(Bloomberg) — ASML Holding NV, a critical cog in the global semiconductor industry, said a former employee in China stole data about its technology, risking inflaming political tensions amid heightened concerns over espionage.
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The Dutch tech company, which makes the machines needed to produce high-end chips used in everything from electric vehicles to military equipment, launched an internal investigation and tightened security checks after recently discovering the data breach. It said Wednesday that export controls may have been breached, exposing the company to potential regulatory backlash.
The ASML data breach involved technological information but not hardware and was carried out by a male employee in the past two months, according to a person familiar with the details. Authorities in the Netherlands and the US have been notified, said the person, who asked not to be named because the investigation is ongoing.
The disclosure comes just as the Netherlands and Japan have agreed to restrict exports of advanced chip-making machinery to China. President Joe Biden’s administration has said it is essential that the US and its allies prevent Beijing from acquiring technologies that could threaten global security.
Tensions are already high after an alleged Chinese spy balloon flew over US airspace before being shot down. Secretary of State Antony Blinken canceled a trip to Beijing over the incident. He is considering a meeting with China’s top diplomat in Germany later this week, according to people familiar with the matter.
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The Veldhoven-based company’s strategic importance has grown in recent years because it makes technology crucial to making the fastest and most powerful computer chips. It is one of the few manufacturers of lithography machines required for manufacturing mid-range to high-end semiconductors, and is the only manufacturer of lithography machines required for the most advanced chips.
That rarefied position has made ASML a target. A year ago, the company accused a Beijing-based company of potentially stealing trade secrets in a theft dating back to at least 2015. The company employs about 1,500 people in China.
It is unclear from the latest disclosure whether the stolen data could be used to develop lithography systems for chips and whether the individual had any connection to authorities in China or elsewhere. ASML, which cannot sell its most advanced machines to China, said in its annual report that theft is not important to its business.
ASML shares were up 0.7% at 11:20 am in Amsterdam, reversing earlier losses.
Chief Executive Officer Peter Wennink has resisted some of the restrictions on his company’s ability to do business in China. He warned that the country will ultimately develop its own domestic alternatives if it cannot buy from the West. China is the third largest market for ASML after Taiwan and South Korea.
ASML controlled more than 90% of the global market for lithography equipment, valued at $17.1 billion, as of 2021, according to research firm Gartner Inc. The systems are used to shrink and then print patterns of transistors onto wafers of silicon, which are then cut into individual chips. A single machine can be the size of a bus and cost approximately $170 million.
ASML and its peers sell their equipment to chipmakers like Intel Corp. and Taiwan Semiconductor Manufacturing Co., which supply companies like Apple Inc. and Nvidia Corp.
Only five companies dominate the market for chip-making machinery. The three US 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 limit ASML and Tokyo Electron Ltd., the other two key players. Details of the deal have not been made public. The new curbs will cover advanced lithography tools as well as other types of equipment, according to ASML.
“We expect governments to take many months to write and enact new rules,” it said in its annual report.
In the case revealed a year ago, ASML accused Dongfang Jingyuan Electron Ltd. of wrongdoing dating back years. The Dutch company said Dongfang, seen by Chinese officials as one of the country’s most promising tech companies, is related to a defunct Silicon Valley company, Xtal Inc., which ASML sued for intellectual property theft.
In a 2018 trial in California, ASML’s lawyer said that Dongfang and Xtal were essentially the same and working together with the same goal: to obtain the ASML technology and transfer it to China.
That technology was boldly secured: An engineer was accused of stealing the 2 million lines of source code for critical ASML software and then sharing some of it with Xtal and Dongfang employees in the US and China, according to the transcripts of the proceedings.
On Wednesday, Chinese Foreign Ministry spokesman Wang Wenbin said he was unaware of ASML accusing a former Chinese employee of data misappropriation.
(Updates with details about the theft in the third paragraph)
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