ASML: An unbeatable monopoly?
ASML's superior technology and dedicated focus on the long term gives them a huge edge over (potential) competitors
After ASML’s Q3 results publication, the stock declined by a stunning 20%. This market reaction was mainly due to the revised outlook and shrinking order book. The semiconductor market can be very cyclical in the short term, but is driven by many long-term growth trends. In this article, we’ll explain why ASML is likely to stay on top in its league and why it’s so difficult to replicate ASML.
Let’s explain ASML first, in case you don’t know the company. ASML is the worldwide leader in lithography systems, capturing more than 90% of the market. Simply put, lithography is the process of projecting patterns on silicon wafers; a crucial and complex step in making advanced semiconductors. ASML’s customers are chip manufacturing companies like TSMC, Samsung, Intel and SK Hynix.
You can distinguish two types of lithography machines. The first one is DUV (Deep Ultra Violet), used for making less advanced chips. The second one is EUV (Extreme Ultra Violet). This last technology has been fully operational since 2020 and can be used for making the world’s most advanced chips. This enables customers to produce chips with transistors of only 2-3 nanometer (one-billionth of a meter).
ASML’s long-term vision and development pipeline are unmatched.
ASML started researching EUV technology in 1990, which means it took around 30 years to develop this technology to its maximum potential. You might think: “Well, aren’t competitors working on the same thing?” They tried, but they failed. Companies like Nikon and Canon halted substantial investments in EUV technology because of the large gap with ASML and the struggles they experienced.
What about DUV, the less complex technology? In that area, ASML has a market share of around 80%. The yield that ASML’s lithography machines realize for its clients is unparalleled. China bought a DUV system, installed it at a main university and tried to rebuild it. Unfortunately, even with all the parts there and reverse-engineering it, they couldn’t make it work again.
We hope we made ASML’s lead clear with these statements. What’s even more impressive, is that ASML already installed its first High-NA EUV machine at Intel. This system is capable of printing 1.7x smaller transistors and achieve a 2.7x higher density compared to the NXE (first EUV) machines. And to really show ASML’s long-term perspective; they are already working on the next generation (Hyper-NA).
ASML holds more than 16.000 patents for its machines, not even counting those held by ASML's exclusive suppliers
These must be respected internationally. Additionally, there is a significant knowledge advantage over competitors that cannot be easily overcome. Switching from ASML requires a total change in operation, as their machines are precisely tailored to customer needs, including personalized on-site support. ASML continuously offers maintenance and adjustments to their machines to prevent downtime, which is essential given the high costs of failure. Therefore, a switch to another supplier would be gradual and complex due to the deep integration and customization that ASML provides.
ASML patents
3. ASML’s supplier network is inimitable.
The biggest competitive advantage following former CEO Peter Wennink is the central role ASML plays within the ecosystem. Cooperation, transparency and trust are very important factors, especially because of the high dependency upon one another. ASML has a supplier base of over 5.100, mainly from The Netherlands and Germany. The parts of these suppliers must be seamlessly integrated with each other to create a lithography machine. Without any of these parts, the machine wouldn’t be able to operate. Some of these critical suppliers, like Cymer, Trumpf and Carl Zeiss SMT, are already (partly) owned by ASML. Many other suppliers solely produce for ASML, which means competitors have no access to the same technology. And to illustrate how complex this machine actually is: only ASML’s CO2 laser, made by Trumpf, consists of over 450.000 parts.
Some ASML suppliers, like VDL and Carl Zeiss SMT
Now you can see why competing with one of the world’s most technologically advanced companies is nearly impossible. ASML is a true masterpiece, built on relentless hard work and collaboration.
Over 50 serious investors have already received part one of the ASML analysis, complete with an in-depth audio analysis. If you, too, want to become a well-informed investor and deepen your understanding of the world’s top companies, consider joining TDI-Premium.
In part one of the analysis you’ll discover:
What it takes to produce the most complex machine on earth
How the value chain within the chip industry is structured
How ASML’s unique culture helped forge its monopoly
Have a wonderful day and happy investing.
The Dutch Investors