In its annual report, published earlier today, photolithography systems maker ASML informed investors that a Chinese rival might be working with technologies that infringe upon its intellectual property (IP) rights. China is obviously frustrated at export blocks on ASML's advanced semiconductor manufacturing machines, and it is evident that the Chinese rival under suspicion has Beijing's stamp of approval, with its "little giant" startup designation. Bloomberg says that the Dutch company has shared its concerns with Chinese officials but has yet to initiate legal action.
ASML is keeping a close eye on Dongfang Jingyuan Electron Ltd. The company has ties to XTAL Inc., against which AMSL successfully won $845 million in a trade secrets lawsuit in 2019. Dongfang Jingyuan is a Chinese tech startup branded as a "little giant" by Beijing authorities. This label is "a valued measure of government endorsement, a signal for investors and employees that the companies are insulated from regulatory punishment," according to Bloomberg.
ASML is investigating and gathering evidence of any IP infringing practices at Dongfang Jingyuan before instigating legal proceedings. However, it doesn't look good, as inquiries and correspondence sent to both XTAL and Dongfang Jingyuan about the matters of concern remain unanswered. As a result, ASML has turned to Chinese officials with its concerns. If inter-company communication doesn't work and reaching out to government/regulators falls on deaf ears, legal proceedings could be the next step for ASML.
It is pretty easy to understand Beijing's frustrations with trade blocks currently stopping ASML from supplying its pivotal semiconductor manufacturing machines to Chinese customers. China is keen to catch up with advanced technologies spearheaded by foreign semiconductor giants, so it is rather nurturing of companies like Dongfang Jingyuan.
While the above uneasy push and pull between ASML, the US and China takes place, ASML has told key customers not to aid Dongfang Jingyuan in any way. ASML has considerable weight due to its importance in the semiconductor industry ecosystem, so this kind of soft power may be more effective than lawyering up.
Many readers will not be surprised at all to hear that ASML is doing record business. Semiconductor giants like Intel and TSMC rely on the firm's latest EUV machines for their most advanced process chips, and with the rate of new chipmaking facilities being commissioned, it looks like ASML will find it hard to keep up. Hopefully, there won't be any more fires this year.