Dutch export rules on China in focus ahead of ASML results

Expectations that the Dutch government will further limit sales to China by chip equipment giant ASML Holding NV may overshadow what are expected to be strong fourth quarter results due next week. The Hague is expected to impose at least some additional restrictions on ASML's exports to China, a Dutch government source familiar with security discussions between the United States and Netherlands told Reuters, though they could not give a timeframe.

Expectations that the Dutch government will further limit sales to China by chip equipment giant ASML Holding NV may overshadow what are expected to be strong fourth quarter results due next week.

The Hague is expected to impose at least some additional restrictions on ASML's exports to China, a Dutch government source familiar with security discussions between the United States and Netherlands told Reuters, though they could not give a timeframe. ASML, a key supplier to chipmakers, generates about 15% of its sales in China, an important growth market even after it was restricted from selling its most advanced machines there under U.S. pressure in 2019.

Tensions between Washington and Beijing over semiconductors have since steadily worsened. Washington in October imposed export restrictions on its own chip equipment companies aimed at hobbling China's ability to make chips and to blunt its military progress.

U.S. officials say they expect the Netherlands to follow suit. Dutch Prime Minister Mark Rutte on Jan. 17 said he expected a "good outcome" to discussions with the United States on the matter after meeting with President Joe Biden in Washington.

But Dutch trade minister Liesje Schreinemacher has underlined the Netherlands will not simply adopt U.S. rules. "I know there's a lot of pressure internationally but I will be fighting for open trade and against protectionism," she told a panel in Davos on Jan. 19.

The government source said The Hague has been working to resolve several concerns. One is making sure Dutch rules are drafted in such a way that they are not actually more restrictive for ASML than for U.S. companies.

Another is that Japan, home to ASML competitor Nikon , have similar rules, and a third is that new restrictions do not upend the global chip market, which is just emerging from COVID-19 era shortages and needs Chinese production, especially for less-advanced chips. "We will figure it out," the source said.

EARNINGS The Dutch Foreign Affairs Ministry, which oversees export controls, declined to comment. ASML also declined to comment citing a quiet period ahead of earnings due on Jan. 25.

ASML is expected to post fourth-quarter net income of 1.68 billion euros ($1.82 billion) on record revenue of 6.37 billion euros, according to Refinitiv Eikon data. In November ASML raised its annual revenue estimates by 25% to at least 30 billion euros by 2025.

The company's top customers including TSMC, Samsung and Intel are engaged in major expansions, so any loss of Chinese sales could initially be offset elsewhere. Still, the U.S. restrictions are expected to impact 5% of ASML's 38-billion-euro order backlog.

There could be further losses from tougher Dutch rules, if for example, limits are re-applied to sales to China of older technology deep ultraviolet lithography (DUV) equipment. ASML has sold more than 8 billion euros worth of such equipment in China since 2014, when DUV was removed from international lists of goods deemed of possible military use.

The government would need to expand its definition of sensitive technology to include DUV in order to restrict it and may not specify that such a move is targeting China. ($1 = 0.9223 euros)

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