ASML, the Dutch chip giant that is key in the technological war between the US and China

The Dutch company ASML leads the production of photolithography equipment for the semiconductor industry and is the business jewel of the Netherlands.

Its shares have risen 420% in the last five years, it has a capitalization of 340,000 million euros and is ranked number 22 among the most valuable companies on the stock market in the world.

The secret of your success?

It creates complex machines for the manufacture of chips, key in the transition to the digital economy, on which giants such as TSMC, Samsung or Intel depend.

ASML's exponential growth has even more merit considering the impact of geopolitics on its business.

The restrictions on the export of some of its equipment to the Chinese market, demanded by the United States from the Dutch Government, go beyond the financial aspect.

Washington wants to counteract Beijing's technological development also for geostrategic reasons, and this has led to a chip dispute.

A Sino-American struggle in which the European Commission and the 27 EU partners may end up having a greater role.

The United States does not want China to copy technology and apply high-end chips to the military field.

Hence, it has blocked the sale of its own cutting-edge machines for the manufacture of semiconductors.

It asks its allies for the same, whether through agreements, diplomatic pressure or even unilaterally.

For the latter, it has been provided with rules that allowed it to do so if the devices contained a single American part.

ASML's near-monopoly in the field of advanced lithography systems has put it in Washington's spotlight.

In this context, in 2023 the Dutch Executive added more types of machines to the limitation on exporting some photolithography systems to several Chinese ASML clients.

The license block was to come into effect on January 1.

Previously, China imported $1.1 billion worth of chip technology from the Netherlands, according to Bloomberg calculations.

Beijing's response to the restrictions was clear: "The Netherlands must respect the law."

Last October, the then Dutch Trade Minister, Liesje Schreinemacher, admitted before Parliament that although to date they had negotiated alone with the United States, she thought that the matter “should be addressed at European level and in coordination with other member states of The EU".

The Dutch Ministry of the Interior did not want to comment “on specific permits or on matters relating to our national security.”

A long distance race

According to Dutch journalist Marc Hijink, author of the book

Focus: De wereld van ASML

, which will be published in April, “the final use of microprocessors cannot be clearly determined.”

In a telephone conversation he explains that the company needed at least 15 years to develop its most advanced machinery, and now it is the most valuable technology company in Europe.

“The Netherlands usually aligns itself with the United States on aspects such as export control in the field of semiconductors, but since ASML's latest technology is light years ahead of its competitors, politicians could have been a little more assertive in their negotiations with Washington ”, he emphasizes.

As?

“By cooperating with other European countries.

Joining forces is the way to face challenges of this magnitude.”

Although Hijink believes that the collaboration may eventually come together, he maintains that it will take time and will require “politicians capable of understanding ASML's role in the global economy.

And those are rare”

In 2023, the company had a turnover of 27,558 million euros, 30% more than the previous year, and earned 7,839 million compared to the profits of 5,621 million obtained a year before.

ASML may be less known to the general public than other firms of Dutch origin, such as Shell or Philips, “because it does not sell consumer technology,” says Hijink.

However, their machines make the chips that appear in most of the devices we use: from cars and phones to computers or ChatGPT.

The photolithography that is the backbone of this geopolitical conflict uses light of a shorter wavelength to draw with great precision the very fine lines of the base of the microprocessor: a type of silicon wafer.

The thinner they are, the more they can fit on a chip, and this increases its power and speed.

There are two models in contention in this story of industrial innovation transformed into a struggle for economic and military power.

Regarding the first, the extreme ultraviolet photolithography (EUV) machine had an export blockade to China since 2020.

It is a technology exclusive to ASML, which has a monopoly here, and is used to create very complex patterns on wafers.

“It uses light with a wavelength of 13.5 nanometers: the shorter it is, the smaller the characteristics of the microchip that can be printed,” according to the company's information service.

A nanometer (nm) is equivalent to one billionth of a meter, and with this machine chips smaller than 10 nanometers can be developed.

An EUV machine is worth about 200 million euros, and the new generation will cost close to 400 million.

The other model is deep ultraviolet (DUV) photolithography, whose wavelength is 248 and 193 nm.

It costs between 80 and 90 million euros each machine, and the new restrictions may affect between 10% and 15% of sales to China, as admitted by Roger Dassen, financial director of ASML.

In a video released by the company, he added that he expected demand for older equipment from Beijing to remain “very, very strong this year and into the future.”

In 2023, the firm made 29% of its sales in China.

It was its second client behind Taiwan (30%).

Third place was occupied by South Korea (24%).

Currently, ASML is a company in the hands of large global investment funds such as Capital World Investors, Price or Fisher Asset.

It was founded in 1984 by the multinationals Philips and Advanced Semiconductor Materials (ASM), and has its headquarters in Veldhoven, a town near Eindhoven.

About half of its more than 42,000 employees operate there, 40% of whom come from abroad.

In 1995 it went public and Philips sold half of its shares in the listing.

In the following years he did the same with the rest.

The company's forecasts for 2024 are, despite business restrictions, optimistic.

It expects to bill figures similar to those of 2023 thanks to the greater demand for chips due to the artificial intelligence boom.

ASML operates almost like a monopoly.

It is not easy, for now, to compete in your business.

But in technology everything is a matter of time.

“China can accelerate its own chip manufacturing industry spurred by negative exports,” warned Peter Wennink, the executive director, upon learning of the new obstacles.

ASML wants to trade with everyone.

Also with China.

Will it be possible?

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