Peter Wennink is in a tricky position. Nearly a decade into his tenure leading one of the most important players in the chip business—the Dutch semiconductor equipment manufacturer ASML—he is about to help the U.S. further hobble the Chinese semiconductor sector. But depending on how far those efforts go, he could end up damaging his own business in the process.
ASML’s lithography machines are essential for building the most advanced chips—they pattern and etch the intricate layers that make up the billions of tiny circuits on a piece of silicon. For the past few years, the Dutch and U.S. governments have blocked it from exporting its top-of-the-line extreme ultraviolet (EUV) devices to China, because of potential military uses. But over the past half year, the U.S. has also been demanding that ASML stop sending China elements of its next-best equipment, deep ultraviolet (DUV) chipmaking technology, which analysts say can get close to the capabilities of the EUV class.
On the weekend, reports emerged that the U.S. had struck a deal with the Netherlands and with Japan, whose Nikon Corp. also makes DUV equipment. The details remain to be seen, but indications are that the ban won’t be overly broad—just as well, as Wennink warned last week that such a scenario could disrupt supply chains for everything from PCs and cars to smartphones and energy infrastructure.
The issue is that, while the EUV ban clearly sets back China’s production of the kinds of bleeding-edge chips that could be used in data-intensive applications such as A.I., new restrictions on DUV equipment could affect production of general-purpose chips used for a much broader range of things. These include the chips used in military applications—tanks, rocket systems, and so on—as well as the chips used in consumer electronics products that are made in Chinese factories.
Unless the DUV restrictions are highly targeted, the potential fallout from a ban could be widespread.
How significantly this would crimp ASML’s business remains to be seen. Analysts believe the efforts to reboot chip manufacturing on American soil could help offset the loss of business in China. “We don’t think an export ban on the most advanced DUV systems would meaningfully alter ASML’s long-term growth prospects,” Citi analyst Amit Harchandani told Fortune.
During ASML’s earnings call last week, Wennink referred to a semiconductor ecosystem that was “bifurcating into blocs” as a result of national efforts in the U.S., Europe, and elsewhere to develop local chip manufacturing as well as tightening export controls.
ASML is caught in the middle of geopolitical battle
The company already has a waiting list that’s around two years long, and will benefit—for a while—from the semiconductor ecosystem becoming less efficient. “On balance I’d say [the growing drive for so-called technological sovereignty] is positive, but that’s a bit selfish,” Wennink admitted.
Yet he also acknowledged that his company’s business remains beholden to forces he has limited control over. Wennink noted that ASML had no representatives present at negotiations between the U.S. and Dutch governments, as the discussion was “geopolitical, not geobusiness.” However, he added, ASML was “definitely part of the discussion,” and had the role of “making sure people understand how this industry works.”
On Friday, as reports surfaced that the U.S. and Dutch governments had reached an accord, ASML said it believed the agreement “will be focused on advanced chip manufacturing technology, including but not limited to advanced lithography tools,” and noted that “before it will come into effect it has to be detailed out and implemented into legislation which will take time.”
Indicating that there’s still some scope for influencing the process, ASML also said that while the rules were being finalized, it “will continue to engage with the authorities to inform them about the potential impact of any proposed rule in order to assess the impact on the global semiconductor supply chain.”
For now, Wennink may be able to breathe a small sigh of relief even as he and his company remain caught in the middle of a broader power struggle. In a note to investors on Monday following reports of the agreement, Citi’s Harchandani wrote that the agreement “should likely diminish the overhang of a worst-case scenario (broad-based DUV ban) that some investors have been concerned about in our recent discussions.”
