Market Intelligence
October 24, 2022

ASML Dominance Spurs Innovation — and Creates New Competition

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Governments around the world are introducing initiatives to bolster domestic production of electronic components. Bills like the United States’ and European Union’s CHIPS acts have reinvigorated the industry and garnered enthusiasm for the innovation and job opportunities that these proposals promise. 

However, there are obstacles that could delay the timelines for these new fabs. Warning bells are already ringing, as headlines caution that an equipment shortage is on the horizon. While companies like ASML maintain a monopoly over advanced chipmaking equipment, they have also created the need — and the opportunity — to fill a growing supply gap for essential technology. 

The question is, who will advance the pace of innovation and compete with ASML to create the machinery required for the chips of the future? 

ASML Leverages Lithography to Make a Monopoly  

ASML is the leading supplier of equipment necessary to mass produce ICs. The company’s main competition, Canon and Nikon of Japan, provide photolithographic machines, but ASML is the sole industry source for the extreme ultraviolet (EUV) technology required for 7NM and below production. These lithography machines use light to write on silicon wafers, inserting ICs onto the wafer’s surface and effectively printing instructions for the chip’s applications. As chips require increasingly more components, this technology becomes even more crucial. 

EUV production is expensive, as each system costs around $150 million. Additionally, it is a lengthy endeavor because of the labor and sourcing that goes into producing each unit. EUV machines comprise multiple modules with hundreds of thousands of components, sourced from almost 800 suppliers. After assembly, the devices are tested and once cleared, disassembled and shipped to chipmakers. Shipping involves some 20 trucks and three fully loaded Boeing 747s. 

ASML only sells to five chipmakers, with 84% of its business in 2021 coming from TSMC, Samsung and Intel. The cost of production has squeezed many businesses out of advanced chipmaking, including GlobalFoundries, the fourth largest global semiconductor manufacturer.  

As an alternative to EUV, chipmakers turn to deep ultraviolet (DUV) lithography to produce less advanced, but still extremely profitable, chips. DUV light is 14 times larger than EUVs wavelengths making it impossible for DUV lithography to achieve the same performance as EUV lithography.  

Demand Grows, While Production Struggles to Keep Up 

ASML made record profits during the chip shortage. Company shares have risen more than 340% since 2018, which made it more valuable than its biggest customers, including Intel. As demand rose, ASML struggled with backorders and lead times consequently grew.  

In April 2022, ASML forewarned that only 60% of orders for DUV lithography machines could be fulfilled. Their DUV scanner backlog was over 500 units, and product lead times for DUV machines stretched to about two years. With the expansion plans anticipated by the CHIPS acts, as well as other companies’ growing need to increase production to meet demand, the industry faces a possibly severe shortage of equipment. 

One of the driving forces for increased pricing nowadays is shortages that affect fab equipment suppliers. These shortages stretch timelines for new facilities, moving the goalposts for completion from five to seven to 10 years or more. This will only exacerbate an already dire situation with the ongoing chip shortage. 

Breaking the Mold: How the Competition Is Stepping Up 

ASML’s 60% share in volume shipped is a wide gap for competitors to close. On top of production costs, ASML’s propriety technology, and often exclusive supplier partnerships, has made this avenue of lithography prohibitively expensive and difficult to break into. Despite the challenges, some companies are taking advantage of the opportunity to meet the demand that ASML is struggling to satisfy.  

Canon, whose market share of volume shipped is only 30%, is trying to increase its competitive edge. They recently announced a new plant in Japan that will be dedicated to lithography machine production. The facility will use nanoimprint lithography (NIL), which aims to cut lithography process costs by 40%, reduce power consumption by 90% and achieve line widths under 15nm. 

This form of lithography is not mainstream yet, but Canon is leading its development and has already started working with Kioxia, SK Hynix and Toshiba to integrate it into the manufacturing process. Predictions indicate that the NIL market could expand to a billion dollars within the next five to 10 years. 

This is welcome news, but Canon has a way to go. Construction of the plant is scheduled to start in 2023, with the hopes of being operational by 2025, but NIL has struggled with defects and throughput. While Toshiba has had one of Canon’s NIL systems since 2017, most of nanoimprint technology’s success has been in non-semiconductor applications. If Canon hopes to compete with ASML’s EUV machines, it will need to continue to push NIL advancement even further. 

Using Innovation to Stabilize Supply 

As the semiconductor industry continues to grow, particular attention will need to be paid to the equipment necessary for chip production. Industry professionals have noted that there is a difficult chicken-and-egg situation with equipment requirements. Manufacturers need chips, but the machines that make those chips also require numerous electronic components themselves. 

While the burden largely falls on equipment manufacturers to increase the pace of innovation to meet the industry’s order backlog, the burden of righting the supply imbalance does not fall to them alone. Chipmakers should foster the innovation that companies like Canon are introducing by making sure that they receive the parts they need. Additionally, they should continue to support allocation for companies like ASML as they work through their backlog of orders. 

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