TSI #2.5: ASML Part 1
Summary
To fully appreciate ASML’s monopoly over the litho industry, it is worth looking back at some of the history. In Part 1 we review past competitors, milestones, & challenges.
ASML’s monopoly is here to stay. The main risk to its future dominance may be from the geopolitical tensions between the U.S. and China.
ASML is struggling with supply issues, that have caused it to push out a chunk of revenue to FY23 which has dragged down FY22 expected growth from 20% to 10%.
Orders, however, are extremely strong, and management believes that fabs’ pursuit of long-term goals will outweigh any near-term macro uncertainties.
We shall publish Part 2 this Friday. And then we shall be concluding the WFE section of TSI with a report comparing market positioning, financials & valuations.
Note: In previous TSI #2.x reports we’ve briefly discussed EUV lithography but thought we would save any further detail for this ASML report.
Part 1 for ASML covers the journey of EUV, ASML's rise to dominance, and the chances of ASML holding onto its monopolistic industry position. Part 2 will cover ASML's roadmap and an overview of the recent 2Q22 results.
The Journey to EUV & The Rise of ASML
Taking a look at ASML’s rise to lithography dominance cannot be done without reviewing Nikon’s and Canon’s simultaneous demise. In the 1960s and 1970s, the U.S. dominated the lithography that was powering the explosion of the semiconductor industry. In attempt to gain a foothold in this rapidly growing industry, Japan’s Ministry of International Trade & Industry subsidised Nikon and Canon – two companies with great expertise in optics – and directed them to develop litho tools and compete against U.S. counterparts (GCA and Perkin Elmer were the two litho market leaders during that time). By the 1980s, the two Japanese firms became the leaders with ~70% market share.
ASML was founded in 1984 via a joint venture between Dutch firms ASM International and Philips (core competencies in optics). Then, in 1990, following several years of losses, ASM International sold its shares to Philips and two banks, and the JV was spun out as an independent company, named ASML. By the time ASML made their IPO in 1995, they had claimed 25% of global market share, but from U.S. based vendors rather than the Japanese.
In the years following its IPO, there were a few industry developments that enabled ASML to capture market leadership away from Nikon and Canon. Firstly, in 2001, ASML released its Twinscan