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 the allies do not listen to the US authorities, they face specific sanctions.
At least, Bloomberg has such information about the progress of negotiations between American officials and their counterparts in the Netherlands and Japan. The US authorities, according to sources, express dissatisfaction with the lack of desire of the Japanese and Dutch partners to fully synchronize export restrictions against Chinese manufacturers of semiconductor products. At least, it is believed that Japanese Tokyo Electron and Dutch ASML have not yet blocked the opportunity for their Chinese customers to receive service from manufacturers of equipment purchased before the imposition of US sanctions in October 2022. Perhaps American officials are also concerned about reports of an increase in revenue from Japanese and Dutch equipment suppliers in the Chinese direction, although under the current sanctions, we can only talk about sufficiently mature technological solutions.
American suppliers of equipment such as KLA, Applied Materials and Lam Research have long been subject to the requirements of the country's authorities, but they believe that their foreign competitors are not on an equal footing with them, while maintaining the ability to supply some equipment to China and earn money from it. It is largely due to the lobbying of these American companies for their interests that the relevant legislative initiatives of the US authorities arise.
As Bloomberg notes, there is currently a discussion in the bowels of the American government about the need to apply sanctions against those countries that harm the interests of the United States in the supply of equipment to unfriendly third countries, at least partially using technologies of American origin. In the case of products from 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 uses this lever 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 customers of these companies.
These rumors, which are not yet confirmed at the official level, turned out to be enough to reduce the share price of Japanese Tokyo Electron by 8.3% at today's trading in Tokyo. This is the strongest drop in the share price of this issuer within one trading session over the previous three months. At the same time, Screen Holdings shares sank by 5.1%, shares of Disco Corp. fell by 4.1%, and Advantest Corp. securities fell in price. they reacted by falling by 2.5%. All these Japanese companies are engaged in the supply of equipment and materials used in the production of chips. According to some estimates, Tokyo Electron receives up to 20% of revenue in China.
According to unofficial data, the Japanese government is resisting the imposition 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 American equipment manufacturers would like to avoid secondary sanctions for their foreign competitors. In the Netherlands and Japan, American companies still have partners with whom they need to cooperate, and if sanctions quarrel with them, it will harm business. In April, the Federal Reserve Bank of New York published a report stating that due to existing sanctions, the capitalization of American equipment suppliers has already decreased by $130 billion in total. In addition, the ban on the supply of equipment to China will deprive American companies of some customers, and this will negatively affect their revenue. The manufacturers themselves are concerned that customers around the world who are afraid of sanctions will start looking for alternative sources of products, and this will also harm business.
American equipment manufacturers would like to see the organization by the U.S. Department of Commerce of the issuance of export licenses defining the right of companies around the world to supply equipment to China, at least partially using technologies of American origin, as a tool to influence foreign competitors.
Alexey Razin
