In 2023, Chinese customers contributed over 25% of ASML's revenue, signifying China's significance as a major market for the leading lithography tool manufacturer. While existing export restrictions from the Netherlands and the U.S. limit sales of advanced DUV and EUV lithography machines to China, these limitations have not significantly impacted the company's financial performance. However, ASML has expressed concerns that additional restrictions could have a detrimental effect on the company.
In its 2023 Annual Report, ASML highlighted the potential impact of geopolitical tensions resulting in export control restrictions, trade sanctions, tariffs, and international trade regulations on its ability to deliver systems, technology, and services, especially in countries such as China. The company noted that its ability to supply technology to certain countries, including China, is affected by the acquisition of required licenses and approvals. Moreover, ASML acknowledged the increasing list of Chinese entities affected by export control restrictions and anticipated further developments in trade regulations, national security policies, and investment practices that may affect its business, as well as its suppliers and customers.
Chinese fabs accounted for 26.3% of ASML's revenue in 2023, with China being the second-largest purchaser of ASML's tools, following Taiwan. In response to escalating sanctions against China's semiconductor industry, Chinese customers accelerated their procurement of fab tools in the latter half of 2023. The latest export rules from the U.S., the Netherlands, and Japan restricted the sales of tools and technologies capable of producing specific semiconductor components.
Notably, ASML's backlog in China surpassed $38 billion as of October 2022. While the majority of China's logic chipmakers focus on mature process technologies and are less concerned with equipment for more advanced production nodes, they are seeking tools for chips on 28nm-class process technologies. ASML is willing to supply previous-generation fab tools to these clients, reflecting the company's adaptability to market demands.
However, potential future restrictions on sales of 28nm-capable tools or exports of China-made chips could significantly impact ASML, as a substantial portion of its revenue comes from the sale of wafer fab tools for mature processes to China-based chipmakers. Despite ASML's current market leadership and thriving business in China, the substantial investments made by China in new fabs and wafer fab equipment development represent potential threats to the company's business.
ASML also acknowledged competition from new players with significant financial resources, as well as competitors driven by the goal of achieving self-sufficiency in the geopolitical context. ASML faces additional competition from alternative technological solutions and semiconductor manufacturing processes, adding complexity to its market landscape.
