China’s chip production efforts could take a hit from a US ally

ASML established in the Netherlands ASML produces some of the most advanced chip manufacturing equipment in the world. The company could soon lose access to one of its most important markets.

The Dutch government led by Prime Minister Dick Schoof reportedly does not plan to renew certain licenses for ASML at the end of the year ASML to repair machines and supply spare parts to customers in China. This is expected to impact ASML’s deep ultraviolet lithography, or DUV, machines, Bloomberg reportedASML’s advanced chip machines come with maintenance contracts to keep them running, and limiting ASML’s ability to repair the machines could leave some of them unable to operate next year, Bloomberg reported, citing unnamed people familiar with the matter.

China-based Huawei and Semiconductor Manufacturing International Corp. (SMIC) trust in ASML’s DUV lithography machines to make advanced chips. Nearly half of ASML’s sales for the second quarter came from selling to ChinaBloomberg reported. The country has been unable to build a comparable version of ASML’s equipment, and China can’t buy ASML’s extreme ultraviolet, or EUV, machines, which are used to make the world’s most advanced chips used by Nvidia NVDA and Apple AAPL.

Under previous Dutch Prime Minister Mark Rutte, the Netherlands did not strongly comply with U.S. requests to increase trade restrictions on China, but Schoof told Bloomberg his government is in “good negotiations” with the U.S. and Japan on export controls. The Dutch foreign ministry and ASML both declined to comment.

Meanwhile, the US is reportedly considering stricter trade rules if allies including the Netherlands and Japan continue to sell chip technology to China. The Biden administration is said to be considering an export control called the foreign direct products rulewhich does not allow the export of any product to any country if it is produced with a certain percentage of U.S. intellectual property components.