ASML has more than just lithography machines

Source: This article is translated from "Seeking Alpha" by the public account Semiconductor Industry Observer (ID: icbank), thank you.

ASML (Advanced Semiconductor Material Lithography) is the main supplier of semiconductor lithography systems and the only supplier of EUV systems. According to the Network report titled "Sub 100nm Lithography: Market Analysis and Strategic Issues", ASML's current achievements can be summarized as follows:

1) ASML occupies 100% of the EUV lithography market;

2) ASML holds 93% of the immersion 193nm DUV lithography market;

3) ASML accounts for 73% of the 248nm DUV lithography industry.

In 2016, ASML acquired Hermes Microvision Inc. (HMI), a supplier of electron beam inspection tools to foundries and memory fabs around the world, for $3.1 billion.

There is a key point worth noting here. ASML sells HMI inspection systems as part of its overall lithography product system, including lithography patterning, metrology and inspection products and services. In 2018, the integrated sales team of ASML and HMI equipment provided services to customers through its overall lithography solutions, including precise pattern information metrology.

Metrology/Inspection Market

As shown in Figure 1, there is no doubt that ASML dominates the electron beam inspection market. Customers buy lithography tools and can then buy inspection tools from the same company to monitor the pattern depiction on the wafer. According to the Network report "Metrology, Inspection and Process Control in VLSI Manufacturing Report", ASML's market share in 2018 was 91.4%, ahead of Applied Materials' 8.4%.

Figure 1

Applied Materials CEO Dickson noted in the recent Q1 2019 earnings call: “For our process control business, I am pleased with the progress we have made. We had a record year. Our electron beam technology business grew very strongly. We may be the number one in the electron beam industry for the first time and are well positioned as new products are adopted in 2019.”

At the same time, he said: "In 18 and 19, logic device customers started buying EUV systems. These systems have long lead times. They started buying EUV tools several years before they entered high-volume production. We see this as a positive indicator for customers to adopt future nodes. But for sure, now, in 18 and 19, the market is definitely headwinds."

This comment by Dickson is clearly inconsistent with reality. Dickson clearly conflated Applied Materials' e-beam technology with competitors' EUV (remember ASML owns 100% of the industry and is the only EUV supplier), leading readers and investors to believe that Applied Materials will sell inspection systems to EUV customers, when the reality is that ASML uses its own e-beam inspection in the EUV market to its customers. And, it is a bit of an exaggeration to say that Applied Materials will become the leader in the industry when it only has 8.6% in 2019.

KLA (KLAC) does not sell e-beam mode wafer inspection equipment, but does sell optical mode wafer inspection systems. I updated the Seeking Alpha article "KLA-Tencor Continues Metrology/Inspection Market Dominance in 2018" on February 13, 2019 to include the market share of metrology/inspection equipment suppliers in 2017 and 2018, rather than just the top five semiconductor equipment suppliers.

As shown in Figure 2, KLA maintained its share of the global metrology/inspection market at 53.1% in 2018. ASML’s share increased from 5.8% in 2017 to 6.4% in 2018. Applied Materials’ market share decreased from 11.9% in 2017 to 10.4% in 2018, despite its claim to lead the e-beam market in 2019!

figure 2

Smaller companies such as Nova Metrics (NVMI) and Rudolph Technologies (RTEC) also maintained year-over-year market share gains. Meanwhile, Nanometrics grew its market share from 3.9% in 2017 to 4.4% in 2018.

Comparing the annual growth rates, Table 3 shows the revenue growth of these metrology/inspection companies. Nanometrics grew 28.0% and ASML grew 25.8%. Meanwhile, Applied Materials grew just 0.5% in this area from 2017 to 2018.

image 3

What is the importance of metrology/inspection?

Metrology/inspection equipment must be able to detect errors in the semiconductor manufacturing process. According to equipment supplier Hitachi High-Technologies:

“Metrology and inspection are important for managing the semiconductor manufacturing process. In the entire manufacturing process of a semiconductor wafer, there are 400 to 600 steps, which takes one to two months. If any defects appear early in the process, all the work in subsequent time-consuming steps will be wasted.”

Therefore, metrology and inspection processes are established at key points in the semiconductor manufacturing process to ensure that a certain yield can be confirmed and maintained.

Taiwan Semiconductor Manufacturing Company (TSM), the world's largest semiconductor foundry, released a report at the end of February 2019 stating: "A batch of photoresist from a chemical material supplier contained a special ingredient that, after abnormal processing, generated a foreign polymer in the photoresist. This foreign polymer had an adverse effect on the 12/16 nanometer wafers at Fab 14B. This effect was later discovered when the wafers deviated from normal yields."

It is expected that this incident will reduce TSMC's first-quarter revenue by approximately US$550 million, gross profit margin by 2.6 percentage points, operating profit margin by 3.2 percentage points, and earnings per share by 0.42 yuan.

The key point of the company's official statement was that "the impact was later discovered." TSMC's official statement did not specify the number of wafers lost, but a report from Chinese newspaper ETtoday stated that "tens of thousands" of wafers were scrapped in the accident.

After analyzing the information about TSMC's blunder, wccftech magazine concluded that the chip in production was Nvidia's (NVDA) GeForce 2060 chip, and based on the area of ​​the GeForce chip, 10,000 wafers would produce 1.2 million chips with a retail price of $420 million.

Investor advice

As semiconductor design rules decrease, yield becomes more sensitive to defect size and density. In addition, new manufacturing technologies and device architectures in production, including 3D FinFET transistors, 3D NAND, advanced self-aligned multi-patterning and EUV lithography, are creating a paradigm shift in metrology/inspection requirements.

The metrology/inspection industry grew almost twice as fast as the entire wafer front-end (WFE) equipment market in 2018. Although the entire WFE market will decline by 15% in 2019 (according to Network), the metrology/inspection market should once again outpace the WFE market. KLAC, ASML, and NANO, which saw strong metrology/inspection growth in 2018, could once again outpace the WFE market in 2019.

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