Feb 15, 2023

ASML Says Ex-Employee in China Misappropriated Chip Data

Cagan Koc and Debby Wu, Bloomberg News

The ASML Holding NV global headquarters in Veldhoven, Netherlands, on Friday, Oct. 14, 2022. Veldhoven, a tidy small town in the Netherlands’s industrial heartland, has a zoo, a climbing park and, more recently, a brewing controversy over plans by ASML Holding NV to expand its headquarters. Photographer: Peter Boer/Bloomberg , Bloomberg

(Bloomberg) -- ASML Holding NV, a critical cog in the global semiconductor industry, accused a former China-based employee of stealing confidential information. It’s the second such breach linked to China in less than a year and threatens to fan political tensions.

The Dutch technology company, which makes machines needed to produce high-end chips used in everything from electric vehicles to military gear, initiated an internal investigation and tightened security controls after recently discovering the incident. It said on Wednesday that export controls may have been violated, exposing the company to a potential regulatory backlash.

“ASML has informed us of this incident. An investigation is now underway into this and I await that,” Dutch Trade Minister Liesje Schreinemacher said. “It is therefore very worrying that such a large and reputable company is affected by economic espionage.”

The company’s position as a crucial part of the supply chain for technology that makes the fastest, most powerful chips, has made it a target. Last year, ASML, which employs about 1,500 people in China, accused a Beijing-based firm of potentially stealing trade secrets in a theft dating back to at least 2015.

ASML’s most recent data breach involved technological information but not hardware and was carried out by a male employee in the last couple months, according to a person familiar with the details. Authorities in the US have also been notified, said the person, who asked not to be identified because the investigation is ongoing. A spokesman for the Commerce Department declined to comment.

The revelation comes just as the Netherlands and Japan agreed to restrict exports of some advanced chipmaking machinery to China. President Joe Biden’s administration has said it’s essential for the US and its allies to block Beijing from acquiring technologies that could threaten global security.

Tensions are already high after an alleged Chinese spy balloon hovered over US airspace before being shot down. Secretary of State Antony Blinken called off a trip to Beijing over the incident. He’s considering a meeting with China’s top diplomat in Germany later this week, according to people familiar with the matter.

How and Why the U.S. Says China Steals Technology: QuickTake

It’s unclear in the latest disclosure if the data stolen could be used to develop lithography systems for chips and whether the individual had any connections to authorities in China or elsewhere. ASML, which is restricted from selling its most-advanced machines to China, said in its annual report that the theft isn’t material to its business.

ASML’s shares declined 0.1% to €620.40 at 4:08 p.m. in Amsterdam.

The Veldhoven-based company is one of the few producers of the machines needed to make mid- to high-range semiconductors, and it’s the only manufacturer of lithography systems needed for the most cutting-edge chips.

Chief Executive Officer Peter Wennink has resisted some of the restrictions on his company’s ability to do business in China. He has warned that the country will ultimately develop its own domestic alternatives if it cannot buy from the West. China is ASML’s third-biggest market after Taiwan and South Korea.

ASML controlled more than 90% of the $17.1 billion global market for lithography equipment as of 2021, according to research firm Gartner Inc. The systems are used to shrink and then print patterns of transistors onto silicon wafers, which are then sliced into individual chips. A single machine can be the size of a bus and cost roughly $170 million.

ASML and its peers sell their equipment to chipmakers such as Intel Corp. and Taiwan Semiconductor Manufacturing Co., which supply companies like Apple Inc. and Nvidia Corp.

Just five companies dominate the market for chip-making machinery. The three American companies — Applied Materials Inc., Lam Research Corp. and KLA Corp. — were directly affected when Washington implemented sweeping restrictions on exports to China last year.

The Netherlands and Japan have agreed to similar restrictions in principle, which will constrain ASML and Tokyo Electron Ltd., the other two key players. Details of the agreement haven’t been made public. The new curbs will cover advanced lithography tools as well as other types of equipment, according to ASML.

“We expect that it will take many months for the governments to write and enact new rules,” it said in its annual report.

In the case disclosed last year, ASML accused Dongfang Jingyuan Electron Ltd. of wrongdoing dating back years. The Dutch company said that Dongfang — regarded by Chinese officials as one of the country’s most promising tech ventures — is related to a defunct Silicon Valley firm, Xtal Inc., which ASML sued for intellectual property theft.

In a 2018 trial in California, ASML’s attorney said that Dongfang and Xtal were essentially the same and worked in tandem toward the same goal: obtaining ASML’s technology and transferring it to China.

That technology was secured in sometimes audacious fashion: one engineer was accused of stealing all 2 million lines of source code for critical ASML software and then sharing part of it with Xtal and Dongfang employees in the US and China, according to transcripts of the proceedings.

On Wednesday, China’s Foreign Ministry spokesman Wang Wenbin said he isn’t aware of ASML accusing a former Chinese employee of misappropriating data.

--With assistance from Jordan Robertson, Jenny Leonard and Mayumi Negishi.

(Updates with trade minister comment in third paragraph)