Investors are going wild over a Dutch chip firm. And you’ve probably never heard of it

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  • ASML is the only firm in the world capable of manufacturing the highly complex machines that are required to make the most advanced chips.
  • These EUV machines, which cost about $140 million each, are sold to a handful of chipmaker giants, including TSMC, Samsung, and Intel.
  • The machines shine exceptionally narrow beams of light onto silicon wafers that have been treated with “photoresist” chemicals.
  • Intricate patterns are created on the wafer where the light is exposed to chemicals, which have been carefully laid out beforehand.

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With a market value of around $350 billion, Dutch-headquartered ASML is a little-known tech juggernaut that is set to grow to keep up with the insatiable demand for semiconductors.

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The 37-year-old company, which has more than 28,000 employees, is the only firm in the world capable of manufacturing the highly complex machines that are needed to make the most advanced chips.

These machines, which cost about $140 million each, shine exceptionally narrow beams of light onto silicon wafers that have been treated with “photoresist” chemicals. Intricate patterns are created on the wafer where the light is exposed to chemicals, which have been carefully laid out beforehand.

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This process, which leads to the manufacture of the all-important transistor, is known as lithography. The machines themselves are called extreme ultraviolet lithography machines or EUV machines.

ASML sells relatively rare EUV machines to a handful of chipmaking giants, including TSMC, Samsung and Intel. Each machine reportedly contains over 100,000 components and it takes 40 freight containers or four jumbo jets to ship. Last year, ASML sold only 31 of these huge instruments, as per its financials.

The Trump administration also pressured the Dutch government to halt the sale of the machine to Chinese customers, Reuters reported last year, As a result, Chinese chip makers have been unable to make the most advanced chips. The Biden administration has shown no signs of reversing Trump’s stance.

Chris Miller, an assistant professor in the Fletcher School of Law and Diplomacy at Tufts University, told Businesshala that chipmakers want to use the shortest wavelengths of light in lithography so they can fit more transistors on each piece of silicon.

Transistors are one of the basic building blocks of modern electronics and they enable an electric current to flow around a circuit. Generally speaking, the more transistors you can fit on a chip, the more powerful and efficient that chip will be.

In the process of writing a book about the history of the semiconductor industry, Miller said, “EUV light made using ASML’s most advanced equipment has a wavelength of 13.5 nanometers, which lets you create exceptionally small shapes on silicon. “

The TSMC chips in the latest Apple iPhones, which were made with ASML’s EUV machines, have about 10 billion transistors on them, Miller said.

In addition to lithography, there are several other manufacturing processes that must be completed before a chip is ready for shipping. “Ultimately what you’re trying to do is create structures on silicon using a mixture of carving things and depositing new chemicals on it,” Miller said.

mirror and laser

Given that no one else can make EUV machines that are suitable for mass manufacturing, ASML has a monopoly on this segment and there is no sign of anyone catching up.

“ASML is absolutely critical to the entire semiconductor ecosystem,” Peter Hanbury, semiconductor analyst at Bain & Company, told Businesshala. “In some ways it’s as important as TSMC.”

He continued: “Every bleeding edge chip, starting at five nanometers, and going on for a very long time, is going to be heavily dependent on ASML devices.”

Semiconductor analysts estimate that it will take about a decade and billions of dollars for another company to reach the start-up stage to compete with ASML.

“ASML has about 4,000 suppliers they know of and their suppliers have suppliers as well,” Miller said.

It is particularly difficult to fabricate some of the key components in ASML’s EUV machines.

The mirrors, for example, are made by German firm Zeiss in partnership with ASML and are the flattest structures ever made by humans.

“These structures themselves are like marvels of engineering,” Miller said. Compared to ordinary mirrors, they are relatively reflective, which is important because chip makers do not want photons to be lost before the light rays come into contact with their wafers.

However, the hardest part of an EUV machine to build is the light source, which has come a long way over the years. “Historically, they [chipmakers] Just used a light bulb in the 60s and 70s,” Miller said. “Light bulbs don’t emit excessive ultraviolet light and it’s hard to get enough power. [or] Enough photons emitted.”

The light source in ASML’s EUV machine emits tiny balls of tin about 30 microns wide, which are detonated twice by the world’s most powerful carbon dioxide laser. The first explosion “dresses it up” and the second, strong pulse turns it into plasma that is 400,000 degrees Fahrenheit in temperature, Miller said.

“This plasma of exploded tin, if you will, emits photons of extreme ultraviolet light,” Miller said. “It took 30 years to make this process work.”

ASML’s EUV machines are built primarily in a facility in the Netherlands, but there is also a site in Connecticut where some of the equipment is made.

“It’s a crazy process to ship them,” Miller said. “Then there’s a huge learning process to get them up and running because the machines are so complex. They’re not off the shelf, plug it in, turn it on and go. You have to be able to train the staff to operate them. are doing.”

ASML employees are located inside the chip foundry where the machines are deployed, Miller said, so they monitor and tweak EUV machines whenever necessary. “There are only about two dozen of these machines operating around the world. They are still learning how they actually work.”

Upcoming sales boom?

Demand for ASML’s EUV machines is on the rise as chipmakers try to recover from the global crisis.

In September, ASML said it expected a sales boom over the next decade. It believes that annual revenue will reach 24-30 billion euros by 2025, with a gross margin between 54% and 56%. The forecast is much higher than the 15-24 billion euro range it had previously estimated.

“We see significant growth opportunities beyond 2025,” the company said, adding that it expects to achieve an annual revenue growth rate of approximately 11% between 2020 and 2030.

ASML said that “a highly profitable and fiercely innovative ecosystem” along with “global megatrends in the electronics industry” is expected to continue growth in the semiconductor market, which is grappling with global chip shortages.

It added that growth in the semiconductor markets and “increasing lithography intensity” are driving demand for its products and services.

Over the past 12 months, the share price of ASML on the Stock Exchange of Amsterdam has risen from approximately EUR 350 on November 19 to EUR 772. The shares were trading at all-time highs on Friday last week.

In October, two tech investors, Ian Hogarth and Nathan Benich, predicted that ASML would become a $500 billion company by the end of 2022.

“As people seek alpha when investing in this trend of semiconductors becoming more and more important to global supply chains, it [ASML] Looks like it’s an obvious candidate,” angel investor Ian Hogarth told Businesshala.

Miller said there are several reasons why ASML expects sales to increase.

“We are in the early stages with EUVs right now,” he said, adding that EUV machines have only been used in high volume manufacturing for a few years.

In that time they were used to help make hundreds of millions of chips, but most of ASML’s major customers are actually starting to roll out EUVs in a serious way, according to Miller.

ASML is also not resting on its reputation. The company plans to release a next generation machine called the Hi-NA, for higher numerical aperture, around 2025.

“This will allow even more specific etchings on silicon chips,” said Miller, noting that Intel has signed an exclusive (and probably very expensive) deal to get the first hi-NA machines.

“Unless you think our demand for computing power is stagnating or declining, which doesn’t seem like a safe bet from my point of view, I would expect ASML’s revenue to continue to grow,” Miller said.

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