The Tiny Machines That Power the World: Inside ASML, the Chipmaking Monopoly
Veldhoven, Netherlands – At the heart of a sprawling factory in the Netherlands, amidst a months-long assembly process, sits a machine as revolutionary as it is expensive. It’s an EUV lithography machine, the size of a city bus, that operates with atomic precision. These machines are the only way to print the minuscule designs on microchips, powerhouses of the digital age, found in everything from smartphones to self-driving cars. And they’re made by only one company: ASML.
ASML holds a global monopoly on EUV lithography, making it one of the most indispensable companies in the world. Each machine, a marvel of engineering, costs upwards of $200 million and is in high demand as the global chip shortage continues to bite. The company’s stock has skyrocketed since 2018, as chip giants like TSMC, Intel, and Samsung scramble for its groundbreaking technology.
The next generation machine, with a price tag exceeding $300 million, promises to push the limits of known physics, further solidifying ASML’s dominance. This intricate machine, known as High Numerical Aperture (High NA), is expected to revolutionize chipmaking once again.
The Birth of a Revolution: ASML’s story is one of remarkable innovation. From its humble beginnings as a subsidiary of Philips, operating out of a leaky shed, ASML has risen to become the global leader in lithography. The company’s first machine, launched in 1984, used light rays to print designs on silicon, marking the start of a technological revolution.
A Partnership Built on Innovation: Recognizing the immense cost of developing EUV technology, ASML forged strategic partnerships. It offered a quarter of its shares to its top three customers, Intel, Samsung, and TSMC, ensuring their commitment to R&D. These partnerships have transformed the chipmaking landscape, with TSMC leading the pack in EUV production and Intel playing catch-up.
Inside the Cleanrooms: CNBC gained exclusive access to ASML’s cleanrooms in California and the Netherlands, revealing the complex process behind EUV technology. The machines employ lasers, exploding molten tin, and the world’s smoothest mirror surfaces to print designs that are 10,000 times thinner than a human hair. Every step, from tin droplet vaporization to light reflection off delicate mirrors, demands unparalleled precision.
The Global Chip Race: The demand for advanced chips has catapulted ASML to the forefront of the global chip race. The company’s dominance is evident in its 2021 sales of 42 EUV machines, bringing its total shipped to around 140. This exclusive market grants ASML immense power, with only five customers, including Micron and SK Hynix, able to afford these systems.
A Catch-22 for the Company: Despite its extraordinary success, ASML is not immune to the global chip shortage. "We got a lot of messages from our suppliers that said, hey, we might be late in delivering our modules to you guys because we cannot get the chips," says ASML CEO Peter Wennink. "We said, if we cannot get the chips, we cannot make the machines to make more chips." This ironic predicament underscores the complexity of the global semiconductor ecosystem.
The Geopolitical Tightrope: As the world grapples with the chip shortage, governments are scrambling to secure domestic chip production. This shift has both positive and negative implications for ASML. While it leads to increased demand for its machines, it also introduces geopolitical complexities.
In 2018, the Trump administration reportedly pressured ASML to halt EUV sales to China, a move aimed at limiting the country’s technological advancement. ASML has yet to sell a single EUV machine to China, and the global debate continues regarding the potential security implications of selling DUV equipment to the country.
The Future of Chipmaking: ASML’s future appears bright, with projected sales growth of 20% this year and an annual revenue growth rate of 11% until the end of the decade. The company is heavily invested in its next generation machine, High NA, promising even smaller and more powerful chips. However, the Russia-Ukraine war adds uncertainty to the equation, highlighting the fragile geopolitical landscape.
The world’s reliance on ASML is undeniable. It is a company at the heart of a technological revolution, and its ability to keep shrinking the cost per transistor while pushing the boundaries of physics will continue to define the future of computing.
ASML: The Tiny Dutch Giant Holding the Key to the Future of Technology
At the center of this big factory in the Netherlands, in the midst of a months-long assembly process, there’s a revolutionary machine that the whole world has come to rely on. You can see an EUV machine right behind me. The size of a city bus, but working with atomic level precision, these EUV lithography machines are the most expensive step in making every advanced microchip that powers the modern digital age: data centers, cars and every single iPhone. We are the only provider on the planet of this critical technology. These machines are the only way to print miniscule designs on these chips. They cost up to $200 million. And they’re only made by a single company: Advanced Semiconductor Materials Lithography, or ASML.
Key Takeaways:
- ASML is a Dutch company that has a monopoly on the fabrication of EUV lithography machines, the most advanced type of lithography equipment needed to make every single advanced processor chip.
- EUV machines are critical for the production of chips used in iPhones, cars, data centers, and many other devices.
- ASML is facing increasing demand and geopolitical challenges, with global chip shortages and the rise of domestic chip production in the US and Europe.
- The company’s proprietary technology and complex supplier relationships make it difficult for competitors to catch up.
- ASML’s next-generation EUV machine, High Numerical Aperture (High NA), pushes the boundaries of known physics and is set to further solidify the company’s dominance.
A Dutch Startup’s Ascent to Global Dominance
ASML’s crucial role on the chipmaking stage has brought it wild success over the past few years, making it even more valuable today than Intel, one of the biggest chipmakers it supplies. It’s double digit growth every year. We’re not a startup. No, we have now 32,000 people. Peter Wennink has been CEO since 2013, but he joined ASML back in 1999, just 15 years after its humble beginnings. It started as a subsidiary of Dutch electronics giant Philips in 1984, conducting research out of a leaky shed next to a Philips office building in Eindhoven in the Netherlands. They were in financial dire straits, so we had no money. We were poor. And because the problems Philips had were so big, nobody looked at this little outfit out there that was trying to do something crazy, so they neglected us.
Still, in its first year, the company successfully launched a first-of-its-kind machine that used precise rays of light to print tiny designs on silicon to make microchips, a technology known as lithography. The first lithography tool really looked like a projector. There is basically a reticle, which holds the image that you want to project, then there is an optical system, which is going to take this image and project it on the wafer.
Semiconductor lithography was invented in a U.S. military lab and for a long time, up through the 1980s, the key lithography firms were American, based in New England. Chris Miller of Tufts University is writing a book called, "The Chip War: The Fight for the World’s Most Critical Technology." When the industry was getting ready to jump into the early stages of EUV research, none of the U.S. firms were ready to take the plunge on what would be an expensive and risky proposition, whereas ASML was. By 1988, ASML had five U.S. offices with 84 employees and a new Dutch office that eventually became its headquarters in Veldhoven, where CNBC took a tour earlier this month. We’re walking through the EUV factory, which is about 50,000 square meters of space with 1,500 employees, who are working in shifts seven by 24 to produce 100% of the EUV machines shipped worldwide from this facility.
With a breakthrough machine, ASML started turning a profit and went public on the Amsterdam and New York Stock Exchange in 1995. By the 2000s ASML was acquiring California tech companies like Silicon Valley Group, and various key suppliers like Cymer in San Diego, where we also got an inside look at the cleanroom where ASML’s light source is produced. So this is actually the nozzle manufacturing area where we actually build the nozzles. This is actually the piece where the tin shoots out of. That’s what’s going to create your EUV.
A Technological Revolution: EUV Lithography and the Rise of ASML
EUV refers to extreme ultraviolet, an incredibly short wavelength of light that ASML uses to print smaller, more complex chips. But developing this revolutionary technology was incredibly expensive. We didn’t have the money. So we went out and we found partners, which actually was the basis of the way that we built the company. So we were forced to be a system architect and a system integrator.
In 2012, ASML offered about a quarter of its shares to its biggest three customers: Intel, Samsung and Taiwan Semiconductor Manufacturing Co., or TSMC. They had to accelerate the r&d for EUV and the only way they could do this is to get their largest customers involved. And one way you can make your commitment real is to make them a shareholder. ASML is a Dutch company, but it’s also a Dutch company that relies very heavily on U.S. components, in particular for its machines, and at this point, relies also very heavily on one Taiwanese customer for its sales. TSMC made up nearly 40% of ASML’s sales last year.
In 2019, the Taiwanese chipmaker was the first to deliver high volume chips made with EUV, a milestone that’s kept it at the head of the pack ever since, its chip technology at least one node ahead of Samsung and Intel. And it has been TSMC’s customers that have gained a lot of benefit, like AMD, Nvidia and others. And yeah, you can argue that this has come at the expense of Intel not executing. Intel is just now producing its first chips with EUV this year, three years behind TSMC. But it’s made a bold move in hopes of catching up: an early investment to secure the first prototype of ASML’s next machine, High Numerical Aperture.
Deconstructing the Chipmaking Machine: A Look Inside an EUV System
To understand why the success of a giant like Intel hinges on ASML, let’s take a look at how EUV lithography revolutionized chipmaking. When you start breaking down, what does it take to make an EUV lithography machine it’s sort of Nobel Prize winning in terms of the engineering involved. Chips are made from silicone, an abundant element found in rocks and sand, that’s purified, melted down, then sliced into circular wafers, the surface on which chips are built in a grid formation. Each wafer can have dozens of thin layers, making up billions of transistors that determine what the chips can do. These layers are printed using lithography. Extremely precise rays of light are projected through a mask of the chip design. When the light hits the surface of the wafers, which have been coated with photoresist chemicals, it prints the minuscule designs on each layer at extremely high volumes.
If you think of a typical processor chip in an iPhone, for example, will have over 10 billion transistors on a chip and Apple will sell 100 million or more iPhones for each model that’s rolled out. So you’re already talking in numbers that are far bigger than you or I remember how to pronounce.
As the wavelength of the light source in making chips gets narrower and narrower. It gives us the ability to make chips with smaller features, which means the chip is faster, the chip can be smaller, the power consumption of the chip can be lower. The smallest transistors are more than 10,000 times thinner than a human hair. The designs have gotten so small ASML had to develop new methods of printing at the very edge of known physics.
With the help of customer investments and a consortium of scientists, ASML figured out a way to create large amounts of extreme ultraviolet light with a wavelength so short, it’s not only invisible to the human eye, it’s absorbed by all natural substances, even air, so the entire process has to happen in a vacuum, a first for lithography. At 13.5 nanometers, ASML’s EUV wavelength is the size of just five DNA strands lead side-by-side. The previous generation machines used deep ultraviolet light, or DUV, with a wavelength of 193 nanometers. The vast majority of ASML’s business 268 of the 309 machines sold in 2021, still use DUV technology which is used to print the less advanced chips which are in shortest supply. DUV is for anything that is low technology like a toaster, or refrigerator, or even some of the electronics in your car. Today’s iPhone 13 is EUV.
Inside the Cleanroom: Unveiling the Secrets of EUV
Both DUV and EUV lithography is so advanced, it requires precision down to the atom. This is an EUV cabin of our cleanroom, which is 10,000 times cleaner than the outside air. We’re wearing this clothing not to protect ourselves from the environment, but we’re protecting the machine from the contamination that’s created by us.
This tiny threat may look like the strand of a spiderweb, but it’s actually molten tin being shot out at a pressure of 4,000 psi. And it’s how the EUV light is created. This is continuous tin. It never ever, ever stops. The tin is streaming through a perfectly calibrated nozzle which we saw being built in San Diego, at a rate of 50,000 droplets per second. A 30 kilowatt carbon dioxide laser hits each droplet twice per second, vaporizing them into plasma. These tiny explosions are what emit photons of EUV light. A huge number of tin explosions need to happen because only about 5% of the photons reach the actual wafer. The light particles are so short they get absorbed by mirrors, the typical method used to precisely aim light through a lens.
So ASML partnered with German optics company Zeiss, which makes the flattest surface in the world. The flatness is really just incredible. If you took a mirror element that is maybe this big, and you blew it up to the size of the country that we’re in, the biggest bump would only be about one millimeter across the entire surface of a mirror the size of this country. EUV light bounces off these groundbreaking Zeiss mirrors until it hits photoresist chemicals on the surface of the silicon wafer to print miniscule designs that make up the chips. The aim needs to be so precise, TSMC says it’s equivalent to shining a laser from the moon to hit a coin on the earth. So your tin is inside a reservoir here, and then you’re firing out this way. Pete Mayol has been running this cleanroom for six years. If any kind of defect particle whatsoever is even on the tip of that capillary, it’s a fail. We’ll remove and start all over again.
Scaling Up: The Challenge of Meeting Global Demand
And the speed and scale at which this has to happen is staggering. ASML says an EUV machine churns out about 3,000 wafers a day. There can be hundreds of chips on a 300 millimeter wafer, and up to 10 billion transistors per chip. They take extraordinary achievements of engineering and physics, and they’re able to replicate these on a mass production scale, and at a low enough cost where these machines can be used in chip fabs to churn out thousands and millions of chips for the companies that buy them.
A completed EUV machine is actually made up of seven different modules, each built at one of ASML’s six manufacturing sites among its 60 total locations around the world, then shipped to and reassembled in Veldhoven for testing. Then it’s disassembled again for shipment, which takes 20 trucks and three fully loaded 747s. In 2021, ASML sold 42 EUV machines, bringing the grand total it’s ever shipped to just about 140. With each machine costing up to $200 million, only five customers can afford to buy EUV systems: Micron, SK Hynix, Samsung, Intel and TSMC, the last three making up nearly 84% of ASML’s business. It certainly has eliminated a lot of players out of that market. So we saw GlobalFoundries back five years ago or more say that they weren’t going to pursue a seven-nanometer chip.
The handful of huge customers it does have are furiously adding capacity to try to ease the global chip shortage, which is impacting ASML, too. We got a lot of messages from our suppliers that said, hey, we might be late in delivering our modules to you guys because we cannot get the chips. And we said, if we cannot get the chips, we cannot make the machines to make more chips. So there’s a catch 22. We’re still managing, keep our fingers crossed. But it’s a daily struggle.
The question is, can ASML keep up with demand? I think the answer is probably yes. Maybe the growth will exceed even their targets, that’s possible. But they’re certainly preparing to ramp up the production, which is I think good news if you’re worried about a chip shortage. The world needs more chips, so we need to make more machines, which by the way will keep growing in average selling price as long as we can drive the cost per transistor down, which is exactly what we’ve been doing for the last 38 years. And we will keep doing for the next couple decades.
Navigating Geopolitical Winds: A Monopoly Under Scrutiny
Before EUV, chipmakers had three companies they could choose from for their photo lithography tools: ASML, Nikon and Canon. Nikon, in Japan, is still a competitor for DUV, but ASML is the only option for EUV. Experts say it could take decades for any other company to catch up, not only because of ASML’s proprietary tech, but because it’s built complex, often exclusive, deals with nearly 800 suppliers. And we’re unique to our customers, like some of our suppliers are unique to us. And those almost symbiotic relationships, some people say are worse than being married because you cannot divorce. It takes 10 years to not only get the technology but then be accepted. So the buyers for semiconductor manufacturing fabs are very risk averse.
One of the ways ASML has insulated itself against supply chain risks is by purchasing some of its suppliers, like Berliner Glas in 2020. A fire broke out there in January. But Wennink says it won’t significantly impact system output in 2022. Instead, ASML projects a 20% sales growth this year, and an annual revenue growth rate of 11% until the end of the decade. It’s actually driven by you. You’re asking for more solutions that will help you to have a better life, to make your life easier, your life more productive. We’re changing into a sensing world. There are sensors everywhere. They’re in your car, they’re in your fridge, they’re in your PC, they’re everywhere. Sensors, they need semiconductors. All of the world’s most advanced semiconductors are made in Asia by two of ASML’s biggest customers, TSMC and Samsung.
But the chip shortage has raised concerns about overseas dependency. This is why you see all these initiatives around the globe: the U.S. CHIPS Act, the EU Chips Act, the Korean Chips Act, the Japanese Chips Act, the Chinese Chips Act. It’s now a very strategic commodity. Intel just announced a $20 billion chip fab in Ohio. And it’s also building one in Arizona, just down the road from a massive new fab where TSMC will make advanced chips in the U.S. for the first time. And Samsung is building a $17 billion fab in Texas. All this came after President Joe Biden proposed the CHIPA Act, with $52 billion in subsidies for chip companies to manufacture on U.S. soil. It means that we need to ship our machines sooner, earlier, and at higher volume. So it means we need to hire more people in the U.S. It’s talent, it’s people. I think that’s where the biggest challenge will be.
But this movement toward domestic production has another side that poses a challenge for ASML: a desire to stop sharing chipmaking technology with China. China has wanted to get into that race. But there’s been politically generated reasons why China has not had access to the same type of technology as other companies. As far back as 2018, the Trump administration reportedly pressed ASML not to sell EUV systems to China. ASML still hasn’t sold a single EUV machine to China. 43, 42 countries around the globe have agreed to put export control measures on it because it’s so critical. So it’s not our choice. It’s the choice of governments. ASML also refurbishes older lithography systems and sends many of those to China, more recent DUV machines all the way back to its early systems from the 90s. 96% of all the machines we ever sold, we ever shipped, are still working.
There’s a lot of debate about whether selling additional DUV equipment to China is also a national security risk by letting China increase its ability to manufacture close-to-cutting-edge semiconductors. So I think there’s some chance that in the coming years, there are new restrictions that are imposed on ASML’s ability to sell DUV equipment to China as well. If export controls were expanded to include DUV machines, it could greatly impact ASML’s bottom line. This is where the biggest demand is. This is where the exponential curve is. So trust me, we need every manufacturing capability on the planet, whether it’s in Korea or in China, to just keep adding capacity.
The Future of ASML: High NA and the Race Towards Advancements
And then there’s the question of whether demand for the most advanced chips will remain high enough to support continued development of ASML’s next generation EUV machine, High NA. This is the machine Intel announced it will have first, by 2025. And ASML has already sold four other units. This is the EXE 5000. So this is what we’ll be testing for High NA. This will be what makes our next generations even better.
But even now, before the bigger, better machines, the whole world’s reliance on ASML is only growing, no matter what gets in the way. What can really get in the way is the geopolitics like the Russia and the Ukraine war right now. Those are big geopolitical friction points that can, of course, not only hurt us, but hurt the world economy. But apart from that, let’s hope and let’s pray that can be controlled, then it’s all about execution. And we will keep shrinking the cost per transistor and we will provide the world with ever more powerful semiconductors. That’s not going to stop.