Not selling EUV to mainland China is "the government's choice"

Source: Guancha.com

Author: Lv Dong

"This is not our choice, but the choice of the governments (member states of the Wassenaar Arrangement)." Recently, Peter Winn, CEO of ASML, a Dutch lithography giant, once again explained the export of EUV lithography machines to mainland China . He said in January this year that it is unlikely that China can independently replicate the top lithography technology, but don't be so absolute, "They will definitely try."

Observer.com noted that since the most advanced EUV equipment cannot be exported to mainland China, Peter Wen has spoken out many times since 2021. In April 2021, he called on the US government that export controls on China will not only fail to hinder China's technological progress, but will also hurt the US economy itself. Restricting exports will only speed up China's independent research and development .

But the United States apparently turned a blind eye to Peter Winn's statement.

In July 2021, U.S. officials revealed that the Biden administration chose to continue the Trump-era policy after confirming the strategic value of EUV lithography machines in the technology industry. Subsequently, Peter Winn said that the company would have to "wait and see" regarding the situation in mainland China.

As the global chip shortage has caused the industry chain to "grieve bitterly", ASML, as the manufacturer of the most critical semiconductor production equipment - lithography machines, has increasingly attracted the attention of the industry. The US Consumer News and Business Channel (CNBC) recently visited ASML's headquarters.

Image source: ASML

Because of the chip shortage, "every day is a struggle"

In Veldhoven, a small town in southern Netherlands near the Belgian border, sits ASML, the world's only company capable of producing extreme ultraviolet lithography (EUV). EUV lithography is the most expensive step in the manufacturing of advanced semiconductors that power data centers, cars and iPhones.

" ASML has a monopoly in the manufacture of extreme ultraviolet lithography machines, and every advanced processor we use today requires an EUV lithography machine ." Chris Miller, assistant professor at the Fletcher School at Tufts University in the United States, said that each EUV lithography machine is one of the most complex devices ever made, weighing 180 tons.

EUV is the abbreviation of Extreme Ultraviolet, which is a light with an extremely short wavelength. ASML's equipment can produce a large amount of this light and is used to carve small and complex circuits on silicon wafers. EUV is produced by a carbon dioxide laser bombarding molten tin droplets that are ejected 50,000 times per second. This light is sent into the lithography machine through an ellipsoidal reflector with a diameter of 0.65 meters. Some of the EUV particles are irradiated onto the surface of the silicon wafer, and then tiny patterns that determine the function of each chip are engraved.

Inside an EUV lithography machine

Due to the global chip shortage, from Sony's PS5 game console to Chevrolet cars, chipmakers' demand for ASML's EUV lithography machines has increased significantly. Since the end of 2018, ASML's stock price has soared more than 340%, making the company's market value exceed that of some major customers such as Intel.

ASML CEO Peter Wennink said the company has been committed to reducing the production cost of semiconductors since its founding 38 years ago and will continue to do so in the "next few decades." "The world needs more chips," said Peter Wennink, "so we need to make more machines, and by the way, as long as we can continue to reduce the production cost of each transistor, the average selling price of these lithography machines will continue to increase."

Even so, Peter Win believes that the global chip shortage is a "Catch-22" for ASML.

"We received a lot of information from suppliers saying, 'Hey, we may delay delivering modules to you because we can't get chips.' We said, 'If we can't get chips, we can't build machines to produce more chips.'" Peter Wen admitted that ASML is still in business, "but it is struggling every day."

ASML CEO Peter Winn

“Dutch companies heavily dependent on US components”

According to Peter Winn, ASML has sold a total of 140 EUV lithography systems in the past 10 years, each of which now costs as much as US$200 million, while the price of the next-generation high numerical aperture (High NA) EUV lithography machine will exceed US$300 million.

Joanne Ito, managing director of manufacturing at market research firm Semico Research, commented that ASML's EUV lithography system is too expensive for most companies to afford. She believes that this will exclude many manufacturers from the market, including chipmaker GlobalFoundries. Due to the high cost, GlobalFoundries announced in 2018 that it would stop the research and development of advanced processes of 7nm and below.

Today, ASML has only five customers for EUV lithography (TSMC, Samsung, Intel, SK Hynix and Micron) . In 2021, the three largest customers - TSMC, Samsung and Intel - accounted for 84% of ASML's business. TSMC said that the company was the first to use EUV lithography to mass-produce chips in 2019, and has been in the lead ever since, with chip process at least one node ahead of Samsung and Intel.

CNBC believes that ASML's dominance in the field of lithography is still "a relatively new phenomenon." The company's entry into EUV research and development 10 years ago was determined by major investments from Intel, Samsung and TSMC.

“We had no money,” said Winnpeter, who joined ASML in 1999. “So we went out and looked for partners, and that was actually the basis on which we built the company. We were forced to become a system architect and system integrator.”

Back in 1984, ASML was founded as a subsidiary of Dutch electronics giant Philips. In a leaky little room next to Philips' office building in Eindhoven, the Netherlands, ASML launched its first equipment for semiconductor lithography, a technology invented in a US military laboratory in the 1950s.

The place where ASML started the research and development of lithography machines Source: ASML

“The first lithography tool looked like a projector,” said Christophe Fouquet, ASML’s executive vice president for EUV. “Basically there was a reticle where you kept the image you wanted to project. Then there was an optical system that projected the image onto the wafer.”

By 1988, ASML had five offices in the United States with a total of 84 employees and a new office in Veldhoven, the Netherlands, which eventually became the company's headquarters.

“When the semiconductor industry was preparing to enter the early stages of EUV research, no American company was ready to take the risk of attempting this expensive and risky project, but ASML made a different choice,” said Miller, author of the upcoming book “Chip Wars: The Battle for the World’s Most Crucial Technology.” “ASML is a Dutch company, but it is also a Dutch company that relies heavily on American components, especially in its equipment.”

“It’s the governments’ choice.”

The EUV lithography machine consists of multiple modules and hundreds of thousands of parts from nearly 800 suppliers around the world. Each module is developed and produced in ASML's 60 offices around the world and then shipped to Veldhoven for assembly. After each assembled machine is tested, it will be disassembled and shipped to chip manufacturers. The transportation of the EUV lithography machine requires 20 trucks and three fully loaded Boeing 747 aircraft.

Mainland China is one of the countries or regions that ASML has not exported EUV technology to . "42 countries in the world (members of the Wassenaar Arrangement) have agreed to impose export controls on it because it is very critical," said Peter Winn, "so this is not our choice, but the choice of the governments."

The United States began to put pressure on the Dutch government as early as Trump's term. According to Charles Kupperman, then deputy national security adviser to the US president, he invited Dutch diplomats to the White House in 2019 and put pressure on them, saying that "loyal allies" would not sell equipment such as EUV to mainland China. Kupperman also warned the Netherlands that ASML's equipment would not work without American parts, and the White House had the right to restrict the export of these parts to the Netherlands.

“China wants to join the race,” said Joanne Ito of Semico Research, “but for political reasons, China can’t get the technology.”

Extreme ultraviolet lithography machine at work Source: ASML

However, ASML is doing business with mainland China in another way . The company has updated its old-fashioned lithography systems, called deep ultraviolet (DUV), and sold many of them to mainland China. Peter Wen revealed that 96% of the equipment ASML sold is still in use.

"There is a lot of debate about whether selling more DUV equipment to mainland China to increase its ability to produce near-cutting-edge semiconductors is also a 'national security risk,'" Miller said. "I think ASML's ability to sell DUV equipment to China may also be subject to new restrictions in the coming years."

Before the advent of EUV, chipmakers could purchase DUV lithography machines from ASML, Nikon and Canon.

While Japan's Nikon remains one of the competitors in the lithography market, ASML is the only supplier of EUV. Foreign industry experts believe that it may take decades for other companies to catch up, partly because ASML has proprietary technology and partly because ASML has reached complex and often exclusive agreements with hundreds of suppliers.

“We are unique to some of our clients, and some of our suppliers are unique to us,” Winnpeter said. “Some people say this almost symbiotic relationship is worse than marriage because you can’t divorce.”

ASML lithography machine shipment information in the fourth quarter of 2021

In January this year, Peter Winn said regarding the Chinese mainland market: "It is unlikely that China will independently replicate the leading lithography technology because ASML relies on unremitting innovation and the integration of components that can only be obtained from non-Chinese suppliers. But I don't mean that it is absolutely impossible, because the laws of physics in China are the same as here. Never be so absolute , they will definitely try. "

Semiconductors are a high-risk industry, and one way ASML protects itself from supply chain risks is by acquiring some suppliers, such as Cymer, a San Diego-based manufacturer of EUV high-power light sources. ASML also acquired Berliner Glas in Germany in 2020, a ceramic and optical module manufacturer that is "important for supporting the product development blueprint for EUV and DUV." In January this year, Berliner Glas had a fire, but Peter Winn said the fire would not have a significant impact on equipment shipments this year.

According to the financial report, ASML's total revenue in 2021 was 18.6 billion euros (about 133.9 billion yuan), a year-on-year increase of 33%; net profit was 5.9 billion euros (about 42.5 billion yuan), a year-on-year increase of 66%; gross profit margin was 53%, an increase of 4 percentage points over the same period last year. The company expects sales to grow by 20% in 2022 and a compound annual growth rate of 11% in the next 10 years.