The global stage is set for a silent yet fierce competition between the United States and China, each vying for technological supremacy. But what if I told you that a single company is quietly holding the reins of the most critical technology needed for this race? Meet ASML, the Dutch company that builds the only machines in the world capable of producing the advanced microchips that power everything—from your smartphone to your car.
These machines, about the size of a city bus, cost around $200 million each and are indispensable for the modern world. Without ASML, technological progress would grind to a halt. But why can’t other countries, including the tech giants like China and the USA, replicate this machine? How did ASML rise to such an unparalleled position?
The Birth of ASML
In the small town of Veldhoven, Netherlands, a visionary entrepreneur named Arthur del Prado saw the untapped potential of the semiconductor industry, a field so complex that many experts around the world could only dream of mastering it. In 1968, del Prado founded ASM International, a company dedicated to making sophisticated equipment for semiconductor manufacturing. His belief was simple yet ambitious: the Netherlands could become a major player in this rapidly growing industry.
Fast forward to 1984, del Prado’s partnership with electronics giant Philips marked the birth of ASML. The collaboration focused on developing thermal chemical tools, essential for the semiconductor manufacturing process. This partnership quickly bore fruit, establishing ASM International as a leader in the industry with facilities spreading as far as Hong Kong. However, the mid-1980s presented significant challenges, leading ASM International to sell its 50% stake in ASML to Philips in 1988. This move kept the company afloat, allowing it to continue innovating.
But the story didn’t end there. In fact, it was just beginning. ASML soon realized that to break free from traditional operations, it needed to invest heavily in innovation. They ventured into the unexplored territory of lithography technology, pouring resources into developing a new type of machine that would change the semiconductor industry forever.
ASML’s Game-Changing Innovation
Lithography is a process used to create tiny patterns on silicon wafers, the foundation of microchips. In the 1990s, ASML’s exploration into extreme ultraviolet (EUV) lithography set them on a path to revolutionize chip-making. EUV lithography uses incredibly short-wavelength light to etch patterns with atomic-level precision, allowing for the production of smaller, more powerful chips. This innovation quickly caught the attention of the tech world, thanks to breakthroughs like Professor Fred Bijkerk’s work with extreme ultraviolet light.
By the late 1990s, ASML was ready to bring EUV lithography to life. Despite the enormous challenges, the company succeeded in shipping its first EUV prototypes in 2006 and produced its first full-field EUV test chips by 2008. A major milestone, known as “first light,” was achieved in 2010 when a pre-production EUV system was delivered to South Korea.
Today, ASML’s EUV lithography machines are the crown jewels of microchip production, essential for creating the technology we rely on daily. The journey to perfecting EUV lithography took over two decades, but it has solidified ASML’s place at the pinnacle of the tech industry.
How ASML’s Machines Work
The microchips in your devices may be small, but their creation requires one of the most advanced pieces of technology ever developed: ASML’s EUV lithography machines. These machines stand out not just for their complexity but for their unique production process.
Unlike traditional deep ultraviolet (DUV) light used in chip-making, EUV light does not naturally exist on Earth; it can only be found in space. To generate this rare light, ASML uses a CO2 laser to fire pulses at a tiny drop of tin, transforming it into plasma that emits EUV light. This process occurs at an astonishing rate of 50,000 times per second.
The precision required to produce these microchips means that ASML assembles its machines in ultra-clean environments. These clean rooms are 10,000 times cleaner than regular air because even a single speck of dust could ruin the delicate wafers used in chip production. This meticulous process ensures that the chips are of the highest quality and reliability.
The US-China Clash: ASML at the Center of a Geopolitical Struggle
ASML’s dominance in the microchip industry has not gone unnoticed, especially by global superpowers like the United States and China. As of 2022, ASML is a $336 billion company, according to Yahoo Finance, with its EUV machines being the cornerstone of production for tech giants like TSMC, Samsung, and Intel. China, too, relies heavily on ASML machines to produce its semiconductor chips.
In 2019, the Trump administration persuaded the Dutch government to halt shipments of ASML’s most advanced machines to China, a policy continued by the Biden administration. While older DUV machines were still sold to China, they are less advanced than the EUV models. Despite these restrictions, sales of these machines to China made up about 16% of ASML’s revenue in 2021, equating to roughly $2.2 billion.
The United States has been actively working to curb China’s advancement in chip technology, with measures like the CHIPS Act, which restricts companies like TSMC from selling their most advanced chips to China. The U.S. has also pressured ASML to limit its exports to China, further intensifying the technological cold war between the two nations.
China, on the other hand, is striving for self-sufficiency. However, experts believe it could take at least a decade for China to develop lithography equipment that can compete with ASML’s. ASML’s CEO, Peter Wennink, acknowledges this challenge but remains confident in ASML’s continued dominance.
ASML’s Recent Challenges: Navigating Through Uncertain Waters
Despite its success, ASML has faced significant challenges in recent years that have impacted its performance and stock price. In 2022, concerns over semiconductor demand and trade restrictions with China led to a drop in ASML’s stock. However, the company bounced back in October 2022 with strong third-quarter results, reassuring investors that U.S. export controls would not derail their 2023 plans.
In March 2023, the Dutch government introduced new restrictions on exporting semiconductor equipment, further complicating ASML’s operations. However, ASML remained optimistic, stating that these measures would not significantly impact their financial outlook or long-term plans.
By July 2023, ASML reported a “strong backlog” of around €38 billion, indicating robust future sales. Nevertheless, ongoing economic uncertainties and cautious customer behavior caused ASML’s stock price to fall. The situation was further exacerbated when Taiwan Semiconductor Manufacturing Company (TSMC), ASML’s biggest customer, asked its suppliers to delay equipment deliveries due to concerns about demand.
Despite these bumps in the road, ASML continues to push forward, demonstrating resilience in the face of adversity.
Why No Rivals? ASML’s Unchallenged Dominance
You might be wondering why no other companies have stepped up to challenge ASML’s dominance in the EUV lithography market. The answer lies in the sheer complexity and cost of these machines. Each EUV lithography machine costs hundreds of millions of dollars, and ASML is the only company capable of producing them.
The journey of an EUV machine begins in one of ASML’s six factories, spread across over 60 global locations. After rigorous assembly and testing in Veldhoven, Netherlands, the machine is carefully disassembled and shipped to its destination. In 2021, ASML sold 42 of these machines, bringing their total shipments to around 140.
Only a few companies, such as Micron, SK Hynix, Samsung, Intel, and TSMC, can afford these machines. These companies are also crucial to ASML’s business, with Samsung, Intel, and TSMC accounting for nearly 84% of ASML’s revenue. The high cost and technical challenges create a significant barrier to entry, ensuring ASML’s unrivaled position in the market.
The Road Ahead: ASML’s Future in a Changing World
ASML’s journey from a small Dutch company to a global tech giant is nothing short of remarkable. Their decision to invest in EUV technology back in the 1990s was a risky gamble that has paid off handsomely. With a current valuation of around $318 billion, ASML is now at the forefront of the semiconductor industry. But what lies ahead for this tech behemoth?
One of the biggest challenges ASML faces is the increasing trade restrictions with China. In 2022, China was ASML’s third-largest market, contributing about 15% of its revenue. However, China’s recent export regulations on rare earth metals, essential for chip-making, could drive up costs for ASML or force the company to find alternative solutions.
Despite these challenges, ASML’s CEO, Peter Wennink, remains confident. He believes that even if ASML cannot sell to China beyond its current capacity, it will not drastically alter their long-term forecasts. Wennink also predicts that China might double its efforts to develop its own chip-making equipment, potentially increasing competition in the future.
ASML is not resting on its laurels. The company has recently launched its next-generation EUV machine, the EXE, which features a redesigned optics system and promises to be faster than its predecessors. ASML’s plans for a new “Hyper-NA” EUV technology further demonstrate their commitment to staying ahead.
Wrapping Up
ASML’s journey from a small Dutch startup to a global leader in semiconductor manufacturing technology is a testament to innovation, perseverance, and strategic vision. The company’s exclusive mastery of EUV lithography has not only placed it at the center of the tech world but has also made it indispensable to the future of modern technology.
As we look ahead, ASML will continue to shape the future, pushing the boundaries of what’s possible in microchip production. Despite the challenges of geopolitical tensions and market uncertainties, ASML’s relentless pursuit of excellence ensures that it will remain the backbone of technological advancement for years to come. The world, quite literally, depends on it.
