Source: DIGITimes

Will ASML be affected with the geopolitical uncertainties in the future, given the world’s most advanced high-NA EUV machines is touted to be the ultimate weapon for a technological leapfrog for its customers. 

1. Dan Hutcheson, vice chair of TechInsights, who has covered ASML since the 1970s, when it was still a subsidiary of Philips, and Marc Hijink, the author of Focus – the ASML Way and a reporter at Dutch newspaper NRC, joined DIGITIMES Asia for an insightful talk to address these questions.

Navigating Geopolitical Uncertainties

Although ASML and other semiconductor equipment providers benefit from the demand driven by export controls imposed by the United States to China, geopolitics may have long-lasting implications on the industry as extra capacities and ecosystems are built.

Hutcheson and Hijink see ASML following their customers’ footsteps to decentralise their productions from the Western Pacific corridor to the United States and Europe. Still, the efficiency of its customers’ fab operations may be a concern.

“We’re in a new world where the utilization of the tools is lower,” said Hutcheson, “The problem is, if you can’t find the workers to run the tools or to repair them, keep them running, your wafer fab is useless.”

Hijink observed that Asia will remain an important center for chip production in the future despite the onshoring efforts of various countries and the talent shortage issue since South Korea and Taiwan remain an important part of ASML’s expansion.

ASML’s Monopoly Status Unlikely To Be Challenged

Yet, Hijink cautioned, “ASML’s biggest fear is that the current restrictions on Chinese technology might even stimulate it in the long term and create an even bigger problem.” He pointed out that the less China gets access to these Western lithography tools, the more the Chinese companies are inclined to build their own. “Even though they might not be able to compete with ASML and Nikon now, you see more room for growth and R&D money in the long term.”

Yet, Hutcheson believes no company can challenge ASML lithography monopoly without massive government subsidies.

“Five decades ago, I developed this maxim that the number of unsubsidised competitors a market can sustain is equal to 1/5 the total market size divided by the cost to develop a new generation of technology, and then you subtract 1.5 times that cost,” said Hutcheson. “To attract another competitor in the market, the risk bar must be low enough that there’s enough available R&D to support the development of at least 1.5 more tools than what exists in the market at that time.”

Over those five decades, that maximum is held across 100, or there have been more sub-markets of semiconductor equipment, and that explains the market consolidation of the market from more than 20 semiconductor equipment makers in the 1980s to just a handful right now for lithography, explained Hutcheson.

As a semiconductor industry veteran, Hutcheson witnessed how ASML survived over the past four decades of vicissitudes through better management and technological development. Hijink added that ASML survived because it out-invested in R&D during the low cycles despite being on the brink of bankruptcy several times and cleverly invited its customers TSMC, Intel, and Samsung to invest in it and co-develop the EUV machine.

By getting the investments, ASML managed to get the money to acquire Cymer, the light source company based in San Diego, and establish a strategic alliance with ZEISS, the German lens maker. Those key components and e-beam technology created ASML’s secret sauce of success that competitors cannot copy.

However, repeating such success is getting harder.

“No single company can afford to do it alone, as R&D becomes more and more expensive,” Hutcheson quoted John Chen of Nvidia, who was the first R&D president at TSMC, that,” IC no longer means integrated circuit going forward, IC means industry collaboration.”

Hutcheson estimates that the cost of developing a new EUV tool from scratch would require multiple trillions of dollars, which is equal to the Gross Domestic Product for some countries, and that’s assuming that one gets around all the IP barriers in place. “To some extent, it levels the geopolitical playing field. So maybe EUV should receive the Nobel Peace Prize because no country can attack any other country unless they have the EUV,” quipped Hutcheson.

Can High-NA Machines Help Technology Leapfrog?

As Intel, Samsung, and TSMC are aiming to mass produce 2nm chips in the next few years and advance towards 1.4-1.6 nm, the ASML’s high-NA EUVs are making the headlines of semiconductor industry newspapers.

As always, ASML ships the US$300 million High-NA machines to customers according to the timetable agreed with customers and does the laborious adjusting and error corrections with customers. The media has been describing high-NA EUVs as the key for technology catch-uppers to leapfrog the incumbent. However, Hutcheson delved deeply into the intricacies involved in the complex processes of semiconductor manufacturing beyond lithography.

“There’s a lot of technology issues in the 2nm and 1.4nm era. And we will have to see if they can pull it off and turn it into an advantage,” Hutcheson explained that lithography is not the only factor at stake, there are also issues with the gate-all-around (GAA) structures, due to the leakage problems with that. “There’s also reliability problems, and the epitaxial layer is pretty poor. So really, there are more material and systems engineering problems than lithography problems.”

Though Intel has seemingly bought up all available high-NA machines for the year, TSMC is not in a hurry to apply it to its 1.4-1.6nm process. However, ASML said all of their customers who have bought EUVs are going to upgrade to High-NA EUVs.

“I think that Intel has to do more, try to leapfrog TSMC, which is a daring move, but that’s just one part of Intel’s challenge,” said Hijink. “Their biggest challenge is not the technology, but the fact that they want to do foundry business because they have to create enough wafer footprint or enough scale to be economically viable with huge competitors like Samsung and TSMC. So that adds to the problem of adopting a new technology where they’re not as experienced.”

Hutcheson cautioned that it is too early to judge the outcome of technology competitions. Yet seeing from the history of the semiconductors industry, decades of research, blood, sweat, and tears, and fixing tonnes of errors, plus making the right decisions at the right timing and building deep trust with customers made ASML and TSMC what they are today.

ASML, a blend of European, Asian, and American cultures as the result of acquisitions, can be a great teacher for TSMC, which is just starting to expand its footprints to the US and Europe. With such a close bond between the two, with AI being the main driving force for semiconductor’s future growth, one can be sure there will not be short of fascinating stories in the future.

Editor’s note: For more insights and analysis from Hutcheson and Hijink on the industry, watch DIGITIMES Asia’s new GeoWatch video, ‘Decoding Excellence: ASML’s Evolution Towards Leadership and Beyond.’ Click the link here to access this informative video: https://dgt.ms/geowatch0516

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Media outlets got a look of the ASML High-NA extreme ultraviolet (EUV) system. Intel Corp has placed orders and got the first one shipped to a factory in Oregon in late December. The company plans to start making chips with it late next year.

ASML’s machine can print lines on semiconductors 8 nanometers thick, 1.7 times smaller than the previous generation. The thinner the lines, the more transistors can be fitted on a chip, and the higher the processing speeds and memory.

ASML executives said the system will prove essential for artificial intelligence (AI), a technology notorious for the intensity of the processing it requires. AI will need “massive amounts of computing power and data storage. I think without ASML, without our technology, that’s not going to happen,” CEO Peter Wennink told Bloomberg. “It’s going to be a big driver for our business.”

ASML produces equipment needed to make the most sophisticated semiconductors, and demand for its products is a bellwether for the industry’s health. The Dutch company received record orders for its extreme ultraviolet (EUV) lithography machines in Q4 2023, showing optimism among the biggest customers for the technology, including Intel, Samsung Electronics Company and TSMC.

Installation of the first 150,000kg system required 250 crates, 250 engineers and six months to complete, ASML spokesperson Monique Mols said. The rise of generative AI over the past year, catalysed by OpenAI’s ChatGPT launch late 2022, has boosted expectations for semiconductor companies across the board. The so-called low-NA EUV machines, which ASML has been selling since 2018 cost €170 million.

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Source: Techwire Asia

Although the export control, effective 1 September 2023, does not explicitly mention China, the rules state that ASML – the only company in the world that makes highly sophisticated chip making machines – will have to apply for a license to ship its advanced deep ultraviolet lithography, or DUV, systems to China.

The move by the Dutch government was widely seen as an alignment with the US and Japan and is designed to restrict the shipments of three models of ASML machines to China, Bloomberg News reported. ASML has been barred from selling EUV lithography machines to China since 2019, but it had been able to sell DUV systems until this year, amid escalating pressure from the US.

With the latest rules coming into effect, Chinese chip foundries have four more months to import ASML’s most advanced immersion deep ultraviolet (DUV) lithography system, Twinscan NXT:2000i, with approval from The Hague. That is, systems capable of making chips at the 5-nanometre process or more advanced.

The Dutch company will be able to continue shipments of some advanced machines this year, but on January 1, 2024, “it is unlikely we will receive export licenses for these systems for shipment to domestic Chinese customers,” it said on 1 September 2023. So far, China’s imports of Dutch lithography machines have surged this year, with the first seven months already surpassing ASML’s previous forecast for 2023 sales to China.

From January to July, Chinese imports of Dutch-made lithography machines, nearly all from ASML, grew 64.8% year-on-year to US$2.58 billion, Chinese semiconductor industry consultancy JW Insights said in a report, citing China customs data. In January, ASML projected that its sales to China this year would remain steady at around € 2.2 billion (US$2.36 billion), or 14% of its total annual revenue.

In July alone, China imported US$626 million worth of lithography machines from the Netherlands, nearly eight times more than it did in the same month last year, according to the report. The main reason for this spike is that ASML has a near monopoly on the world’s most advanced lithography machines, which are required to produce cutting-edge chips.

How Does The Chip Gear Export Control Impact China And ASML?

First and foremost, ASML is not only the largest European tech firm by market valuation but also the world’s only manufacturer of specific lithography systems, which are needed to print patterns of transistors on silicon wafers. Despite China’s accelerated drive to use more locally produced tools and critical components, semiconductor equipment procured in-country accounts for just 15% of the total at Chinese foundries, a top executive said at an industry conference this month. The other 85% of machines come from the US, the Netherlands, and Japan.

ASML has also been downplaying the potential impact on annual sales this year after beating estimates in H1 2023. It said in a prior statement that the measures will “not have a material effect on our financial outlook” for 2023 or in the longer term. 

China has, however, warned the Dutch government that there would be consequences if the government blocked the export of high-end chip making equipment to China.

Separately, since July, companies in Japan must obtain a license before they can sell 23 types of chip making equipment to China. Tokyo announced the controls in May, prompting the state-backed China Semiconductor Industry Association to warn of countermeasures.

With the leading manufacturer of photolithography equipment used in the semiconductor manufacturing process facing such a hurdle, it might potentially put many of its suppliers on alert. They include players in optical components, such as lenses and mirrors, extreme ultraviolet (EUV) light sources, and laser technologies.

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Source: Fortune.com

But TSMC, along with other chipmakers, is warning that weakened consumer demand and over-stockpiling by manufacturers and retailers may soon mark the end of record profits for the industry.

Chipmakers’ fortunes rose in the early days of the pandemic as fresh demand for electronics from stuck-at-home consumers and reduced supply due to manufacturing and logistics snags made the semiconductor one of the hottest products on planet Earth. Amid the supply crunch, business up and down the chip value chain raced to stockpile chips so they could better handle any further disruptions.

In its earnings call, TSMC warned that its customers might now draw on those chip reserves rather than place new orders. “Our expectation is for the excessive inventory in the semiconductor supply chain to take a few quarters to rebalance to a healthier level,” said TSMC CEO C.C. Wei.

TSMC also said it would trim its capital expenditure for 2022 to US$40 billion, down from US$44 billion, as it pushed the delivery of some chipmaking equipment to next year.

Bloomberg reported that South Korean chipmaker SK Hynix is also considering reducing its 2023 capital expenses by 25 percent. The Korean chipmaker is concerned about softening demand for consumer electronics heading into next year, unidentified sources told Bloomberg. 

On 7 July 2022, Samsung reported a small quarter-on-quarter decrease in profit, which analysts say is an indication that consumer electronics demand is softening heading into the second half of the year. Samsung has 50 million unsold smartphones in its inventory, reports Korean outlet The Elec, or about 18 percent of the total units the company hopes to ship this year. A normal inventory level would be around 10 percent, The Elec notes.

It’s not just Asian chipmakers that are forecasting a softening in the market. On June 7, Intel CFO David Zinsner said that he expected the U.S. chipmaker’s second-quarter earnings to take a hit due to customers working through stockpiled inventory instead of placing new orders. (Intel will announce its second-quarter earnings on July 28). Micron Technologies also reduced its revenue guidance to US$7.2 billion, below consensus estimates of US$9 billion, due to weakening smartphone demand.

TSMC still expects 2022 to be a good year, projecting annual revenue of US$19.8 billion to US$20.6 billion that will surpass estimates of US$18.5 billion. Wei said he expects demand for consumer electronics, like smartphones and computers, to fall amid a looming global economic slowdown but believes the chipmaker could pivot to still-strong sectors like data centers and cars.

Demand for electronics is softening faster than manufacturers expected, leading companies to clear out their stockpiles rather than order new chips or chip components. PC shipments in Q2 2022 fell by 12.6 percent year on year, according to consulting firm Gartner. Some computer manufacturers are even saying the chip shortage is over, with Acer CEO Jason Chen telling reporters on Wednesday that “the situation has changed,” and that chip suppliers are calling him directly to ask him “to buy more chips from them.”

The crypto crash could be another drag on the chip market, as crypto miners close up shop. Shipments of graphics cards—high-end processors that produce computer imagery and are used in crypto mining—fell 19 percent in the first quarter of 2022, notes consulting firm Jon Peddie Research.

Individual companies may still experience supply-chain disruptions. In April, Apple warned that supply problems may dent its June revenue by US$8 billion. And other major consumer electronics manufacturers, like Sony and Nintendo, are reporting lower-than-expected production due to supply constraints.

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Reporting by Toby Sterling; Editing by Pravin Char

It is building machines the size of double-decker buses, weighing over 200 tonnes, in its quest to produce beams of focused light that create the microscopic circuitry on computer chips used in everything from phones and laptops to cars and AI.

The company has enjoyed a rosy decade, its shares leaping 1,000% to take its value past 200 billion euros as it swept up most of the world’s business for these lithography systems.

It’s now preparing to roll out a new $400 million machine for next-generation chips which it hopes will be its flagship by the late 2020s but for now remains an engineering challenge.

Executives at ASML’s headquarters in the Dutch town of Veldhoven told Reuters a prototype was on track to be completed in the first half of 2023. They said the company and longtime R&D partner IMEC were setting up a test lab on the spot – a first – so top chipmakers and their suppliers can explore the machine’s properties and prepare to use production models as early as 2025.

Yet, as investors expect further dominance and growth to justify ASML’s valuation at 35 times 2021 earnings, there is little margin for error should the company encounter technical or supply-chain snags.

“Every check is green right now,” said Christophe Fouquet, head of EUV programs at ASML. “But, you know, we still have to see it all (assembled) together.”

EUV stands for extreme ultraviolet, the wavelength of light used by ASML’s most advanced machines.

The fortunes of the project are also important for ASML’s customers, chipmakers racing to expand production amid a global shortage. They include U.S. player Intel, South Korea’s Samsung and Taiwan’s TSMC, the biggest, which makes chips for the likes of Apple, AMD and Nvidia.

Industry specialist Dan Hutcheson of TechInsights, who is not involved with the ASML project, said the new technology – known as a “High-NA” version of EUV – could provide a significant advantage to some chipmakers.” It’s a bit like who’s got the best gun,” he said.”So either ASML makes it happen or they don’t make it happen,” he added.

“But if they make it happen, and you don’t have your orders and you miss out on this, you’ve immediately made yourself non-competitive.”He said TSMC eclipsed its rivals by integrating ASML’s EUV machines first in the late 2010s – a mistake Intel CEO Pat Gelsinger has vowed not to make again with High-NA.

Lithography is a key determinant of how small circuitry on a chip can get, with High-NA promising a 66% reduction. Smaller is better in chipmaking, as the more transistors you pack in the same space, the faster and more energy efficient a chip can be.

Circuitry is now approaching the atomic level, leading to predictions that the end is nigh for “Moore’s Law”, a famous 1960’s observation that the number of transistors on a microchip doubles about every two years.” If they (ASML) don’t succeed it will become difficult to continue with Moore’s Law,” said Jos Versteeg, an analyst at Dutch-based bank InsingerGilissen, though he noted engineers had defied similar doubts in the past.

Workers at Carl Zeiss SMT stand in front of a vacuum chamber used to test a system of highly polished mirrors, in Oberkochen, Germany, in this undated handout photo. Zeiss is developing optical systems that will go into the newest tool being developed by ASML of the Netherlands to create a new generation of computer chips. Helmut Issler ZEISS/Handout via Reuters

FIRST LIGHT ON SILICON

Since 2000, ASML has rapidly taken market share from Japanese competitors Nikon and Canon, which now mainly focus on older technology. ASML controls more than 90% of the lithography market. No competitor is attempting to build an EUV system, citing high development costs.

Shortages of ASML’s machines, which cost up to $160 million each, are a bottleneck for chipmakers, who have plans to spend more than $100 billion in the coming years to build extra fabrication plants to meet demand. The High-NA machines will be about 30% bigger than their predecessors, which themselves require three Boeing 747s to carry them in sections.

IMEC, a non-profit research group that cooperates with companies across the semiconductor industry, believes setting up the lab at ASML could save up to a year in development time. ASML said it had five orders for pilot machines, which should be delivered in 2024, and “more than five” orders from five different customers for faster production models for delivery starting in 2025.

But this is no slam-dunk. There are formidable challenges in integrating a host of complex components, including an optics system of polished, hyper-smooth curved mirrors, which are being built in a vacuum by Germany’s Carl Zeiss. Versteeg at InsingerGilissen said that while ASML enjoyed a near-monopoly, its “pricing is dependent on the productivity of the machines”.

An optical system is prepared for testing in a vacuum chamber at Carl Zeiss SMT in Oberkochen, Germany, in this undated handout photo. Zeiss is developing optical systems that will go into the newest tool being developed by ASML of the Netherlands to create a new generation of computer chips. Helmut Issler ZEISS/Handout via Reuters

Meanwhile, it must sell EUV tools to the shrinking number of companies that make leading-edge chips, which include memory chip makers SK Hynix and Micron. ASML is also tied to the wider fortunes of the cyclical chip industry, which some researchers expect to double past $1 trillion in annual sales this decade. Fouquet worries most about supply-chain issues.

“Right now, and like with every other product, we see some stress in the supply chain, and this is if you ask me today, probably the biggest challenge we have with High-NA.”

(This story corrects Hutcheson’s affiliation. VLSI was acquired by TechInsights in 2021, in paragraph 10)

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