The largest company in Europe you may never have heard of

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Employees assemble the ASML NXT1970Ci lithography machine at the ASML Holding NV factory in Wildhofen, the Netherlands.

Jasper Juinen | Bloomberg | Getty Images

ASML, headquartered in the Netherlands, has a market value of approximately US$350 billion and is a little-known technology giant that will continue to grow with the insatiable demand for semiconductors.

This 37-year-old company has more than 28,000 employees and is the only company in the world that can manufacture the highly complex machines required to manufacture the most advanced chips.

These machines cost about $140 million each and can irradiate a very narrow beam of light onto silicon wafers that have been treated with “photoresist” chemicals. Intricate patterns are formed on the wafers in contact with light and chemicals, and these patterns are carefully arranged in advance.

This process that leads to the formation of all important transistors is called photolithography. These machines themselves are called extreme ultraviolet lithography machines or EUV machines.

ASML sells relatively rare EUV machines to a few chip manufacturing giants, including TSMC, Samsung and Intel. According to reports, each machine has more than 100,000 components and requires 40 freight containers or four jumbo jets to transport it. According to its financial data, ASML sold only 31 of these huge devices last year.

According to a Reuters report last year, the Trump administration even pressured the Dutch government to stop selling the machine to Chinese customers. As a result, Chinese chip manufacturers have been unable to manufacture the most advanced chips. The Biden administration showed no signs of changing Trump’s position.

Chris Miller, assistant professor at the Fletcher School of Law and Diplomacy at Tufts University, told CNBC that chip makers want to use the narrowest wavelength of light in lithography so that they can install more transistors on each piece of silicon.

Transistors are one of the basic components of modern electronic products. They enable current to flow around circuits. Generally speaking, the more transistors that can be mounted on a chip, the higher the function and efficiency of the chip.

“The EUV light used by ASML’s most advanced tools has a wavelength of 13.5 nanometers, allowing you to carve very small shapes on silicon,” said Miller, who is writing a book on the history of the semiconductor industry.

Miller added that the TSMC chip in the latest Apple iPhone is made with ASML’s EUV machine and has about 10 billion transistors on it.

In addition to photolithography, several other manufacturing processes must be completed before the chip is ready for shipment. Miller said: “In the end, what you have to do is to build structures on silicon, using a method of mixing carving and depositing new chemicals.”

Mirror and laser

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

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

He added: “Every cutting-edge chip, starting at 5 nanometers and likely to last for a long time, will rely heavily on ASML equipment.”

Semiconductor analysts believe that it will take about ten years and billions of dollars for another company to enter the stage where it can start competing with ASML.

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

Some key components in ASML’s EUV machines are particularly difficult to manufacture.

For example, these mirrors are manufactured by German Zeiss company in cooperation with ASML. They are the flattest structures ever made by humans.

“These structures are engineering marvels in themselves,” Miller said. Compared with ordinary mirrors, they are relatively reflective, which is important because chip manufacturers do not want photons to be lost before the beam makes contact with the wafer.

However, the most difficult part of EUV machines to manufacture is the light source, which has made considerable progress over the years. “Historically, they [chipmakers] Light bulbs were only used in the 1960s and 1970s,” Miller said. “Light bulbs don’t emit extreme ultraviolet light, and it’s difficult to get enough power. [or] Emit enough photons. “

The light source in ASML’s EUV machine emits tiny tin balls about 30 microns wide, which are shot twice by the world’s most powerful carbon dioxide laser. Miller said that the first explosion was “ready,” and the second stronger pulse turned it into a plasma with a temperature of 400,000 degrees Fahrenheit.

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

ASML’s EUV machines are mainly manufactured in factories in the Netherlands, but there is also a factory in Connecticut that manufactures some equipment.

“Transporting them is a crazy process,” Miller said. “Then there is a big learning process to get them up and running because the machines are too complicated. They are not like off-the-shelf, plug in, turn on and run. You need to be able to train employees to operate them.”

Miller said that ASML employees are located in the chip foundry where the machines are deployed, adding that they will monitor and adjust EUV machines when necessary. “There are only dozens of these machines in operation in the world. They are still learning how they actually work.”

The upcoming sales boom?

As chip manufacturers try to overcome the global crisis, the demand for ASML’s EUV machines is soaring.

In September, ASML stated that it expects a sales boom in the next ten years. It believes that by 2025, annual revenue will reach EUR 2.4 to 30 billion, and gross profit margins will be as high as 54% to 56%. The forecast is significantly higher than the previous forecast of 1.5-24 billion euros.

The company said: “We see significant growth opportunities beyond 2025,” adding that it expects annual revenue growth between 2020 and 2030 to reach about 11%.

ASML stated that “global trends in the electronics industry” coupled with “high-margin and intensely innovative ecosystems” are expected to continue to drive the growth of the entire semiconductor market, which is struggling with global chip shortages.

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

In the past 12 months, ASML’s share price on the Amsterdam Stock Exchange has risen from approximately 350 euros on November 19 to 772 euros. The stock price hit a record high on Friday last week.

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

“As people look for Alpha when investing in this semiconductor which is becoming more and more important to the global supply chain, this [ASML] It feels like it is an obvious candidate,” angel investor Ian Hogarth told CNBC.

Miller said that there are many reasons to expect ASML’s sales to increase.

“We are still in the early stages of EUV,” he said, adding that EUV machines have only been used for high-volume manufacturing for a few years.

During that time, they have been used to help make hundreds of millions of chips, but according to Miller, most of ASML’s major customers have really started to launch EUV in earnest.

ASML is also not satisfied with the status quo. The company plans to release a next-generation machine called High-NA around 2025, which stands for high numerical aperture.

“It will allow more specific etching on silicon chips,” Miller said, adding that Intel has signed an exclusive (and possibly very expensive) agreement to obtain the first High-NA machine.

“Unless you think that our demand for computing power will stagnate or decline, which does not seem to be a safe bet from my point of view, I think the expectation must be that ASML’s revenue continues to grow,” Miller said.

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