Amid the escalating tech war between China and the US, along with rising geopolitical tensions, China has accelerated its import of chip manufacturing equipment since the middle of last year to counter potential US chip sanctions, with Dutch company ASML and Japanese company Tokyo Electron (TEL) benefited the most.

Notably, according to the Semiconductor Equipment and Materials International (SEMI), despite US sanctions preventing China from acquiring advanced EUV lithography equipment from ASML, it reported that China’s spending on chip manufacturing equipment has reached USD 25 billion in the first half of this year, exceeding the combined total of Korea, Taiwan, and the US. SEMI data also shows that China’s spending remained strong in July and is expected to set a new annual record.

Meanwhile, per the trade data from China’s General Administration of Customs cited by Bloomberg, from January to July this year, Chinese companies imported chip manufacturing equipment worth nearly USD 26 billion, surpassing the previous record set in the same period in 2021.

SEMI projects that China will become the largest investor in new fab construction, including equipment purchases. It is expected that the country’s total spending on chip equipment for the entire year of 2024 will reach USD 50 billion.

Clark Tseng, SEMI’s senior director of market intelligence, further highlighted that at least more than 10 tier-two chip manufacturers are actively purchasing new equipment, which is driving China’s overall spending.

China is now reportedly the largest market by revenue for top global chip equipment suppliers. The latest quarterly financial reports from companies such as Applied Materials, Lam Research, and KLA show that China contributes approximately 40% of their revenue.

For Japanese company TEL and Dutch company ASML, the contribution from the Chinese market is even more significant, with nearly half of their revenue coming from China.

Additionally, per a report from Commercial Times, amid a global economic slowdown, China is the only region where chip manufacturing equipment spending increased in the first half of this year compared to the same period last year.

Tseng also noted that SEMI anticipates spending on new plant construction in China will “normalize” over the next two years.

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According to an earlier report from Bloomberg, the Dutch government may restrict ASML’s after-sales services for Chinese customers. Regarding the matter, the Dutch Prime Minister Dick Schoof has stated that the government’s decisions will prioritize ASML’s actual interests to avoid jeopardizing its global position, according to a report by Reuters.

ASML derives about 20% of its total revenue from after-sales services. Per the same Reuters’ report, while Dick Schoof did not comment on rumors that Netherlands would put more curbs on ASML’s China chip business, he highlighted that negotiations are progressing smoothly.

Moreoever, the Dutch government is particularly focused on balancing ASML’s interests with other risks, as the authority has acknowledged that the economic interests are extremely crucial, he noted.

He reiterated that ASML represents an extremely important and innovative industry for the Netherlands and should not face any setbacks, as that would harm its global standing, according to Reuters.

ASML plays a crucial role in the global semiconductor supply chain, as the production of advanced chips heavily reliant on its lithography machines.

Per another Reuters report, in 2023, China became ASML’s second-largest market, accounting for 29% of its total revenue, following Taiwan. This surge in China’s market share was driven by a rush to purchase ASML’s DUV machines before stricter U.S. export restrictions took effect.

Due to U.S. government pressure, the export of the most advanced Extreme Ultraviolet (EUV) lithography machines to China has been banned.

Recently, ASML has expressed dissatisfaction with the Dutch government’s lack of support, with former CEO Peter Wennink even reportedly threatening to relocate the company’s headquarters if its development continues to be constrained.

Wennink has publicly opposed export restrictions to China, warning that such measures could stimulate China to develop new technologies and compete with ASML.

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(Photo credit: ASML)

Supermicro Computer has reportedly been targeted by short-sellers and questioned over alleged accounting manipulations, leading to a delay in filing its 2024 10-K annual report and causing market unease.

On August 27, Hindenburg Research, a short-selling company known for targeting major entities like India’s Adani, Nikola, Lordstown, and fintech giant Block, released a report accusing Supermicro of accounting violations, inadequate disclosure of related party transactions, and evading sanctions by selling products to Russia.

At the moment following the release of Hindenburg’s report, Supermicro also announced a delay in submitting its 2024 fiscal year 10-K annual report, citing the need for more time to assess the design of internal controls and operational effectiveness. This move has further heightened market concerns about Supermicro.

Moreover, Hindenburg also raised concerns about the quality of Supermicro’s products and services, suggesting that competitors like Dell might capitalize on Supermicro’s lost orders.

According to a report from Barron’s citing Evercore ISI analyst Amit Daryanani’s report, it’s highlighted that Supermicro is facing a risk of customer order withdrawals.

Supermicro, on the other hand, didn’t immediately respond to a request for comment about the delay in filing the annual report.

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China’s export controls on crucial semiconductor materials are reportedly hitting the supply chain, with concerns rising over potential shortages of advanced chips and military optical hardware.

According to the U.S. Geological Survey, China produces 98% of the world’s gallium and 60% of its germanium. However, since July of last year, the Chinese government has imposed export restrictions on these minerals, causing their prices in Europe to nearly double over the past year. China claims these measures are to protect national security and interests in response to U.S. export sanctions.

As per a report from the Financial Times, an industry source who works at a large consumer of semiconductor materials has revealed that the situation with China is extremely critical, with significant reliance on China’s supplies.

Affected companies have also disclosed that while there is still some bulk shipment of Chinese gallium, the overall export volume has dropped by about half since the controls were implemented. If China continues to reduce gallium exports as it did in the first half of the year, reserves could be depleted, leading to shortages.

Per the same report from Financial Times, Jan Giese, Senior Manager at Frankfurt-based trading firm Tradium, noted that the gallium and germanium his company obtained through China’s new export licensing program account for only a small portion of past purchases. These export controls are adding additional pressure on markets outside China, making an already challenging market even more complex.

Gallium and germanium are crucial for semiconductor applications, military, and communications equipment. They are essential materials for producing advanced microprocessors, optical fiber products, and night vision goggles, so ongoing export restrictions by the Chinese government could hinder the production of such items.

Meanwhile, the Chinese government has announced new export restrictions on antimony this month. Antimony is used in armor-piercing ammunition, night vision goggles, and precision optical components. This follows previous export controls on graphite and rare earth extraction and separation technologies.

Under the regulations, each shipment requires approval, which takes 30 to 80 days and involves uncertainty, making long-term supply contracts impractical. Applications must specify the buyer and intended use.

The report cites sources in the semiconductor materials sector, noting that China is using these restrictions to catch up with the U.S. and other semiconductor technology leaders. Given the current global situation and U.S.-China relations, there seems to be no motivation for China to ease export controls.

Addressing the matter, the China’s foreign ministry declined to comment.

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