ASML rises after US mulls new chip export rules for China that exempt some allies – report

Update: The story was updated with BofA’s rating reaffirmation on ASML.

The U.S. government intends to introduce a new rule next month which will expand the reach of the country to halt exports of semiconductor manufacturing equipment from some foreign nations to Chinese companies, Reuters reported, citing people with knowledge of the matter.

However, shipments from U.S. allies which export vital chipmaking parts, such as Japan, the Netherlands and South Korea, will be excluded, thus reducing the impact of the rule, the report added.

Shares of Dutch chip equipment maker ASML (NASDAQ:ASML) jumped about 7% premarket on Wednesday.

BofA Securities reiterated its Buy rating/Top pick on ASML with an unchanged price target of €1,302 following the news. Analyst Didier Scemama noted that if the news report is correct, it would be, to say the least, a huge surprise. Seeing that ASML shares underperformed the broader European market by 16% in the week when a report had come out previously suggesting that the U.S. would use the Foreign Direct Product Rule to restrict servicing some of the company’s immersion tools in China.

The new rule is an expansion of what is called the Foreign Direct Product rule. It would restrict about six Chinese fabs from getting supply from several countries. It could not be known which China-based facilities would be affected, the report added.

Besides, Japan, the Netherlands and South Korea, the draft rule exempts more than 30 other countries are part of the same A:5 group, the report noted.

Israel, Taiwan, Singapore and Malaysia are among countries whose exports would be affected, according to the report.

Taiwan Semiconductor Manufacturing’s (TSM) stock was up about 4% premarket.

The U.S. and its allies including the Netherlands, Germany, South Korea and Japan have been tightening curbs on China’s access to advanced semiconductor technology, which among other things is used in AI applications.

Chinese foreign ministry spokesperson Lin Jian noted that efforts by the U.S. to “coerce other countries into suppressing China’s semiconductor industry” undermines global trade and hurts all parties, the report added.

Lin noted that that China hopes that the countries would withstand U.S. efforts and protect their long-term interests.

Lin added that containment cannot stop China’s development, and it would only boost China’s determination to develop its technological self-reliance.

According to the Foreign Direct Product rule if a product is manufactured using American technology, the U.S. government can stop it from being sold, including products manufactured in a foreign country.

Under the new potential rules, the amount of U.S. content will be lowered. This has been determining when foreign items are subject to U.S. curbs, and thus would close a loophole in the Foreign Direct Product rule.

The U.S. also intends to add around 120 Chinese entities to its restricted trade list which will include about 6 chipmaking facilities, plus tool manufacturers, providers of electronic design automation, or EDA, software and related firms.

The potential rules are only in draft and could change, however they could be published in some form next month, the report added.

In 2022, the U.S. brought in curbs on export of advanced chips and related equipment to China which has impacted several companies such as Nvidia (NVDA) and ASML (ASML). However, the restrictions have kept on tightening.