Bloomberg unwittingly spoiled the joy of ASML shareholders from a fairly successful quarterly report by publishing material about the brewing contradictions between the United States, Japan and the Netherlands in the field of export control over the supply of equipment for the production of chips to China. If allies do not listen to US authorities, they face specific sanctions.
Image Source: ASML
At least, Bloomberg has this information about the progress of negotiations between American officials and their colleagues in the Netherlands and Japan. US authorities, according to sources, express dissatisfaction with the lack of desire of Japanese and Dutch partners to fully synchronize export restrictions regarding Chinese manufacturers of semiconductor products. At least, it is believed that the Japanese Tokyo Electron and the Dutch ASML have not yet blocked the opportunity for their Chinese clients to receive service from manufacturers of equipment purchased before the introduction of American sanctions in October 2022. Perhaps American officials are also concerned about reports of increased revenue from Japanese and Dutch equipment suppliers in the Chinese direction, although under the current sanctions we can only talk about fairly mature technological solutions.
American equipment suppliers such as KLA, Applied Materials and Lam Research have long submitted to the requirements of the country’s authorities, but believe that their foreign competitors are not on an equal footing with them, retaining the opportunity to supply some equipment to China and make money on it. Largely thanks to the lobbying of their interests by these American companies, corresponding legislative initiatives by the US authorities arise.
As Bloomberg notes, within the bowels of the American government there is now a discussion about the need to apply sanctions against those countries that harm US interests in the supply of equipment to unfriendly third countries that at least partially uses technologies of American origin. In the case of the products of the same ASML and Tokyo Electron, such secondary sanctions would be applicable, and this worries not only representatives of these companies, but also politicians in Japan and the Netherlands. The United States is using this leverage to put pressure on the authorities of these two countries in order to tighten restrictions on the export of specialized equipment to China, as well as reduce the range of services provided to Chinese clients of these companies.
These rumors, which have not yet been particularly confirmed at the official level, were enough to reduce the stock price of the Japanese Tokyo Electron by 8.3% in today’s trading in Tokyo. This is the strongest drop in the stock price of this issuer within one trading session over the previous three months. At the same time, shares of Screen Holdings fell by 5.1%, shares of Disco Corp. fell by 4.1%, and securities of Advantest Corp. reacted with a fall of 2.5%. All of these Japanese companies supply equipment and materials used in the production of chips. According to some estimates, Tokyo Electron in China receives up to 20% of revenue.
According to unofficial data, the Japanese government is opposed to the introduction of additional sanctions, hoping at the same time to wait for the results of the upcoming US presidential elections before taking serious steps in this direction. Even US equipment manufacturers would like to avoid secondary sanctions on their foreign competitors. In the Netherlands and Japan, American companies still have partners with whom they need to cooperate, and if sanctions quarrel between them, this will harm business. In April, the Federal Reserve Bank of New York published a report saying that existing sanctions had already reduced the capitalization of US equipment suppliers by a combined $130 billion. In addition, a ban on the supply of equipment to China will deprive American companies of some customers, and this will negatively affect their revenue. Manufacturers themselves are concerned that customers around the world, frightened by sanctions, will begin to look for alternative sources of products, and this will also harm business.
American equipment manufacturers, as a tool to influence foreign competitors, would like to see the US Department of Commerce organize the issuance of export licenses that would determine the right of companies around the world to supply equipment to China that at least partially uses American-origin technologies.