U.S. ban just loosened SMIC procurement of $1.2 billion chip manufacturing key equipment

SMIC, the largest chip maker in mainland China, purchased $1.2 billion in semiconductor production equipment from ASML.

SMIC, mainland China’s largest IC maker, also announced this procurement agreement on the Hong Kong Stock Exchange on March 3. The announcement said that the original agreement between the two parties was for the period from 2018 to the end of 2020, and now it has been extended to the end of 2021.

ASML’s statement also noted that the procurement involves DUV (deep ultraviolet) lithography, an older technology, but does not include the most advanced extreme ultraviolet lithography (EVU).

The U.S. lobbied the Netherlands in 2018 after the U.S.-China technology war began, and the Dutch government subsequently halted ASML’s EUV lithography export license to mainland China, a move that set back SMIC’s progress in exploring advanced processes.

Mainland Chinese media, on the other hand, cited senior industry sources as saying that SMIC has been able to procure almost all lithography machines except EUV (extreme ultraviolet). The sales agreement was brokered by Shang-Yi Chiang, a former TSMC chief operating officer from Taiwan who currently serves as SMIC’s deputy director.

Esmer has sales of 14 billion euros in 2020, of which 17% of revenue is from mainland China.

Market analysis of the deal is polarized. As the U.S. National Security Council for Artificial Intelligence (NSCAI) just recently recommended that the U.S. coordinate with Japan and the Netherlands to refuse to export key chip production equipment to mainland China, Reuters quoted a top U.S. semiconductor industry executive as saying that the deal is tantamount to a slap in the face to NSCAI and shows that the U.S. strategy of uniting allies is frustrated.

Last December, SMIC was one of dozens of companies blacklisted by the U.S. semiconductor manufacturing equipment companies must first obtain a license before they can export their products to it. The U.S. Commerce Department said at the Time that the restrictions on SMIC stemmed from concerns that the Chinese Communist Party was using civilian technology for military purposes and that there were ties between SMIC and Chinese Communist military companies.

However, the U.S. Department of Commerce has recently eased some of the restrictions, allowing SMIC to purchase equipment for 14nm and above (14nm and mature processes such as 28nm).

Mainland China is the world’s largest semiconductor market, but more than 80 percent of the mainland’s chips, especially cutting-edge chips, need to be imported separately or from foreign companies manufacturing in mainland China.

On the 1st, the U.S. National Security Council on Artificial Intelligence (NSCAI) released a seven-hundred-page report recommending that the U.S. join the Netherlands and Japan in denying export licenses to mainland China for critical chip manufacturing equipment.

The report also went the extra mile to remind that the key factor is still the joint efforts of Nikon and Canon of Japan, as well as equipment vendors from other countries such as ASML of the Netherlands, to limit the export of chip manufacturing equipment to mainland China.