ASML
Introduction
ASML originally stands for Advanced Semiconductor Materials Lithography. It is a provider of immersion lithography and EUV systems as well as metrology tools. The Dutch multinational corporation was founded in 1984 and specializes in the development and manufacturing of photolithography systems, used to produce computer chips.
The company was founded as a joint venture between Philips and Advanced Semiconductor Materials International (ASMI). However, in 1988, ASMI withdrew from the ASML joint venture and was bought out by Philips.
In 1995, ASML launched an initial public offering on the Amsterdam and NASDAQ stock exchanges. It later acquired Silicon Valley Group (SVG) in 2000, making it the largest lithography tool vendor, in an all-stock transaction valued at $1.6 billion.
In March 2007, ASML acquired Brion Technologies Inc., a provider of computational lithography, including design verification, reticle enhancement technologies, and optical proximity correction, for $270 million in cash. In 2013, it acquired Cymer, a supplier of deep ultraviolet light sources, for $2.5 Billion in shares and cash.
In November 2016, ASML acquired Hermes Microvision Inc. (HMI), a supplier of pattern verification systems. Also, in 2016, ASML acquired a 24.9% minority stake in optics supplier Carl Zeiss SMT for $1.1 Billion.
It is currently the largest supplier of photolithography systems primarily for the semiconductor industry and the only company in the world supplying extreme ultraviolet lithography (EUV) photolithography machines that the likes of TSMC need to make the smallest and most sophisticated chips. Each EUV machine has over 100,000 parts and costs $150 million.
ASML is headquartered in Veldhoven, Netherlands. It also has offices in the United States, Belgium, France, Germany, Ireland, Israel, Italy, the United Kingdom, China, Taiwan, Hong Kong, Japan, Malaysia, Singapore, and South Korea.
Products and Services
ASML provides their customers with everything ranging from hardware, software, and services to mass produce patterns on silicon, allowing them to increase the value and lower the cost of a chip.
LITHOGRAPHY SYSTEMS:
Lithography systems ASML offers include EUV Lithography systems which provide the highest resolution in high-volume manufacturing, pushing Moore’s Law forward and DUV Lithography systems which dive deep into the UV spectrum to print the tiny features that form the basis of the microchip.
REFURBISHED SYSTEMS:
For refurbished systems, Engineers in blue cleanroom suits take apart machines and clean, repair, and tweak them to ensure that they perform to their original specifications. The machine is then taken apart into individual modules, which are then repaired and tested individually. They are then re-assembled and integrated into the like-new machine that meets all original specifications. They then grant a new warranty on the system.
COMPUTATIONAL LITHOGRAPHY: ASML’s computational lithography products enable accurate lithography simulations that help to improve chip yield and quality. Without computational lithography, it would be impossible for chipmakers to manufacture the latest technology nodes. Their computational lithography techniques optimize the scanner, masks, and processes for device manufacturability and yield, both early in design and technology development and later in high-volume production.
METROLOGY & INSPECTION SYSTEMS: ASML’s metrology and inspection portfolio deliver speed and accuracy, covering 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. This product is dived into two segments; YieldStar optical metrology and E-beam metrology and inspection.
CUSTOMER SUPPORT: To prevent ‘unscheduled downs’, ASML customer support uses deterministic diagnostics and other predictive methods to optimize maintenance and upgrades together with their customers’ production schedules. Due to their streamlined logistic process, they are able to fulfill more than 99% of all parts requests within 24 hours. They work round the clock to make sure their systems with their customers are running smoothly.
ASML Success explained
During the early 2000s, the internet was blowing up, and consumer devices like digital cameras, USB drives, and mp3 players all began requiring chips. Around that time, instead of conducting multiple research programs into the photolithography technology of the future, ASML funded only its EUV drive.
Progress towards the EUV fell through again and again so for a while, it didn’t feel like the right choice. The machines needed to get lasers to hit every one of 50,000 drops of molten tin released each second so that the resultant plasma would generate 13.5 nanometer light. The development got so costly and complicated that ASML invited some of its customers- Intel, Samsung, and the Taiwan Semiconductor Manufacturing Company (TSMC)- to buy stakes in itself so that the money could be used to fund research.
The first EUV prototype was shipped in 2010, and the first production-ready machines in 2016. Each EUV weighs 180 tons, takes 17-18 weeks to assemble, and costs more than $120 million; last year, out of the 58 photolithography systems it sold, 31 were EUVs. The disassembled parts of an EUV fill 150 crates, and ASML needs three Boeing 747s to transport them to its customers. In the plants where it spits out chips, ASML teams have to be on-site all the time to maintain, repair, and upgrade them. It is an expensive machine to run as well; one analyst estimated that companies need to invest $ 1 billion in facilities just to begin using an EUV to produce chips at high volume.
However, as the most significant leap forward from the previous technology, it became the way for chipmakers to gain an edge. “Samsung and TSMC used EUV machines”, said Velu Sinha, a partner in Bain & Company’s technology practice, “whereas Intel announced recently that one of its challenges was that it hadn’t relied on EUV much at all.” ASML sells hundreds of photolithography machines every year, and most of them aren’t EUVs; older machines are still required to make chips that don’t have to be blazingly fast.
By 2019, ASML’s revenues grew by 8%, with a third of its sales coming from EUV Lithography machines. By 2025, ASML expects that three-quarters of its revenue will come from EUVs. More crucially, it will have its EUV expertise to build towards the next generation of photolithography technology, expanding its near-monopoly of its terrain.
ASML has grown from little beginnings into a global leader in the semiconductor industry. The company’s machine allows giants such as Intel, Samsung, and TSMC to mass produce patterns on silicon that make up the integrated circuits that are reinventing our world. It commands 85% of the global market in lithography machines that expose device patterns on silicon wafers using ultraviolet light.
Currently, ASML has an employee base of over 32,000 from more than 100 nationalities. Their employees are some of the most creative thinkers in the world of physics, mathematics, chemistry, mechatronics, optics, and informatics. The company also invests over 2 Billion Euros annually into Research & Development, making these experts have all the resources at their disposal to push progress to the extreme.
Sustainability
ASML supports the 2030 ambition defined in the United Nations Sustainable Development Goals (SDGs). These goals aim to protect and improve the lives of people everywhere. The company focuses on five strategic areas of sustainability to create long-term value for our stakeholders and shape a sustainable future.
CIRCULAR ECONOMY: The modular design of their products lets them extract the maximum value from the materials they use and also repurpose their products across their life cycles. They believe the circular economy is important for the future success and competitiveness of the semiconductor industry. While continuously innovating, it also wants to ensure sustainable use of materials across its processes and value chain.
Their lithography systems can last for decades but even when older systems are replaced by newer generations, they are refurbished and given new life. They also have a range of initiatives to reduce and manage waste, such as their Return4Reuse program, engagement with suppliers, site-specific reductions, and increasing material recycling.
The Return4Reuse program focuses on the reuse of materials used to pack and transport parts between the field and their factories. In 2021, over 4,300 tonnes of transportation materials were reused, up from nearly 4,000 tonnes in 2020. In 2019, they set an ambitious target of cutting their amount of waste per revenue by 50% by 2025. From 2019 to 2021, their total waste generated per 1 million euros reduced from 417kg to 305kg. They also have an As-New program that aims to prevent unnecessary waste by remanufacturing used system parts, which are then qualified to the same standard as new parts.
CLIMATE AND ENERGY: Climate change is a global challenge that requires urgent action by everyone. ASML’s goal is to achieve zero emissions. They are committed to decreasing their greenhouse gas emissions and reducing their carbon footprint across their operations as well in their value chain, by enhancing the energy efficiency of their products and their property.
By 2025, they aim to reduce the energy use per water of their future-generation EUV NXE systems by 60% (compared to the NXE:3400). Their efforts in this area have resulted in energy use per exposed wafer pass reduced by 37% as of 2021. Also, their strategy to achieve zero carbon emissions includes the use of renewable electricity and reducing emissions in their value chain. In 2021, they expanded their environmental reporting scope from 20 locations- which covered around 90% of their worldwide CO2 emissions- to 57 locations which encompass more than 95%. Taking all these locations into account, the share of renewable energy they used globally in 2021 was 92%.
CORPORATE CITIZENSHIP: ASML is committed to conducting its business in an accountable and caring way, for its employees and the wider communities they operate in. They organize and sponsor various initiatives and organizations that help to strengthen communities, promote diversity and unlock potential through enthusiasm for technology. ASML also takes responsibility for protecting its employees by making the company a safe place to work.
Their other focus areas include an Innovative ecosystem and a responsible supply chain.
Problems faced by ASML
While ASML has plenty of demand, its main problem is that it cannot supply its customers with its machines fast enough. Since the third quarter of 2021, management has blamed its problems of delayed production starts on supply chain issues. The supply chain has been struggling with getting enough semiconductors for designs since late 2020 because of the COVID-19 pandemic.
To cover up some of these supply chain challenges, ASML started utilizing fast shipments in 2021, a program that forgoes testing the lithography machines in its factories. Instead, ASML performs the formal testing and acceptance at the customer’s site. Customers get to use the machines faster, but ASML must defer revenue to later quarters.
Some investors have a big issue with ASML’s use of fast shipments because the deferred revenues hurt current results. For instance, ASML initially projected year-on-year revenue growth of 20% for 2020 but has since lowered expectations for revenue growth to around 10% in the Q2 earnings report.
Another problem being faced by the company is the rising inflation. ASML is encountering inflation in two forms. First, rising labor costs resulting from the company’s need to boost its headcount to meet market demand for its products, in a job market short of semiconductor engineers. The second inflation concern is rising component pricing due to higher material and transportation costs.
ASML reduced its full-year 2022 gross margin expectations from 53% to 52% in the first quarter due to inflation. The company also lowered gross margins further in Q2, to between 49% to 50% for 2022, based on supply chain issues and the use of fast shipments.
Even with the effects of inflation and supply chain problems, these are only seen as short-term issues. This is due to the fact that ASML should be able to correct supply chain issues over the next several years by working with its partners to get production capacity up to speed. With regard to inflation, ASML will eventually raise pricing to counter inflation’s effects. A higher interest rate should also cool down inflation over the next year or two.
The company is however seen to be resistant to recession because over the longer term, the company’s results are driven more by global megatrends fueling demand for advanced and mature chips. Therefore, production is expected to ramp higher over the next several years to meet demand, resulting in a reacceleration of revenue growth, with gross margins moving toward the company’s goal of 54% to 56% in 20-25.
Another problem being faced by ASML is that it is caught in between the US and China economic war. U.S wants ASML to stop selling chip-making tools to china. The U.S government wants to ban the sale of virtually all lithography tools produced by ASML to companies in China. The American politicians argue that advancements in modern chip packaging technologies allow Chinese companies to design and produce pretty sophisticated chips that can advance Chinese supercomputing and, ultimately, military technologies. However, if the U.S manages to leave china without ASML’s tools, other companies will not be able to replace them soon. There is also a probability of ASML losing around $2 Billion in revenue if DUV sales to china are blocked
Finances and Funding
ASML has raised a total of 500 Million Euros in funding over 1 round. This was a Post-IPO Debt round raised on May 10, 2022. Its revenue in 2021 totaled 18.61 Billion Euros, with a net income of 5.88 Billion, Total assets of 30.23 Billion Euros, and Total equity of 10.14 billion Euros.
The company has also acquired 6 organizations. Their most recent acquisition was Hermes Microvision on June 16, 2016, which they acquired for 2.8 Billion Euros.
The future of ASML
Indicated by its past performance, ASML is much more likely to work through any tough times ahead. The semiconductor industry has a governing law, predicted by Intel cofounder Gordon Moore, that the power of microprocessors doubles every 18 months. By virtue of this regular increase in the need for ever-efficient semiconductors, the industry has bounced back from intermittent slumps and ultimately thrived.
ASML says it expects a sales boom over the next decade. It believes annual revenue will hit 24-30 billion euros by 2025, with gross margins up to between 54% and 56%. The prediction is significantly higher than the 15-24 billion euro range it had previously forecast. “We see significant growth opportunities beyond 2025,” the company said, adding that it expects to achieve an annual revenue growth rate of around 11% between 2020-2030.
ASML said, “global megatrends in the electronic industry” coupled with “a highly profitable and fiercely innovative ecosystem” are expected to continue to fuel growth across the semiconductor market. It added that growth in semiconductor markets and “increasingly lithography intensity” are driving demand for its products and services.
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