Lithography Manufacturer ASML Warns Further Chinese Sanctions Could Impact Its Business

Dutch company ASML makes the world's most advanced lithography machines. Though it's been impacted already by sanctions against China, it's now warning against further sanctions it expects to arrive in 2024. The company just released its annual report for 2023, and since these reports include guidance about future concerns for the business, further Chinese sanctions and "geopolitical tensions" are near the top of the list for the company.

ASML's 2023 annual report stretches beyond 350 pages, and it lists the difficulties the company faced in 2023 and will likely continue to deal with in the future. Those challenges included the PC market downturn, COVID-19 supply chain issues, and export controls that impacted its business. The report bluntly states, "We are exposed to economic, geopolitical and other developments in our international operations," which includes not only Chinese sanctions but the ongoing military operations in the Middle East as well as in Ukraine.

The company just rolled out its $380 million High-NA machines, which won't be arriving in China anytime in the next decade, at least. Credit: ASML

As far as China is concerned, the company earned 26% of its revenue from China last year, according to Tom's Hardware, so further export controls are top of mind for its C-suite. The report states, "Our ability to deliver technology in certain countries such as China has been and continues to be impacted by our ability to obtain required licenses and approvals."

The report goes on at length describing the pickle it finds itself in, with some blame being laid at the feet of Uncle Sam. "The US government has enacted trade measures, including national security regulations and restrictions on conducting business with certain Chinese entities, restricting our ability to provide certain products and services to such entities without a license."

Another issue for the company is it also depends heavily on Taiwan, which is at the nexus of both "geopolitical tension" and the country of China. The report states that Taiwan was responsible for 29% of its 2023 net sales and 38% of its 2022 sales, so you can already see the sweat forming on its CEO's brow. As if that wasn't enough, it also says South Korea was responsible for 25% of its 2023 sales, so if relations with North Korea deteriorate, it could be a massive issue for ASML. All of this is covered in detail on page 59 of the report if you want to just skip to the good stuff.

In March 2023, the Netherlands—where ASML is based—joined the US in restricting Deep Ultra Violet (DUV) immersion lithography and deposition tool sales to China. Therefore, it's not just US law holding ASML back, but its own country's laws. Despite this situation, ASML states repeatedly throughout its report that it will always comply with international regulations.