ASML, China customers haunted by uncertainty on new Dutch chip export rules

The Dutch government has not yet defined crucial aspects of new restrictions on chip-technology exports to China including whether ASML Holding NV can service chip-printing machines the company has already sold in the country.

"Those details still need to be worked out," Dutch Trade Minister Liesje Schreinemacher told reporters on Thursday in Stockholm.

Schreinmacher's remarks highlight that, while the plan announced by the Dutch on Wednesday puts the Netherlands in broad alignment with US goals of undermining China's ability to make cutting-edge chips, ASML and its Chinese customers still do not know exactly how it will affect their businesses.

The Dutch firm, Europe's largest technology by market capitalisation, had 14% of its sales in China in 2022 and has sold more than US$8.46 billion (about RM38.3 billion) worth of chip lithography equipment in China over the past decade.

Companies that buy its machines enter into service agreements with ASML for ongoing maintenance. The "installed base" segment contributed about 25% of ASML's worldwide revenue in 2022.

The machines – which cost tens of millions of euros apiece and perform an essential step in creating the circuitry of chips – require unique parts and constant maintenance to remain in working order.

Analysts and the company said the lack of clarity from the Dutch government will hang over the company's outlook. Key questions include any limits on servicing and which models will fall under the restrictions

ASML itself has for now repeated its guidance for 2023 of flat sales in China of around 2.2 billion euros. That compares with 25% revenue growth overall, illustrating the likely impact of the restrictions.

An ASML spokesperson said on Thursday the company interprets the government's remarks to mean that only a thin additional slice of its second-best product line will now be restricted in China, following a complete ban on its most advanced machines in 2019.

But there is an element of guesswork to that. "ASML is waiting for more information" the spokesperson said.

ING analyst Marc Hesselink calculated that the new Dutch rules could possibly affect products that account for 10% of ASML's worldwide sales. However, that would be a worst-case scenario and the impact will likely be less.

That's because ASML customers in China include South Korean chipmakers SK Hynix Inc and Samsung Electronics Co Ltd, which will likely be granted licenses, as well as domestic Chinese companies like logic chipmaker SMIC and memory chip maker YMTC, which face US export restrictions and may not be.

Schreinemacher said on Thursday the Dutch would grant licenses on a case-by-case basis and not follow instructions from Washington.

But Citi analyst Amit Harchandani said the Dutch restrictions appear comparable to those imposed on US companies last year and ASML's assessment of the impact is realistic.

For Chinese customers, the picture is less clear. "What we can say is that their ability to pursue leading-edge nodes development will be significantly curtailed," Harchandani said.

Hesselink of ING predicted that most Chinese chip makers will now opt to focus on "trailing edge" or production of chips using slightly older technology. The Chinese may have a competitive advantage there, and ASML's sales in China could even grow modestly.

Regardless, ASML will thrive outside China in the long run as chipmakers worldwide expand capacity, he said.

"The demand for ASML machines is not going to be impacted, it's simply going to shift to a different region," he said.