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#ChipWar: Western lithography giants such as ASML, Applied Materials and Lam Group make big profits from China


As of the first quarter of this year, China has become ASML's largest market for three consecutive quarters, accounting for 46%, 39% and 49% of revenues, respectively, compared to only 8% in the first quarter of last year. year and 24% in the first quarter of last year. in the second quarter



On April 17, Dutch lithography giant ASML released its 2024 quarterly report, achieving net sales of 5.3 billion euros (about 40.8 billion yuan), down 21 percent year-on-year and 27 percent sequentially; net income of 1.2 billion euros, down 40 percent year-on-year and up 40 percent sequentially; and a gross profit margin of 51.0 percent, up 0.4 percentage points year-on-year and down 0.4 percentage points sequentially.


ASML lithography machine

In the first quarter of this year, ASML's new order amount was 3.6 billion euros (656 million for EUV lithography machine orders), lower than the expected 4.63 billion euros.


In response to an inquiry by Chinese site Observer.com, ASML said that as the semiconductor market has just recovered from the cyclical bottom, the company's global performance growth has also slowed down relatively in the first quarter of this year and customer demand outside mainland China is low.


The financial report shows that in the first quarter of this year, ASML's revenue from China accounted for up to 49%, while the company's previous largest markets, Taiwan and South Korea, remained at a low level, only 6% and 19%, respectively.


As of the first quarter of this year, China has become ASML's largest market for three consecutive quarters, accounting for 46%, 39% and 49% of revenues, respectively, compared to only 8% in the first quarter of last year. year and 24% in the first quarter of last year. in the second quarter.


ASML told Observer.com that customers in China continue to invest in mature mainstream chipmaking technologies and that demand from customers in Beijing has been strong. Therefore, China's system net sales in the first quarter of this year accounted for a proportion increase by region. However, net sales of ASML systems in China in the first quarter of this year were 1.9 billion euros, lower than the 2.2 billion euros in the fourth quarter of 2023.


“At the same time, customers who purchased a lot of equipment last year need some time to assimilate it, so the net sales revenue of Taiwan's system in the first quarter was low,” said the Dutch lithography machine giant.


Similar situations are also found in the financial reports of other semiconductor equipment manufacturers, Observer.com says.


For example, US chip equipment giant Applied Materials' financial report shows that in the first fiscal quarter of 2024, the company's revenue from China accounted for 45%, while Taiwan, China accounted for 8%, and South Korea 18%. %. Another US semiconductor equipment giant, Lam Group, revealed that in the fourth quarter of last year, China contributed 40% of revenue, while South Korea and Taiwan accounted for 19% and 13% respectively. of revenue.

Regarding the downward trend in China's share of Taiwan, Sheng Linghai, vice president of research at Gartner, told Observer.com that this shows that the semiconductor market is recovering from the trough and that investment is delayed. What is now reflected is the productive capacity of the investment made at least 6 months ago and decisions tend to be prudent.


“The increase in China's share is mainly due to the contraction of the overall market and the fact that, due to geopolitical considerations, the Chinese market still needs to purchase as many photolithography machines as possible. In addition, investment in the semiconductor industry in China is due to the need for independence. The impact is not entirely tied to market conditions and has a certain degree of independence," he said.


Data released by the US Semiconductor Industry Association (SIA) shows the semiconductor industry's total global sales amounted to $526.8 billion in 2023, down 8.2% from $574.1 billion 2022 dollars, and is expected to grow 13.1% in 2024.

In turn, the International Semiconductor Industry Association (SEMI) predicts that, after a decline of 11% last year, the entire semiconductor sector will record a recovery of 15% this year.


As signs of market recovery emerge, ASML has also provided new performance expectations. Net sales are expected to be between 5.7 and 6.2 billion euros in the second quarter of this year, up from the previous quarter, but still lower than the 6.9 billion euros. in the same period last year; the gross profit margin is between 5.7 and 6.2 billion euros.

Between 50% and 51%, the month-over-month ratio remained essentially the same, slightly lower than the 51.3% for the same period last year. The company expects net sales in 2024 to be essentially the same as 2023.


In November last year, the Dutch company told Observer.com while attending the China International Import Expo that China plays an important role in the highly globalized semiconductor industry and is one of ASML's most important markets. “Under the premise of complying with relevant laws and regulations, we provide photolithography machines and related products to Chinese customers to help customers produce chips with mature processes and achieve cost reduction and efficiency improvement.”


“As the semiconductor industry continues to recover from the crisis, our full-year 2024 outlook remains unchanged and we expect performance in the second half of the year to be stronger than the first half. We view 2024 as a year of adjustment and continue to invest in capacity improvement and technological advancement to prepare for the industry's cyclical turning point,” ASML CEO Peter Wen said in the financial report.


Sheng Linghai pointed out to Observer.com that the overall market has begun to recover this year, but investment in production capacity by semiconductor companies cannot immediately turn into market revenue. It will take 6-12 months for the planned ordering process to be realized.


ASML: U.S. moves. Dutch company must not fall into Chinese hands

To block China's technological development, the U.S. will put pressure on the Netherlands. It is appropriate for the US and EU to cooperate defensively and offensively toward China. There is an battle going on in the global economic and trade system, and it should be an imperative that like-minded nations work together to emerge victorious.

On April 5, Reuters, citing two people familiar with the matter, exclusively reported that the Biden administration intends to put pressure on the Netherlands next week, with the intention of preventing the leading Dutch chip equipment manufacturer (ASML) from providing some instrument repair services to China.


Alan Estevez, the Biden administration's export policy chief, is scheduled to meet with the Dutch government and ASML staff in the Netherlands next Monday to discuss maintenance service contracts, people familiar with the matter said. At that time, Washington may also seek to add a new name to the list of Chinese chipmakers who cannot receive Dutch equipment.


The Dutch Foreign Ministry confirmed the upcoming meeting, but did not specify what topics would be discussed. It responded to Reuters by saying, "The Netherlands always has good discussions with our partners. Monday's meeting between officials is an example of this."


The April meeting is the latest move in Washington's efforts to engage allies intent on encircling mainland China's cutting-edge chipmaking capacity. Large, expensive equipment requires frequent maintenance, and mainland China is ASML's second-largest market (29%) based on sales last year. ASML shares fell briefly after the news broke, and the company and the U.S. Department of Commerce declined to comment.


Photolithography is a key equipment for chip production, and Dutch ASML is the world's largest photolithography manufacturer and the only supplier of extreme ultraviolet (EUV) lithography.U.S. pressures on ASML will begin in 2019.


Last year, Japan and the Netherlands followed the U.S. example, using "national security" as an excuse to ban China from acquiring certain chip-making technologies. But the Dutch restrictions have not reached the level of the United States, which has banned U.S. companies from repairing equipment for advanced Chinese factories. Estevez has said publicly that the United States is asking its allies to prevent local companies from servicing certain chip-making equipment for Chinese customers. At an export control conference last week, he said, "We are working with our allies to determine which repairs are important and which are not."


In response to the U.S. forcing the Netherlands into science and technology embargoes against China, Foreign Ministry spokesman Wang Wenbin responded that China has always opposed the U.S. generalization of the concept of national security and the coercion of other countries into science and technology embargoes against China under various pretexts. China urges the Dutch side to uphold an objective and fair position and market principles, abide by the spirit of the contract and take concrete actions to safeguard the common interests of China and the Netherlands and the enterprises of both sides. China will pay close attention to developments in the matter and will vigorously safeguard its legitimate rights and interests, Beijing said.


From March 26-27, Dutch Prime Minister Rutte traveled to China for a working visit, his first visit to China in five years. In an interview with the media, Rutte declined to answer whether the Dutch government would follow the U.S. government's request to prevent ASML from continuing to provide services to Chinese customers. He said, "When it comes to our semiconductor industry and companies like ASML, when we have to take (export control) measures, the Netherlands will make sure that these measures are not specifically aimed at one country."


According to Rutte, the Netherlands will always try to minimize the impact and avoid a ripple effect on the supply chain, and thus on overall economic relations.


Upon his return to the Netherlands, Rutte was faced with another thorny issue: the fact that ASML "wants to leave."

On March 28, the Dutch government reportedly announced that it would spend 2.5 billion euros (about 19.487.6 billion yuan) to improve transportation and other infrastructure in the Eindhoven area, where ASML is headquartered, to ensure that ASML remains in the Netherlands and does not move its operations abroad. Meanwhile, to alleviate the concerns of some domestic blue-chip companies, the Dutch cabinet is preparing to take measures to reduce the tax burden on businesses, the report says, citing an official statement.


ASML welcomed the news, but did not explicitly state whether it will remain in the Netherlands. In a statement, the company stressed that "the decision we have to make is not whether we will stay, but where we will grow."


Why does ASML have strategic importance?

ASM is a Dutch photolithography company that has developed the unique advanced extreme ultraviolet (EUV) lithography instrument.


The machine consists of several modules incorporating hundreds of thousands of components from multiple levels of nearly 800 global suppliers. The modules are built at 60 ASML locations around the world and shipped to the Netherlands for assembly


This technology was also developed with U.S. technological collaboration. Today ASML, which took 20 years to produce the machine with billion-dollar investments, is the only company in the world that can employ this tool.


If Chinese industry were to acquire such machinery, it would be able to reproduce it in three years, warned Nazak Nikakhtar, adviser to the U.S. Department of Commerce.

It is appropriate for the US and EU to cooperate defensively and offensively toward China. There is an battle going on in the global economic and trade system, and it should be an imperative that like-minded nations work together to emerge victorious.


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