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Report: China Chip Production Hits Road Bump With EUV Shipment Delayed Over US Tensions

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According to a Nikkei Asian Review report this week, ASML, Europe's largest maker of specialized chip-making equipment and the only designer of extreme ultraviolet (EUV) lithography tools, is holding off on sending materials to China, bringing into question China's ability to make chips on its own turf. 

The report cited three people "close to the situation," saying that an order Semiconductor Manufacturing International Corp. (SMIC) placed in April is "pending later notice." The EUV tools shipment to the Chinese government-backed SMIC was originally supposed to happen by the end of the year, with installation completed by mid-2020. ASML is waiting on the Dutch government to renew its export permit, which seems to have been inexplicably delayed. The company "cannot ship EUV to China" until that's settled, it told Nikkei, which could take up to eight weeks.

However, Nikkei's sources claimed the delay is related to current tensions between the U.S. and China (ASML has operations in the U.S.). 

"ASML has decided for now to hold back delivery of the EUV equipment as it does not want to make the U.S. government upset that it ships the most advanced chip tool to China," one of Nikkei's sources reportedly said. 

The news comes amid U.S. scrutinization of major companies in Chinese tech supplies. One of these companies is Taiwan's TSMC, an ASML customer that also supplies chips to Huawei. The U.S. government has recently targeted Huawei with various accusations of espionage for the Chinese government, but Huawei has so far denied all of the allegations.

ASML itself went through some issues with corporate IP theft. There were allegations that the Chinese government was the culprit; however, ASML defended the Chinese government

In 2018, 16% of ASML’s revenue came from the U.S., while 19% came from China. The proportion of sales attributed to Chinese companies is also rapidly increasing, making the Chinese market that much more important to ASML. According to one a Nikkei source, ASML reportedly doesn’t want to "make China and its Chinese customers feel bad," so it may also fight to deliver the promised tools as soon as possible, Nikkei said. 

ASML has stated that its EUV tools are subject to the Wassenaar Arrangement, a multi-national export control protocol meant to stop the spread of advanced technologies that can be used for military ends. The Dutch and other European authorities have given ASML an exemption from this arrangement, but that permit is now expired.

Shanghai-based SMIC told Nikkei the deal was still in the "paperwork stage" but wouldn't comment further. SMIC made only $134 million in profit last year and is reportedly struggling. According to Nikkei, ASML’s EUV tools alone cost around 150 million euro, so SMIC wouldn’t be able to afford the EUV tools without help from the Chinese government.