ASML (NASDAQ: ASML) | Shovel To The Semiconductor Rush


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Key Points

  • ASML is a leading manufacturer of EUV and DUV lithography systems

  • As a semiconductor equipment manufacturer, it is poised to benefit from the growth of the global semiconductor market

  • It is expected to maintain its dominant market share due to its strong competitive moat built by significant product innovation and customer lock-in

  • Its recurring-in-nature net service and field option segment generates sustainable cash flow that buffers against the cyclicality of the semiconductor market

Company Overview


Founded in 1984, ASML is a global innovation leader in the semiconductor chip industry that provides chipmakers with hardware, software and services to mass produce patterns on silicon through lithography.


Its main business operation is the manufacturing of lithography equipment, namely extreme ultraviolet (EUV) and deep ultraviolet (DUV) lithography systems, for foundries and integrated device manufacturers (IDM) for the fabrication process of semiconductor chips.


What is Lithography?

Lithography is essentially a projection system where light is projected through a blueprint of the pattern that will be printed. With the pattern encoded in the light, the system’s optics shrink and focus the pattern onto a photosensitive silicon wafer. After the pattern is printed, the system moves the wafer slightly and makes another copy on the wafer. This process is repeated until the wafer is covered in patterns, completing one layer of the wafer’s chips. To make an entire microchip, this process is repeated layer after layer, stacking the patterns to create an integrated circuit (IC).


ASML’s Lithography Systems


ASML has 2 main lithography systems – EUV and DUV, which we will explain below.


EUV Lithography


EUV lithography uses light with a wavelength of just 13.5 nm, representing a reduction of almost 15 times compared to DUV lithography which uses 193 nm light. This allows foundries and IDMs to use EUV single exposure instead of very complex multiple-patterning ArF immersion exposures which enables them to further shrink the structures, thus, building more modern and powerful semiconductor chips.


Shorter wavelengths allow the etching of smaller components — vital for chipmakers striving to keep pace with Moore’s Law, which posits that the number of components that can be squeezed into a given area of silicon doubles roughly every two years.

The TWINSCAN NXE:3600D is ASML’s latest-generation lithography system, supporting EUV volume production at the 5 and 3 nm Logic nodes and leading-edge DRAM nodes. It combines imaging and overlay improvements with a 15% to 20% productivity improvement capability when compared to its predecessor, the NXE:3400C.


In addition, ASML is currently developing the next generation of EUV lithography systems with a higher numerical aperture (NA), known as High-NA technology. This technology will enable geometric chip scaling beyond the current decade, offering resolution and overlay capability that is 70% better than our current EUV platform. Its customers have ordered High-NA prototypes to evaluate high-volume production opportunities in the 2025 time frame. Its continuous innovation ensures that ASML’s technology remains at the forefront of the industry, thus, allowing it to continue dominating the EUV segment.


DUV Lithography


Even though EUV may be used to produce one or two of the more complicated layers in a chip, DUV still produces the majority of layers in a customer device today. This is as DUV systems are more cost-effective given that these are typically older machines that are less expensive to purchase and maintain. As a result, DUV systems remain important for the manufacturing of future devices.

ASML’s DUV immersion and dry systems lead the industry in productivity, imaging and overlay performance for high-volume manufacturing of the most advanced Logic and Memory chips while continuing to deliver value for the matured nodes.


Other Products and Services


1. Net Service and Field Option


ASML provides productivity and performance upgrades as well as servicing for its installed base of machines. It develops and sells product options and enhancements designed to improve throughput, patterning performance and overlay. In addition, it can upgrade older systems to newer models in the field, helping customers to optimise their cost of ownership over the system’s lifetime.


2. Metrology and Inspection Systems

Metrology and inspection portfolio covers every step of the manufacturing process, from R&D to mass production. It helps chipmakers achieve the highest yield and best performance in mass production.


Management


ASML has been led by Peter Wennink since 2013. Prior to his appointment as President and CEO, he served as Executive Vice President, CFO and as a member of the Board of Management. Serving alongside Peter Wennink is Martin van den Brink who was appointed President and CTO in 2013. He joined ASML when the company was founded in 1984, holding several engineering positions before being promoted to Vice President Technology and then Executive Vice President Marketing & Technology.

Industry Analysis


DUV Lithography

The DUV market is expected to grow at a CAGR of 8.4% from c. US$0.7b in 2020 to c. US$1.0b in 2025.

Within this segment, ASML holds a dominant 85% market share with the remaining 15% share mostly made up by Nikon and Canon. We believe that ASML is likely to sustain this market leadership due to the high quality of its machines and the inability of its competitors to catch up to its level of technology. To illustrate this, Nikon only sold 7 semiconductor lithography machines in FY2021 as they shifted their focus towards lithography for Flat Panel Displays (FPDs), commonly used in the manufacturing of electronic device displays such as LCDs and OLEDs. In addition, Intel, Nikon’s biggest customer, shifted away from Nikon to ASML. In the case of Canon, it has not sold a single lithography machine since 2010 with most of its revenue generated from the service and maintenance of its current machines.


EUV Lithography

For the EUV segment, the market is expected to grow at a CAGR of 28.2% from US$2.6b in 2020 to US$14.9b in 2027. As it is the only company that is selling EUV systems, ASML has a monopoly on the market which we expect to continue given its significantly longer R&D period as well as stronger funding compared to any entrants. Therefore, most of the growth, if not all, of the EUV market is likely to be capitalised by ASML.

Financial Highlights