Exclusive | US-China tech war: Chinese surveillance camera maker Hikvision said to acquire second-hand ASML machine for chip production

Hikvision, which has been under a US trade blacklist since 2019, is said to be acquiring a used, ASML-built AT:850C wafer stepper system for US$5.5 million
The Chinese state-owned firm, however, has denied it has plans to make such an acquisition

Semiconductors

Che Panin Beijing

Published: 9:30pm, 16 Mar 2022

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Corrected [8:52pm, 17 Mar, 2022]

[8:52pm, 17 Mar, 2022]
The story has been updated with a statement from Hikvision, which denies that it has plans to acquire a second-hand ASML machine for chip production.

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Hangzhou Hikvision Digital Technology, one of the world’s largest suppliers of video surveillance cameras, plans to buy a second-hand lithography machine made by Dutch firm ASML Holding for its in-house chip manufacturing operation, according to a source familiar with the matter, marking a big move for the company toward tech self-sufficiency amid US trade restrictions and a global semiconductor shortage.

Hikvision, which has been under a US trade blacklist since October 2019, is expected to spend US$5.5 million for a used AT:850C wafer stepper system, according to the source. It will form an integral part of the Chinese firm’s 8-inch wafer assembly line to make chips for its surveillance cameras, the source said.

The Chinese state-owned firm, however, has denied it was making such an acquisition, assuring that the cited information from the source is false.

“Hikvision does not have any plans to acquire an ASML machine for chip production,” a company spokesman said in an emailed statement on Thursday.

ASML Holding employees are seen working on the final assembly of the firm’s advanced Twinscan NXE:3400B semiconductor lithography machine in Veldhoven, the Netherlands, on April 4, 2019. Photo: Reuters

Built by ASML in 2005, the AT:850C is used to project the image of a circuit in photolithographic semiconductor fabrication – a process much like projecting a negative image in standard film photography. ASML has a near dominant global market position in lithography equipment, an essential system in manufacturing chips.

It was not immediately clear when Hikvision’s chip production line would become operational. Most of the chips applied in surveillance equipment can be made with mature semiconductor process nodes.

There was no previous signal from Hikvision that it had designs to establish its own semiconductor manufacturing operation. Hu Yangzhong, president and general manager of Hikvision, said in April last year that the company was bracing for an extended global chip shortage, but indicated at the time that the shortfall has not had any impact on its business.

Hikvision’s pursuit of a second-hand ASML machine to kick-start its own chip production reflects lingering uncertainties in the global semiconductor supply chain amid new Covid-19 outbreaks in China, heightened tensions between Beijing and Washington, and the potential impact of the war in Ukraine on international trade.

Hikvision’s meteoric rise coincides with surveillance boom

China also lacks access to extreme ultraviolet (EUV) lithography machines, which are required to produce advanced chips at 7-nanometre and lower processing nodes. In 2020, the Netherlands withheld the licence ASML needed to export its newest EUV lithography machines to China because of pressure from the US government. ASML is the world’s sole supplier of EUV photolithography equipment.

US trade restrictions and scarce supply of domestic alternatives to ASML machines have prompted Chinese tech companies to seek second-hand equipment – including still-relevant machines built in the 1980s – from Japan, South Korea, Taiwan, Singapore and the US. There is no domestic substitute for the used AT:850C machine targeted by Hikvision, according to another person familiar with the matter.

It remains difficult to estimate the exact size of Chinese demand for second-hand chip manufacturing equipment because the market is fragmented, with many dealers simply looking to make a quick profit, according to Xie Ruifeng, a senior analyst with Shanghai-based semiconductor research firm ICwise.

China became the largest market for new semiconductor equipment for the first time in 2020, according to data from trade group SEMI. It said annual sales of such equipment in China reached US$18.72 billion last year, up 39 per cent from 2020, to surpass demand in Taiwan, South Korea and Japan.

01:22

US blacklists 28 Chinese entities over Xinjiang

Hikvision, which controlled about a quarter of the global surveillance equipment market in 2021, produces various types of intelligent cameras and monitoring tools powered by chips known as contact image sensors (CIS). A CIS is often made with the mature 55-nm process, according to Xie of ICwise.

Based in Hangzhou, capital of eastern Zhejiang province, Hikvision was among 28 Chinese entities added to the US government’s Entity List in October 2019. They were implicated in human rights violations and abuses over Beijing’s treatment of Uygur Muslims and other predominantly Muslim ethnic minorities. Blacklisted firms are barred from buying hardware, software and related services from American companies without US government approval.

Hikvision, which has more than 42,000 employees around the world, has remained profitable, despite the US trade restrictions. The company reported a net profit of 16.78 billion yuan (US$2.63 billion) last year, up 25.39 per cent from 2020. Total revenue last year reached 81.30 billion yuan, a 28.03 per cent increase from a year earlier.