(JW Insights) May 4 -- China was ASML's third-biggest market in 2022, accounting for about 15% of revenue, the company's CEO Peter Wennink told Bloomberg in a recent interview.

China is working on building its own semiconductor industry, pouring billions into a chip-building initiative to catch up to the US. Its purchase of older technology has boosted earnings for much of the semiconductor equipment sector. China, which a decade ago was a rounding error for ASML, was its third-biggest market behind Taiwan and South Korea in 2022, said the Bloomberg report on April 27.

Not being able to sell more powerful equipment in China may become a drag on growth in the future, but for now ASML can barely keep up with its non-China demand, and says the bans have “no material effect.” Its backlog is almost twice its annual revenue, and its biggest customer Taiwan Semiconductor Manufacturing Corp. isn’t cutting capital expenditure. Also, the US and Europe have unveiled plans to invest about $100 billion in the chip industry.

But ASML Chief Executive Officer Peter Wennink still believes the China blockade is a mistake, saying it will hasten that country’s efforts to develop its own chip equipment.

China is working on building its own semiconductor industry, pouring billions into a chip-building initiative to catch up to the US. “If they cannot get those machines, they will develop them themselves,” said Peter Wennink. “That will take time, but ultimately they will get there… The more you put them under pressure, the more likely it is that they will double up their efforts.”

Meanwhile, ASML has stepped up its intellectual property protection measures with its information security staff up 20% from 2021 to 300. It created a “circle of trust” to train suppliers on cybersecurity risks and keeps tabs on any potential reverse engineering of its machines.

With 5,000 suppliers of everything from software to tin and tungsten and strategic partnerships with companies like Carl Zeiss AG, which makes its critical multilayer mirrors, ASML runs a global ecosystem that would be difficult to match, said ASML's CFO Dassen.

“A lot of ASML’s technology is not on blueprints,” he said. “It’s in the heads of people. And you don’t need just the blueprints; you need everything surrounding it and the entire supply chain. You have to build an alternative Zeiss etc. That is a colossal task. You’re not talking about months or years. You’re talking about a decade or more before you could replicate something like this.”

(Yuan XY)