Tech war: Dutch trade restrictions on certain advanced chip-making equipment leaves China focused on legacy semiconductor production

  • The Dutch government plans to restrict exports of certain advanced chip-making equipment to China over security concerns
  • Semiconductor gear supplier ASML said its new line of deep ultraviolet lithography machines launched last year could be covered by the restriction

The Dutch government’s plan to restrict exports of semiconductor technology to China over security concerns hinders Beijing’s drive to make advanced integrated circuits (ICs), but leaves room for the country to continue legacy chip production, according to industry insiders.

That move followed a reported agreement between the United States, Japan and the Netherlands in January to restrict exports of certain advanced chip-making equipment to China, creating a powerful alliance that will undercut Beijing’s ambitions to build up the country’s domestic chip capabilities.

While the announcement made by Dutch Trade Minister Liesje Schreinemacher in a letter to the country’s Parliament on Wednesday did not name China or chip equipment supplier ASML Holding, a statement issued by the Veldhoven, Netherlands-based company said the scope of the restrictions could include “the TWINSCAN NXT:2000i and subsequent immersion systems”, referring to ASML’s latest ArF Immersion deep ultraviolet (DUV) lithography line launched in the third quarter last year.

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In spite of that development, China’s IC production using legacy process nodes is not affected, according to a Shanghai-based semiconductor industry investor who declined to be named. He described “China’s major bottleneck” as chip-making equipment and materials for advanced nodes.

Dutch semiconductor equipment manufacturer ASML Holding said its TWINSCAN NXT:2000i deep ultraviolet lithography machines will be barred from being exported to China. Photo: Shutterstock

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Dutch semiconductor equipment manufacturer ASML Holding said its TWINSCAN NXT:2000i deep ultraviolet lithography machines will be barred from being exported to China. Photo: Shutterstock

ASML’s latest DUV system can enable sub-3-nanometre chip-making processes with significantly improved overlay performance, enabling productivity of up 295 wafers per hour, according to the company’s annual report published in February.

The company did not immediately respond to a request for comment on Thursday.

Schreinemacher has reportedly said the Dutch government’s trade restrictions will be introduced before the summer.

Chinese Foreign Ministry spokeswoman Mao Ning has already raised this issue of new trade restrictions with the Netherlands, indicating the Dutch government’s interference with normal trade exchanges between Chinese and Dutch firms.

This Chinese chip firm is surviving US sanctions by focusing on mature tech

The latest restriction is not expected to prevent China from buying legacy semiconductor manufacturing technology from ASML and other major chip-making gear suppliers, according to an executive at a major Beijing-based chip equipment maker who also declined to be identified. He said it would be too extreme to ban China from buying equipment for decades-old chip-making process nodes.

Owing to US trade sanctions, China has the world’s only major semiconductor-manufacturing industry that is largely focused on mature process nodes. By comparison, the US, Taiwan, Japan and certain European Union nations are moving to advanced process nodes below 10-nm.

Still, speculation about new trade restrictions from the US-Japan-Netherlands pact reflects intensifying uncertainty for China’s semiconductor ambitions, following the Biden administration’s implementation last October of updates that further restrict China’s ability to obtain advanced chips, develop and maintain supercomputers, and manufacture advanced semiconductors.

Those US restrictions were intended to cap China’s advanced logic chip-making capabilities at 14-nm, DRAM chips at 18-nm and 3D NAND chips at 128 layers.

Chinese chip firms stockpile equipment ahead of US-Japan-Netherlands agreement

Chinese semiconductor companies are already scrambling to stockpile chip-making equipment, spare parts and other related materials, while overseas suppliers continue to fulfil orders as they await more clarity on the scope of trade restrictions from that US-led alliance.

The potential worst-case scenario for China could be if the Dutch government bans exports of less-advanced DUV lithography machines. All ultraviolet lithography equipment uses laser technology to basically carve a pre-designed circuit onto a wafer.

ASML, the world’s dominant supplier of lithography systems to chip makers, has been barred from selling its most advanced extreme ultraviolet (EUV) lithography machines to China since 2019.

In China, only top chip foundry Semiconductor Manufacturing International Corp (SMIC) had plans to vault into advanced processes below 10-nm. But Shanghai-based SMIC’s development of advanced processes for mass production hit a snag when it was barred from buying ASML’s EUVs in 2019 and subsequently added to the US Entity List in December 2020.

How US-Japan-Netherlands pact on chip tech exports may play out in China

That has inadvertently made ASML, which had mainland China as its third-largest market last year, a key chess piece for the US to halt Beijing’s advanced chip ambitions.

Sales of ArF Immersion DUV machines accounted for 34 per cent of ASML’s total system revenue of 15.4 billion euros (US$16.23 billion) in 2022, compared with a 36 per cent share in 2021. The company’s EUV sales, meanwhile, accounted for 46 per cent of total system sales in both 2021 and 2022, according to its December quarter financial results.

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