities. At present, ASML has more than 1,600 employees in China, and has offices, warehousing and logistics centers and R&D centers in several cities. In 2023, the ASML China team also launched the first self-developed computational lithography software product.
On the other hand, ASML is speeding up the delivery of products ordered by Chinese customers over the past two years. According to reports, ASML currently has 35 billion euros of unexecuted orders on hand, many of which come from the Chinese market. To this end, ASML is expanding the production capacity of DUV lithography machines, aiming to achieve an annual production capacity of 500-600 units by the end of 2025 or early 2026.
ASML is also calling on all parties to maintain an open and fair international trade environment and oppose "narrow unilateralism". ASML stated that it is committed to complying with all applicable laws and regulations, including export control provisions.
Support measures from the Chinese government
Echoing ASML's efforts, the Chinese government is also creating a favorable environment for the development of the local chip industry.
In 2020, the State Council issued the "Several Policies for Promoting the High-quality Development of the Integrated Circuit Industry and the Software Industry in the New Era", proposing a series of fiscal and tax incentives, investment support and other support measures.
In 2023, the Ministry of Finance and the State Administration of Taxation will once again launch an additional deduction policy, allowing integrated circuit enterprises to deduct the VAT payable by an additional 15% of the deductible input tax in the current period.
Local governments are also increasing investment in the chip industry. Beijing, Shanghai, Shenzhen, Jiangsu and other places have successively introduced support policies, with a maximum subsidy of 500 million yuan.
In addition to fiscal and tax support, the Chinese government is also accelerating the independent and controllable pace of the chip industry chain, increasing the research on key core technologies, cultivating high-end talents, optimizing the business environment, and attracting foreign investment in China.
Looking at the development of ASML in the Chinese market, we can see that opportunities and challenges coexist. The impact of geopolitics has undoubtedly brought resistance to ASML, but the huge market demand in China, strong government support, and ASML's own response strategy have also injected impetus into the sustainable development of its business in China.
In this "chip war", ASML, a "sandwich biscuit" company, is trying to find a balance, and it also hopes to meet the needs of Chinese customers to the greatest extent in complying with export control regulations. The Chinese government is accelerating the process of independent and controllable chip industry and reducing foreign dependence.
Whether ASML can sustain its development in the Chinese market largely depends on the direction of the geopolitical situation. But it is undeniable that no matter how the situation changes, the development of the chip industry will be inseparable from key companies such as ASML. In this war without gunpowder, we will wait and see what role ASML will play.