What is driving ASML’s success in the semiconductor industry?

Dutch technology company ASML has achieved remarkable success in the semiconductor industry, thanks to its unique network of suppliers and technology partners, resembling Silicon Valley, and its integration of hardware, software, and data. ASML’s complex machines project chip blueprints onto silicon wafers, and its lithography gear is considered the most advanced commercially available. ASML’s outsourcing strategy, with over 90% of production handled by specialized European suppliers, has allowed the company to focus on its core strengths. Furthermore, ASML’s data-driven approach, collecting and analyzing machine data, positions the company as an AI platform. While potential challenges exist, ASML’s strong network and industry dominance indicate its success as a European tech leader.
Drawing of semiconductors and globe

ASML, a Dutch technology company, is one of the most successful of the EU’s tech companies. ASML produces lithography gear for manufacturing semiconductors. ASML’s machines, which utilize powerful lasers to incinerate droplets of molten tin, producing extremely short-wavelength light known as extreme ultraviolet (EUV). This EUV light is then reflected by precise mirrors, ultimately projecting chip blueprints onto silicon wafers.

Two important factors contribute to ASML’s success. Firstly, the company has developed a network of suppliers and partners that closely resembles Silicon Valley’s ecosystem. By outsourcing over 90% of production to specialised European suppliers, ASML can focus on its role as the system architect. This outsourcing strategy also reduces risk, which is particularly essential given the cyclical nature of the semiconductor industry.

Secondly, ASML’s innovative business model combines hardware, software, and data to optimize performance. The company collects data from its machines and employs machine learning, a form of artificial intelligence, to continuously fine-tune their functionality. ASML is transforming itself into an AI platform, leveraging data to improve the accuracy and efficiency of its machines. This data-driven approach gives ASML a distinct advantage over competitors, even if they manage to build similar machines.

Over the years, ASML has sold approximately 5,500 machines, with 95% of them still in operation and contributing to the company’s data collection efforts. This “flywheel” effect, where data leads to better chipmaking, which generates more data, provides ASML with a significant advantage. Even if competitors manage to develop machines comparable to ASML’s, they would struggle to catch up due to the vast amount of data that ASML collects from its installed base.

While ASML’s success is evident, the article acknowledges potential challenges to its dominance. The limitations of shrinking transistors may impede ASML’s ability to continue advancing its machines. Moreover, concerns have been raised about ASML’s data collection practices and its digital expansion into other devices in chipmakers’ factories. Some insiders suggest that chipmakers are pushing back against ASML’s data hunger. Geopolitical factors also pose a risk, particularly in relation to export controls and the emergence of a Chinese chipmaking-gear industry that could threaten ASML’s position.

Source: https://www.economist.com/business/2024/01/08/does-europe-at-last-have-an-answer-to-silicon-valley