Why maintaining ASML equipment is new front in US-China chip war?

The US government has called on allies to force computer chip manufacturing equipment companies to stop maintaining some of the tools they have sold in China, part of Washington's efforts to undermine China's ability to produce its own advanced computer chips.
 

As the largest maker of chipmaking equipment globally, ASML (Advanced Semiconductor Materials Lithography) of the Netherlands is in focus.
 

Here are questions and answers about the scope of the issue and what is at stake for the US, Netherlands, ASML, and Chinese chipmakers.
 

WHY DOES ASML EQUIPMENT MATTER?

ASML dominates the market for lithography tools - huge expensive, complex machines that perform one step in the chipmaking process, helping to create circuitry.
 

WHY WOULD THE US NOT WANT ASML TO MAINTAIN EQUIPMENT IT HAS ALREADY SOLD?

To stop a targeted Chinese chipmaking plant or "fab" from being able to operate. ASML machines are somewhere between difficult and impossible to replace. If an owner is denied spare parts and maintenance, at some point the machine would stop working and the fab would be unable to produce chips.
 

WOULD THE DUTCH GOVERNMENT DENY MAINTENANCE LICENCES?
The Dutch government, a close US ally, has not ruled out denying export licences - which cover both exports and maintenance - to ASML in some cases where it sees a security risk. However, it has no plans for a blanket ban.
 

Dutch export licensing policy is not aimed at China, an important trading partner, and the Dutch government does not want to harm ASML, its biggest company.
 

In addition, much of the equipment ASML sells in China is used in less advanced chipmaking processes and does not require a Dutch licence to export or maintain.
 

HOW MUCH ASML EQUIPMENT IS IN CHINA?

Lots. ASML sold more than 6 billion euros ($6.5 billion) worth of equipment to Chinese customers last year alone.

The company does not disclose how much falls into categories that require a licence - in industry terms, the "immersion" segment of DUV lithography tools. That's ASML's upper middle range. Its best tools are not sold in China.
 

WHAT DOES ASML SAY?

ASML has export licences in place to service the majority of its Chinese customers until Dec. 31 this year, the company said in an emailed answer to Reuters' questions last month.
 

WHAT MIGHT THE IMPACT BE ON CHINESE CHIPMAKERS?
This is uncertain. Take the fictional example of a Chinese chipmaker that has bought one of ASML's best immersion lithography DUV tools for $60 million, but does not have its licence renewed.
 

US expert Paul Triolo, who notes that Chinese companies have generally found ways around US-led restrictions, described a process of decline over weeks or months.
 

Without software updates, the system would not operate optimally. But Chinese engineers know how to operate their machines, and could be rehired if they are unable to work for ASML.
 

Some of the thousands of parts in an ASML tool are replaceable or repairable if they break down. However, when it comes to highly specialized lenses and lasers, there are no known alternatives.
 

Some parts could arguably be cannibalized from existing ASML machines. Most of the machines ASML has ever made are still in service - but nobody has ever tried running an advanced machine without the company's help.
 

WHAT ARE THE CONSEQUENCES FOR ASML?

Likely minor, at least at first. China was ASML's second market in 2023 after Taiwan, with 29 per cent of sales, slightly ahead of South Korea. About 20 per cent of ASML's total revenues comes from the servicing of installed machines.
 

While ASML dominates its market, it faces competition at the lower end of its product range from Nikon and Canon of Japan, and from domestic Chinese firm SMEE.
 

Chinese chipmakers will be highly motivated over time to develop alternatives to using ASML gear.