Semiconductor lithography equipment “serving a supply chain of highly exclusive global chip manufacturers”
The semiconductor industry is highly specific in terms of its supply partnerships and the fact that it can take nearly 20 years or more to become a vendor within that supply chain is how the industry has remained exclusive to a handful of manufacturing companies.
The goliaths of semiconductor manufacturing often concentrate in regions where there is a track record of similar types of companies as they know those areas of the country are ones that can effectively produce the talent and workforce needed for these large fabs.
“Talent development for the semiconductor industry is a case of creating strong domain expertise existing in concentration at a state level where advanced engineering facilities exist, ultimately this is what will fortify the reshoring effort of bringing advanced manufacturing back to the United States and reducing dependance on countries such as China for microelectronics manufacturing”.
To understand the world of semiconductors one must have some idea of the supply chain. It is more than just a piece of silicon with millions of transistors produced by Intel or AMD or similar company, that is often only the end result that the consumer sees. To reach from A to Z however in that manufacturing process requires significant engineering of advanced equipment, alongside heavily controlled manufacturing processes inside completely sterile environments and flawlessly executed logistics.
To build the manufacturing capacity itself and the specific equipment, lithography technology etc. also requires multiple supply chain partners who engineer each part specific to the task of building a machine that can create the silicon wafers which eventually turn into our microprocessors or semiconductors. There are intensive hardware and software processes involved in manufacturing a semiconductor, but this article will not dive into the specifics of that since this is a blog not a book.
ASML, a Netherlands based company is the only true supplier of lithography solutions globally with 2 specific hardware types one of which produces DUV (Deep Ultraviolet lithography) for products such as memory chips, the second hardware type is for more advanced semiconductor production and is called EUV. EUV prints intricate layers on a wafer with advanced nodes from 7nm down to 3nm and these are the type of chips that consumers normally have in their computing or mobile devices today.
3 top chip producers in the world share partnerships and equity with ASML as it makes strategic sense for them to do so. Globally there are only 3 companies that have made investments into EUV fabs: Intel, Samsung and TSMC so far. Meanwhile companies such as SK Hynix and SMIC are beginning to acquire EUV equipment. Memory manufacturers such as Micron for example use DUV lithography but with pressure from Samsung and SK Hynix migrating to EUV more advanced nodes for semiconductor production will likely mean that Micron among other manufacturers will ramp up on their EUV investments in the coming years.
At between 140 million dollars to 300 million per machine type whether it is DUV, or EUV lithography hardware, ASML has a clear monopoly on its competitors in the semiconductor space. Japanese companies such as Canon and Nikon do manufacture DUV hardware but at a far smaller scale and market share in comparison to ASML, it seems neither company really had the intent to scale that side of their hardware manufacturing divisions, most likely as they are focused on different market segments to grow their businesses whereas ASML has what can best be defined as a ‘single source of truth’ product type in the semiconductor manufacturing space and only produces DUV and EUV machinery exclusively.
The reason for understanding who manufactures equipment for semiconductors also enables us to understand the complex supply chain of parts that often need to be fabricated specifically for the purposes of these very unique machines. ASML for example has multiple global manufacturing facilities with a concentration of locations in the US, Europe and Asia. It is a sophisticated operation where hardware is manufactured, shipped, assembled, delivered and supported end-to-end with their clients. Given the expense of the equipment itself this high level of service is to be expected.
If ASML let’s say is a manufacturer at the ingredient level of the supply chain meaning that they process the materials and put together the technology that ultimately allows other manufacturers like TSMC to produce semiconductors. TSMC supplies the consumer facing innovation companies such as AMD, and Nvidia among others who are positioned as innovators and then device manufacturers such as ASUS produce a consumer product. Samsung is an exception and I believe Apple also, where these companies actually like to have ownership from innovation and manufacturing to market and consumer sales. We can easily start to map out how exclusive this industry is and also how these tech giants can essentially control supply and demand and prices across the board as consumers become ever more dependent for chips in every imaginable electronic device we can think of.
It is hard to say whether government or state leaders truly know the sophisticated nature of the semiconductor businesses and also whether opportunity types can clearly be articulated within a few simple value propositions as it relates to how political and economic development organizations can work with chip manufacturers to implement effective long term growth strategies. This will be critical to the success of the chips act, which was announced in August 2022, where the primary focus is to bring advanced manufacturing back to the United States.
Now that we have a basic understanding of the technology and supply chain logistics and companies that catalyze the semiconductor industry, we need to re-focus our attention on the chips act itself.
