China bypasses chip export restrictions using retrofitted ASML equipment

China is now retrofitting older ASML lithography tools to keep building advanced AI and smartphone chips, so they can bypass AI chip export restrictions set by the United States and the Netherlands, according to the Financial Times. These workarounds involve boosting the performance of restricted deep ultraviolet (DUV) machines already inside the country, particularly the Twinscan NXT:1980i system, which is of course no longer available for sale to China.Beijing’s semiconductor companies, including Semiconductor Manufacturing International Corporation (SMIC) and Huawei, are using components sourced from secondary markets to modify existing equipment.These include upgraded wafer stages, high-precision lenses, and alignment sensors, all to push seven-nanometre chip production without needing the latest generation of machines.Engineers install upgrades inside China without ASML’s involvementMultiple people familiar with the retrofitting process said local fabs are buying components overseas and shipping them to China. Third-party engineering teams are then brought in to install them, completely sidestepping the original equipment manufacturer, ASML.These upgrades have enabled Chinese fabs to improve overlay accuracy and throughput speeds, both critical to manufacturing smaller, denser chips for AI applications.ASML is permitted to service equipment already sold to China, but with limits. The Dutch government does not allow the company to offer upgrades that improve positioning precision or speed beyond 1%.“The company operates strictly within these legal frameworks and does not support system upgrades that allow customers to improve performance levels beyond what is permitted by law,” ASML said in a statement.The US Bureau of Industry and Security (BIS) has been reviewing ASML’s support activities in China and had been working on tighter rules to reduce what maintenance the company can legally provide.But it’s unclear if that plan will move forward, now that Donald Trump has returned to the White House and signaled a pause in economic clashes with Beijing.Chinese chipmakers lean on multi-patterning to make up for EUV banChina still doesn’t have access to extreme ultraviolet (EUV) machines, which are essential for high-efficiency production at the most advanced nodes.That’s forced fabs to rely on multi-patterning, a technique that uses multiple DUV exposures to mimic the performance of EUV. While effective, it increases production time, raises costs, and cuts into chip yield, the share of working chips from each silicon wafer.Still, the use of aftermarket parts has helped Chinese fabs raise their output. TechInsights recently confirmed that SMIC is producing chips beyond the seven-nanometre process using these modified setups. The firm also reported that Huawei’s Kirin 9030 processor marks China’s most advanced chip so far.“Chinese fabs have been able to achieve impressive feats without full access to the best equipment available to others like TSMC and Samsung,” said Dan Kim, chief strategy officer at TechInsights.China’s newer production lines are running on ASML’s 2050i and 2100i tools, which feature the latest stage mechanisms. These machines were shipped before the Dutch government revoked their export licenses in September 2024. Many had already arrived and been installed before the ban kicked in.ASML’s sales in China jumped as fabs scrambled to secure machines ahead of tighter controls. In 2023, the company brought in €7.2 billion from China, about 26% of its global revenue. That figure climbed to €10.2 billion in 2024, or 36% of total sales.ASML told investors in October 2024 that shipments to China will “decline significantly” in the following year. Get up to $30,050 in trading rewards when you join Bybit today