Toby Sterling

VELDHOVEN (Netherlands) – ASML is a giant in the stock market and semiconductor industry. Perhaps even larger.

The company is currently building large machines that can carry 200-tonnes in order to focus light and create microscopic circuitry for computer chips. These chip are used in every aspect of computing, from smartphones and computers to AI and cars.

After acquiring most of the global business for these systems, it has enjoyed a prosperous decade. Its shares have risen 1,000% in the past decade to surpass 200 billion euros.

Now, it is preparing to release a new $400million machine for next generation chips. This will hopefully be the flagship of its business by 2020. However, for the moment, this engineering challenge remains.

Reuters was told by executives at ASML’s Veldhoven headquarters that a prototype would be ready in the first quarter of 2023. They said the company and longtime R&D partner IMEC were setting up a test lab on the spot – a first – so top chipmakers and their suppliers can explore the machine’s properties and prepare to use production models as early as 2025.

However, ASML is expected to grow and dominate the market, thereby justifying ASML’s 35-time 2021 earnings valuation. This leaves little for ASML should it encounter supply chain or technical issues.

Christophe Fouquet (head of EUV program at ASML) stated that “every check is green now.” But, as you all know, it is still necessary to view the entire assembly.

EUV is an acronym for extreme ultraviolet. It refers to the wavelength of light that ASML’s most sophisticated machines use.

ASML’s customers and chipmakers, who are trying to increase production in a world of shortage, also need the project’s success. These include the U.S.-based player Intel (NASDAQ :), South Korea’s Samsung (KS :), and Taiwan’s TSMC (NASDAQ :), the largest, which produces chips for Nvidia (NASDAQ :), Apple (NASDAQ :), and AMD (NASDAQ :).

VLSI Research industry specialist Dan Hutcheson, who has not been involved in the ASML project said that the new technology, also known as the “High-NA” version of EUV, could offer some chipmakers a substantial advantage.

He stated, “It’s kind of like who’s got a best gun.”

He added, “So ASML makes or breaks it happen.” If they make it happen and you don’t have your orders, you’ve made yourself non-competitive.

He claimed that TSMC had outperformed its competitors by integrating ASML’s EUV machines into TSMC’s late 2010s – a mistake Intel CEO Pat Gelsinger vows not to repeat with High-NA.

High-NA promises a 66% decrease in the size of circuitry. Lithography plays a major role. A chipmaker will always strive to make it smaller. More transistors means a faster chip and a more efficient chip.

Circuitry has now reached the atomic level. This is leading to the prediction of “Moore’s Law”, an observation from 1960 that states that microchips have approximately two times the amount of transistors as they do in the 1960’s.

Jos Versteeg (an analyst with InsingerGilissen in The Netherlands) said that “if they (ASML), don’t succeed, it will be difficult to continue Moore’s Law.” He noted, however, that engineers have feigned similar doubts in past.

SILICON – FIRST LIGHT

ASML rapidly surpassed Japanese competitors Nikon (OTC-:) and Canon since 2000. The Japanese companies are now more focused on old technology. ASML has more than 90% control of the lithography industry. There is no competition to create an EUV system. This is due to high development costs.

The shortage of ASML machines at $160 million per machine is a problem for chipmakers. They plan to invest more than $100 Billion in future years to create additional fabrication plants.

High-NA machines are 30% larger than predecessors. They will require three Boeing 747s (NYSE:) to transport them in sections.

IMEC, a research non-profit that collaborates with companies in the semiconductor industry believes the ASML lab can save as much as a year on development time.

ASML reported that five of its pilot machines were ordered by ASML, to be delivered in 2024. Five other orders came from five different customers. ASML also stated it received “more then five” requests for production models with a faster delivery time, starting in 2025.

However, this isn’t a one-shot deal.

It is difficult to integrate a number of complicated parts, such as an optics system made of highly polished, smooth curved mirrors. These are being constructed in vacuum by Germany’s Carl Zeiss.

Versteeg from InsingerGilissen claimed that ASML held a near-monopoly and its price was dependent on how productive the machines are. It will also need to sell EUV products to the decreasing number of leading-edge chip companies, such as Micron (NASDAQ) and SK Hynix.

ASML also has a connection to the larger fortunes of the cyclical chips industry. Some researchers believe that this sector will double its annual revenue to $1 trillion by the end of the decade.

Fouquet is most concerned about supply-chain problems.

“Right now and as with all other products, we are seeing some stress in our supply chain. This is, if I may ask you today, the greatest challenge High-NA faces.”