Is China likely to lose the capacity to produce chips under 7nm?

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Recently, the Dutch government has planned to ban ASML from maintaining semiconductor devices in China, greatly affecting the chip manufacturing capacity of this "billion-people country".

According to Bloomberg, the Netherlands will limit the maintenance capability of ASML's advanced wafer manufacturing equipment installed in China. This move is said to be a serious disruption to China's chip manufacturing ambitions. If this information is correct, China's semiconductor leader SMIC could also lose the ability to produce chips on the 7nm and 5nm process next year.

The Dutch government plans to have some maintenance licenses expire by the end of the year, especially those related to ASML's advanced DUV optical engraving machine. The decision is believed to be due to pressure from US-imposed semiconductor embargoes on China.

The US side said it could take unilateral measures, such as the Foreign Direct Product Regulation (FDPR), if partners (including the Netherlands) do not comply with US embargoes. Under the rule, the US can control the export of foreign products with their own technology.

Previously, the Dutch government imposed import restrictions on ASML's fiber optic printers: DUV Twinscan NXT:2000i, 2050i and 2100i for Chinese entities. Although requiring multi-model design technology, the above optical engines are capable of decoding ≤38 nm and can be used to produce logic chips on the 7nm and even 5nm processing process.

However, the above types of devices have been installed at many SMIC factories or other memory chip manufacturing companies. SMIC uses Twinscan NXT:2000i and other advanced machines to manufacture chips with 7nm technology, mainly for Huawei - one of the companies also under US sanctions. However, despite these sanctions, Huawei has developed a 7 nm smartphone processor with integrated 5G modem last year.

But these devices need to be maintained regularly, otherwise, they could stop working in 2025, seriously disrupting SMIC and Huawei's advanced semiconductor manufacturing capabilities.

In fact, this ban could also affect ASML, as nearly half of the company's sales in the second quarter of this year have come from China. Meanwhile, maintenance is a profitable part of the company's business operations. The scale and impact, as well as the details of the restrictions, are still unclear.

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