A very specific insight from our OODA Network Stratigame – Scenario Planning for Global Computer Chip Supply Chain Disruption – was the role the foreign production of Specialized Manufacturing Equipment (SME) built for the manufacturing of computer chips would play in the health of the computer chip supply chain for the U.S.
Of strategic concern:
- 100% foreign production of SME built for semiconductor manufacturing – on which all U.S. Chip Manufacturers are dependent.
- The primacy of consumer good delivery during intermodal supply chain disruptions brought on by the pandemic would disrupt the shipment of SMEs to U.S. companies; and
- Component parts and subsystem availability would be impacted by pandemic supply chain shortages, causing a shortage of SMEs for semiconductor manufacturing.
Early in 2022, we added a fire at a factory in Berlin, Germany owned by ASML Holding to our list of variables that could tack the global chip supply disruption into a worst-case scenario. ASML Holding’s plant in Berlin is the sole provider of vital technology used to manufacture computer chips. The company is the largest supplier of photolithography systems and the only producer of extreme ultraviolet (EUV) lithography machines, which are used to etch circuits onto silicon wafers.
The chips are later used by Apple, IBM, Samsung, and other tech giants. ASML Holding sold billions of dollars in equipment in just the third quarter of 2021 alone. For further context (and consistent with our intermodal supply chain concerns listed above), according to Wired “each machine is roughly the size of a bus. Shipping their components requires 40 freight containers, three cargo planes, and 20 trucks.”
Now, add the further weaponizing of the semiconductor supply chain (in the form of stolen data from an ASML SME technical repository for the abovementioned EUV lithography machines ) to the list of variables that may impact the future of the global IT supply chain.
ASML admits Chinese data theft may have broken export controls
As reported by EE News Europe:
The world’s leading supplier of lithography equipment, ASML Holding NV (Veldhoven, The Netherlands), has lost technology secrets to a, now, former Chinese employee.
ASML is a monopoly supplier of extreme ultraviolet lithography equipment and was denied export licenses to send such equipment to China in 2019. More recently Japan and the Netherlands have been drawn into a compact with the US to broaden the ban on sending chipmaking equipment to China (see Japan, Netherlands agree to help US limit exports to China).
US foreign policy calls for such bans on the grounds that China is using technology to modernize the People’s Liberation Army and that this poses a threat to global security.
ASML admitted to the theft in its 2022 Annual Report saying: “We have experienced unauthorized misappropriation of data relating to proprietary technology by a (now) former employee in China. We promptly initiated a comprehensive internal review. Based upon our initial findings we do not believe the misappropriation is material to our business. However, as a result of the security incident, certain control regulations may have been violated. ASML has therefore reported the incident to the relevant authorities. We are implementing additional remedial measures in light of this incident.”
ASML did not expand on the nature of the information or when the breach happened.
The US has been ramping up export controls on semiconductor technology for China, which impacts China’s ability to manufacture chips and progress its technology. Consequentially the Chinese state has been encouraging renewed efforts to develop domestic efforts to create a semiconductor manufacturing ecosystem (see China preps $143 billion chip support action, goes to WTO).
ASML was also the target of data theft prior to 2019. XTAL Inc. and its parent Dongfang Jingyuan Electronics Ltd. were founded in 2014 by two former ASML employees who worked with two former colleagues to steal confidential information. In 2019 ASML made the point that the particular episode was one of theft rather than espionage (see They were thieves, not spies, says ASML). (1)
What Next?
- “This is the second such breach that ASML has linked to China in less than a year and comes as the US is pressuring other nations including the Netherlands to help keep China’s chipmaking abilities from advancing.
- Tensions are already high after an alleged Chinese spy balloon hovered over US airspace before being shot down.
- Secretary of State Antony Blinken called off a trip to Beijing — but was considering a meeting with China’s top diplomat in Germany [this month] people familiar with the matter said.
- China’s Foreign Ministry spokesman Wang Wenbin said he wasn’t aware of ASML’s accusation that a former Chinese employee had misappropriated data.
- The Dutch technology company, [ASML], has initiated an internal investigation and tightened security controls after discovering the most recent incident…export controls may have been violated, exposing the company to a potential regulatory backlash.
- The company’s position as a crucial part of the supply chain for technology that makes the fastest, most powerful chips, has made it a target. Last year, ASML, which employs about 1,500 people in China, accused a Beijing-based firm of potentially stealing trade secrets in a theft that dates back years.
- In January, the Netherlands and Japan agreed to join the US in restricting exports of some advanced chipmaking machinery to China. President Joe Biden’s administration has said it’s essential for the US and its allies to block Beijing from acquiring technologies that could threaten global security.
- Dutch Trade Minister Liesje Schreinemacher said in a statement that it’s “very worrying that such a large and reputable company is affected by economic espionage.”
- It’s unclear whether the ex-employee who stole the data had any connections to authorities in China or elsewhere. ASML, which is restricted from selling its most-advanced machines to China, said in its annual report that the theft isn’t material to its business.
- Chief Executive Officer Peter Wennink has warned that China will ultimately develop its own domestic alternatives if it can’t buy from the West. China is ASML’s third-biggest market after Taiwan and South Korea. ASML and its peers sell their equipment to chipmakers such as Intel Corp. and Taiwan Semiconductor Manufacturing Co., which supply companies like Apple Inc. and Nvidia Corp.” (2)
Scenario Planning for Global Computer Chip Supply Chain Disruption: Results of an OODA Stratigame
The ASML Holding’s Factory Fire and Specialized Manufacturing Equipment for Semiconductor Production
With the U.S. Delegation in Asia, We Revisit our OODA Stratigame Insights about Taiwan
