The $ 150 million machine with $ 200 billion at stake for China

But what happens next in the Netherlands has greater risks for China.

There, the Beijing envoy this week said there will be negative consequences if the Dutch continue to block the export of a single piece of high-tech manufacturing equipment manufactured by ASML Holding NV. According to Reuters, the United States has put pressure to avoid selling to a Chinese company. But it is not just any machine. It is a state-of-the-art $ 150 million device that could guarantee that Moore’s Law, which says that the processing power doubles every 18 months, continues at an accelerated rate, and the microchips that power our smartphones, computers and networks become getting smaller and smaller

As with Huawei, the US Secretary of State. UU. Mike Pompeo cited intelligence concerns, although Reuters did not specify what they are. Subsequently, The Hague terminated an export license that had previously been granted for the machine.

Of course, any individual nation state that eliminates Huawei, the world’s largest network business, outside the supply chain of its 5G networks will be a blow to the Chinese company. But the impact on China as a whole will be limited. Beijing will still be able to build its own next-generation telecommunications networks, and losing some exports will have a minor effect on the economy in general. Huawei sales in Europe, the Middle East and Africa totaled $ 31 billion in 2018.

The ban on buying ASML machines is potentially much more significant, as it will hamper China’s ambitious goals of strengthening its super-high-tech manufacturing industry.

In regards to the technology giants, ASML does not have the global brand prestige of Apple Inc., Samsung Electronics Co. or Inc. That is partly because its products are two steps away from the devices electronics that reside in consumers. pockets, at their desks or in their living rooms: ASML builds the machines that make semiconductors that enter their devices. But it is one of the three largest technology companies in Europe, and its main customers include chip manufacturers Intel Corp., Samsung and Taiwan Semiconductor Manufacturing Co., which is known as TSMC and manufactures chips for Apple and Huawei alike.

The Dutch firm stands out from its rivals Nikon Corp. and Canon Inc. because it is alone in having mastered an approach known as extreme ultraviolet lithography, which is necessary for the manufacture of the next generation of chips. Lithography is the process by which circuit patterns are etched in silicon wafers, and the EUV process will allow printing of circuits that are more than 10 times smaller than the current standard.

QuicktakeHow Chinese technology grew in rival Silicon Valley

Then you can see why China would be particularly interested in using the ASML equipment. Although the country is a manufacturing center for electronic products, much of that is simply assembling iPhones, laptops, smart speakers and the like. The underlying technology is often imported, including about $ 200 billion in semiconductors each year.

Beijing wants to reduce that dependence on imports by investing $ 150 billion for a decade in an effort to take the lead in technology design and manufacturing. Access to machines made by ASML will be essential to achieve this. By the end of next year, up to half of TSMC’s revenues will depend at least in part on some EUV processes, according to Bloomberg Intelligence analyst Masahiro Wakasugi. That could be $ 18 billion in chips. While it could take a decade and more than one EUV machine for Chinese companies like Semiconductor Manufacturing International Corp. to revive with that, that is clearly the long-term goal. (According to reports, SMIC is the company that placed the order at the center of the current dispute).

The Dutch newspaper Het Financieele Dagblad reported last year that ASML was subject to theft by a rival with ties to the Chinese state, although the company later said that any “suggestion that we were somehow victims of a national conspiracy is evil”. Peter Wennink surely does not want to lose China’s business: it is the fastest growing ASML market.

What makes the Dutch movement so remarkable is that the US UU. You can only unilaterally block sales abroad if the components or R & D contributions that originate in the country exceed 25% for the relevant product. Here, he seems to have managed to rely on the Dutch government to avoid selling even though, according to press reports, ASML’s extreme ultraviolet lithography machine does not meet that test. An even greater risk would be for other major underlying technology providers to follow suit, whether under American coercion or not.

To contact the author of this story: Alex Webb at [email protected]

To contact the editor responsible for this story: Melissa Pozsgay at [email protected]

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist that covers Europe’s technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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