SMIC ordered EUV equipment delivery delayed ASML response

On November 7, the Nikkei Asia Review reported on the 6th (Beijing time) that ASML had delayed SMIC’s Delivery of EUV lithography, but the exact reason was not known. In May last year, SMIC ordered a $120 million EUV lithographer from ASML.

Nikkei has learned from three sources that the device ordered by SMIC is scheduled for delivery by the end of this year and installed by mid-2020, but the goods are now “waiting for follow-up notice”.

6 (Beijing time) evening, Reuters reported that ASML first responded that the company’s license to export one of its most advanced equipment to a Chinese customer had expired and was awaiting approval by the Dutch government for a new license.

ASML spokesman Monique Mols further explained that the price of the device was about 100 million euros and that “ASML is only complying with the law, which makes it clear that the EUV equipment can only be shipped out with an export licence”.

There have been promises

With the acceleration of the development of China’s semiconductor industry, ASML’s business in China has grown significantly. According to ASML’s q1 and 2018 earnings results for the current quarter, sales in the mainland accounted for about 20%, comparable to the U.S. market and outpacing the Taiwan market. In a show of determination to dig deep into the Chinese market, ASML has replaced Shen Bo, the latest president of China, with his former Korean-born boss.

In recent years, despite all the rumours about ASML in the market, ASML has denied it and has repeatedly reaffirmed the importance of the Chinese market. Last August, there were rumors that ASML had been banned by the US government from recruiting Chinese employees. Subsequently, ASML responded: “This is a false rumor, ASML recruitment is generally not subject to nationality restrictions, we welcome engineers from all over the world.”

There are also concerns that the Wassenada agreement will not allow mainland China to buy ASML’s latest equipment. In this regard, Shen Bo has said that this is a misunderstanding of ASML, ASML lithography machine has been sold in the mainland. He also promised that state-of-the-art equipment would also be available in the mainland market.

In June, the Wuxi 12-inch production line at Huahong Semiconductor, another wafer foundry in China, also successfully installed three ASML photolithography machines. Bert Savonije, ASML’s senior vice president for global affairs, said ASML is honored to be involved in the development of China’s semiconductor industry and to contribute, and hopes to continue to contribute in the future.

There is no doubt that ASML is optimistic about the growing Chinese semiconductor market and wants to continue to expand its presence in China in the future. I believe that ASML will take the delivery of this EUV equipment from SMIC very seriously.

Attitudes of other U.S. equipment manufacturers?

Lithography is only a part of the semiconductor manufacturing process, in etching, grinding, cleaning and other processes need to use a lot of semiconductor equipment.

In addition to ASML in the Netherlands, Applied Materials, Lam Research and KLA are all global equipment suppliers for the semiconductor industry.

Daniel Durn, General Financial Officer of Applied Materials, has said the company has plans in place to ensure that any net tariff impact associated with Sino-US trade tensions is minimized. In the second quarter, the mainland Chinese market still accounted for 28% of the company’s revenue, the highest in the world.

Oreste Donzella, KLA’s senior vice president and marketing director, also pointed out in an interview with that mainland China is one of the fastest growing regions for semiconductors, with KLA accounting for 32% of revenue in the second quarter of fiscal 2018 after South Korea (34%). In the future, KLA will provide sophisticated and diversified technologies and localization services to help the development of China’s semiconductor industry.

Lam Research stressed that the size of the Chinese market determines the opportunities here, has a strong confidence in the Chinese market, and is pleased to be involved in the development of China’s semiconductor industry.

In April, although Sanan Optoelectronics briefly suspended its business contacts due to the U.S. government’s inclusion in the Unverified List (Unverified List, UVL), it was quickly re-established, but after effective communication, supply and cooperation were restarted shortly thereafter.

From the attitude of these three U.S. semiconductor equipment manufacturers is enough to see, even home-grown U.S. manufacturers, for China’s semiconductor market attaches great importance. Even if there are small episodes due to government regulations, they are very positive to communicate and resolve.

Dutch factory at the behes of orders?

In the context of the Sino-US trade war, it is easy to blame US intervention for ASML delays. So even the U.S.-based equipment factory did not do things, ASML as a Dutch manufacturer, will be at the behest of the United States?

“All chip-related companies, whether they are U.S. companies, are very cautious when shipping their products to China,” said Chris Hung, senior technical analyst at Market Intelligence and Consulting Institute. After all, much of the intellectual property, materials, and basic science is still controlled by the United States.”

Another Chinese company, Huawei, for example, announced that it was suspending its partnership with Huawei after it was included in the “entity list” because some of its technology originated in the US. However, after completing a legal review, arm resumed its business with Huawei.

In addition to arm, most of Huawei’s U.S. suppliers have also resumed supply to China after passing compliance reviews.

Therefore, this was also the case in the case of ASML’s delay in the delivery of SMIC’s EUV equipment. One-fifth of the parts needed to make ASML’s machines are made at a plant in Connecticut, the sources said. Even if ASML is forced to require a “compliance review,” delivery will resume once the conditions are met. In response, SMIC also said the project was still in the “written working phase”. At present, the company’s advanced process research and development is progressing smoothly, research and development and production of the link all normal, customers and equipment import normal operation.

It is worth noting that China-U.S. relations are showing signs of easing as several Huawei’s U.S. suppliers are gradually returning to supply. U.S. Commerce Secretary Wilbur Ross has even said that China and the U.S. are expected to reach trade deals in Iowa, Alaska, Hawaii or China as soon as this month.

That may be good news for the deal between ASML and SMIC. Even if the Dutch government is worried about provoking the Us, if America’s own attitude towards China starts to improve, it will not do much more.

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