An ASML (ticker: ASML) lithography machine asking for 100 million euros (about 120 million US dollars, , this is the current model’s rice and will vary with features and models), but you may not get it even you have money.
Please pay special attention: lithography machine and etching machine are two completely different devices. ASML is a lithography machines vendor, not etching machine.
ASML’s stock price and valuation
It is currently the world’s largest semiconductor equipment manufacturer, and the company has only one product. The stock price and valuation are as follows:
- In the past five years, its stock price has risen by nearly 700%, and in the past ten years, its stock price has risen by nearly 1,115%; as shown in the figure below, it comes from Google Finance.
- Its current market value is US$320 billion
- Price to revenue ratio 16.65
- Price Earnings Ratio 53
The role of lithography
How important is lithography? Lithography is just a general term, which includes many links, and lithography machine (also known as exposure equipment) is the most important equipment. The other is photoresist, an important semiconductor chemical material, and photoresist materials account for about 5% of the total cost.
Dozens of times of photolithography may be required in the entire wafer manufacturing process. The cost of the photolithography process accounts for 35% of the entire wafer manufacturing process, and the time consumption accounts for about 40%-50% of the entire chip production process. Depending on the advanced process and craftsmanship will vary.
How important ASML is?
How important is lithography? Lithography is just a general term, which includes many links, and lithography machine (also known as exposure equipment) is the heaviest hardware device. The other is photoresist, an important semiconductor chemical material, and photoresist materials account for about 5% of the total cost.
The reason is that exposure equipment accounts for about 22% of all advanced process manufacturing equipment costs and about 20% of the manufacturing time. In addition, only ASML produces advanced extreme ultraviolet exposure (EUV) equipment. EUV is the essential key to enter the advanced process below 10nm.
Previously, ASML has launched three generations of EUV equipment, namely TWINSCAN NXE: 3400B, NXE: 3400C, and NXE: 3600D, all with a numerical aperture of 0.33. Theoretically, the accuracy of the wafers produced by the third-generation EUV exposure equipment is about 2 nanometers at most. Once the node is below the 2 nanometer, that is, when the micrometer (1 micrometer = 0.1 nanometer), ASML must develop higher precision equipment again. The most advanced exposure equipment is called High NA (High Numerical Aperture) EUV exposure equipment. ASML’s chief technical officer stated in September 2022 that the first High-NA EUV exposure machine will be delivered in 2023, which is the next-generation high-precision EUV exposure equipment model NXE: 5000, 0.55 high numerical aperture EUV Exposure equipment, each selling for up to $400 million.
Any way to bypass ASML?
Although DUV (Deep Ultraviolet Light Exposure) machines are mainly used for chips in mature processes, TSMC and Samsung Electronics can also produce chips with processes below 10nm. For example, TSMC is producing the first-generation 7-nanometer process (N7 node), which is produced through DUV’s 193nm immersion ArF lithography. Benjian Lin, the father of immersion lithography, believes that even without high-end and expensive EVU, it should be no problem for SMIC to achieve at least 5nm with existing equipment, breaking the stereotype that the outside world only stays at 28nm.
Like TSMC, SMIC has used this method and has already successfully shipped 7nm process chips to customers in 2019. The last paragraph of this article will detail the development of the matter.
However, although the line spacing can be reduced after multiple exposure through liquid infiltration using a DUV exposure machine, it has the following major disadvantages:
- It is very difficult to achieve the equivalent of EUV’s 13.5nm wave, that is, to achieve the yield and cost of TSMC’s 7nm process. Because TSMC’s high yield rate in advanced systems is known to everyone in the industry; it’s only a bit worse than its mature manufacturing process, but not much. Samsung’s new advanced manufacturing process is relatively normal, that is, the gap between the yield rate and the yield rate of the mature process is too large. This is one of the main reasons why TSMC has higher gross profit, more customers, and higher market share.
- The entire process of multiple exposure is just too complicated, lengthy, and time-consuming, the probability of error is higher ─ ─ resulting in low yield.
- Multiple exposures will inevitably increase the consumption and waste of power and resources, and will drastically lower net profit eventually.
This is why SMIC has emphasized many times that SMIC has in fact already possessed the capability of more advanced processes from 12nm to 7nm, and it is completely feasible through internal empirical engineering, but it is still willing to wait for ASML’s extreme ultraviolet light exposure ( EUV). The main reason is because it does not meet the cost and economic benefits.
A company really pinch TSMC’s neck
Why would I say that?
- It is also true that TSMC (ticker: TSM) also has many key suppliers. But most of them are oligopolistic, or alternative solutions can still be found, or they rely on TSMC more than TSMC ask for them.
- Without ASML’s extreme ultraviolet (EUV) lithography machine, TSMC’s all higher-end processes below 7nm (which is also the source of most of its revenue) would have to be shut down immediately, not only without other suppliers, and there is no alternative at all.
- Look at the SMIC in mainland China. It has money, people, a market, and customers; the only thing it lacks is ASML’s extreme ultraviolet (EUV) lithography machine. If ASML announces that it immediately agrees to ship its extreme ultraviolet lithography machine to SMIC, we can be said with confidence that Taiwan’s share price will immediately fall sharply, and it will continue to bottom out. On the contrary, ASML’s own stock price and SMIC’s stock price will immediately rise sharply and continue to hit new highs. For this part, I suggest you refer to my other blog post “Two long-term threats to TSMC“.
In 2022, Bloomberg Businessweek once made a special report, TSMC accounted for 6% of Taiwan’s electricity consumption in 2020, and it is estimated that it will reach 12.5% in 2025. ASML’s most advanced EUV lithography equipment consumes an estimated power of about 1 million watts (depending on the model), which is more than 10 times the power consumption of previous generations of equipment, but it is the only choice for TSMC for the most advanced process. Bloomberg Businessweek estimated TSMC has more than 80 EUVs.
In 2020, the total global sales of lithography machines were 413 units. Among them, ASML sold 258 units accounting for 62%, Canon (ticker: CAJ) sold 122 units accounted for 30%, and Nikon (ticker: NINOY) sold 33 units accounted for 8%. However, the current product level of Nikon and Canon is only about the level of ASML’s next-level deep ultraviolet light source (DUV) level (ASML’s DUV light source lithography machine can still be sold to China, because it is not regulated by the United States). Calculated by sales, because only ASML has the ability to manufacture the most expensive extreme ultraviolet lithography machine, the total market share is 91%, 3%, and 6% in order. So at present, neither Nikon nor Canon can pose a threat to ASML.
Origin of the company
ASML’s light source comes from Cymer, the optical module comes from Zeiss, Germany, and the metering equipment comes from the United States, but it belongs to German technology, and its conveyor belt comes from the Dutch VDL Group. 90% of the parts of a lithography machine are sourced globally, involving more than a dozen companies in 4 countries, and the interests of downstream customers are firmly tied to ASML. The CEO of ASML once explained that if the area of the mirror in the lithography machine is as large as that of Germany, the highest protrusion cannot be higher than one centimeter! It can be seen how precise the lithography machine is.
The “immersive lithography” scheme invented by Benjian Lin, former deputy general manager of TSMC’s R&D, adopted by ASML has broken the technical bottleneck encountered by Japanese manufacturers in the previous generation of lithography, and established a higher-level lithography technology. advantages, from now on monopolizing this industry.
Shareholders of ASML
In 2012, Intel (ticker: INTC), Samsung (ticker: SSNLF) and TSMC, the three companies invested a total of 5.229 billion euros, thereby obtaining priority supply rights and forming a close community of interests. In 2015, the first mass-produced extreme ultraviolet lithography machine prototype was officially released, which means that in advanced manufacturing processes below 7nm, ASML has no rivals ever since!
Truly exclusive monopoly
I mentioned in the book “The Rules of Super Growth Stocks Investing” that there are very few real monopoly companies in the market, mainly because the government will definitely intervene and it is impossible for this to happen. And as long as it is a monopolistic enterprise, the profit must be substantial, because it must have the power to increase prices, and customers can only be at the mercy of it, as evidenced by ASML’s 120 million US dollar machine. ASML has only a dozen EUV production capacity a year. Therefore, in reality, apart from state-owned enterprises, it is almost impossible for any country to have any independent manufacturers. ASML can be said to be the only company that I can think of at the moment, really super large, in the technology sector, and truly monopoly.
A new generation of EUV extreme ultraviolet exposure machine
The High-NA EUV exposure machine is ASML’s latest generation of lithography equipment, which will be officially shipped in 2022, which indicates that ASML has taken another big step forward on the road of 0.55 numerical aperture lithography technology. This equipment is a key lithography equipment for future investment in gate-all-around (GAA) technology and 2nm node process. The main foundry manufacturers should be Intel, TSMC, and Samsung. It is reported that they are already conducting installation tests.
At present, the three generations of EUV extreme ultraviolet exposure machines launched by ASML are TWINSCAN NXE: 3400B, NXE: 3400C, NXE: 3600D, and the numerical apertures are all 0.33. In theory, the accuracy of the wafers produced by the third-generation EUV extreme ultraviolet exposure machine equipment can only reach about 2 nanometers at most. It is necessary to develop higher-precision exposure equipment, called High NA (High Numerical Aperture) EUV extreme ultraviolet exposure equipment. The latest next-generation high-precision EUV extreme ultraviolet exposure machine model is EXE: 5000, with a numerical aperture of 0.55, which can be used for wafer fabrication below the 2nm node, such as 1.4nm (14 angstroms), 1 nanometer (10 angstroms) and other processes.
The price of the previous ASML EUV extreme ultraviolet exposure machine is 120 million US dollars, but the price of this latest EUV extreme ultraviolet exposure machine is about 400 million US dollars.
By the way, it is worth mentioning that the Belgian Microelectronics Research Center (IMEC) is the main key technology partner of ASML EUV extreme ultraviolet exposure machine equipment, and IMEC is the key technology provider for many of ASML’s lithography exposures.
Western uses ASML to block Chinese semiconductors
SMIC’s 7nm process already production
As mentioned earlier in this article, the fabrication of 7nm wafers does not require Esmol’s EUV machines at all, and TSMC’s 7nm does not actually use EUV lithography machines. SMIC’s cryptocurrency mining customer MinerVa has long said that SMIC’s 7-nanometer wafers will start production as early as July 2021.
ASML’s policy towards China
SMIC announced in March 2021 that ASML has signed an order for deep ultraviolet (DUV) lithography equipment of US$1.2 billion, with a deadline of the end of 2021.
ASML has repeatedly stated that it maintains an open attitude towards land-based exposure machines and fully supports them within the legal framework. Except for EUV machines, other products can be shipped to land-based customers. In recent years, ASML’s shipments to the continental market accounted for 30% of the global sales, and the previous installed capacity in the mainland was close to 1,000 units.
However, it has been reported recently that in order to completely block the semiconductor industry in mainland China, the United States has planned to extend the ban to a mature manufacturing process starting in 2022. In other words, once the new ban comes true (this new ban has too much impact and may hurt many American manufacturers), ASML will not even be able to export DUV lithography equipment to mainland China.
The West’s move to block China seems to fall short
Beijing authorities have identified the semiconductor supply chain and dealt with it as a “national emergency.”
In June 2021, ASML’s chief executive publicly stated that the implementation of an embargo on China’s cutting-edge lithography machines will result in China’s own R&D and manufacturing, which may result in technological breakthroughs in three years. The machine market was shocked and even forced ASML to withdraw from the market. Judging from past experience, as long as China masters this technology, China’s production costs will be cheaper than internationally. At that time, ASML may have withdrawn from the world lithography machine market. What I want to say is that competitors’ comments on the company are not only the most valuable for reference, but also the most accurate (Buffett once had a similar view).
Previously, SMEE (Shanghai Microelectronics), a domestically produced lithography machine in China, has already claimed to enter 28nm and 14nm since mid-2020, but the yield rate of finished products was not high at that time. However, on 11/26/2021, the mainland Chinese media IT House reported that Foxconn’s first packaging and testing plant in Qingdao, Shandong Province, introduced 46 sets of 28-nanometer lithography machines made by Shanghai Microelectronics made in China in one go. This is an amazing achievement. The domestic lithography machine that represents mainland China has broken through from 90nm to 28nm in just a few years. It’s just that everyone should pay special attention that these lithography machines currently delivered can only be used for the packaging of advanced wafers and cannot be used for production.
Why does ASML take orders from the United States?
With nearly two decades of painful experience in the Japanese semiconductor field that has overwhelmed the United States in the 1980s and 1990s, the US government regards extreme ultraviolet technology as the core technology to promote the development of the domestic semiconductor industry, and does not hope foreign companies can participate in it.
Later, ASML agreed to establish a factory and a research and development center in the United States to meet all domestic production needs. It also guarantees that 55% of the components are purchased from American suppliers and are subject to regular review. This is also the fundamental reason why the United States can ban the export of Dutch lithography machines to China.
Another very reasonable reason: ASML pointed out that among the company’s most cutting-edge lithography machines, more than 55% of the company’s parts suppliers come from the United States.
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