ASML, spun out of Philips in 1984 with no revenue and wooden barracks, overtook Nikon in 2002 to become the industry's number one lithography maker.
ASML persuaded Intel, Samsung and TSMC to co-invest in extreme ultraviolet lithography, and its first EUV machines arrived in 2019, 13 to 14 years late.
Tom Walsh argues ASML's real competition is Moore's Law itself, since customers keep buying machines that deliver affordable productivity gains.
How ASML outlasted every rival to own chip lithography
ASML went from an unwanted Philips spin-out to the near-monopoly supplier of advanced chip-making equipment by betting on EUV lithography long after Nikon and Canon quit. The bet took over 25 years and more than EUR 10bn of R&D, and customers co-funded it. The result is a product rivals cannot match soon, with a huge installed base that keeps generating service and upgrade revenue.
Takeaways
ASML won by outlasting rivals on EUV. Nikon and Canon gave up on extreme ultraviolet as too costly and hard. ASML spent over EUR 10bn and more than 25 years on it. The first machines reached volume production in 2019, 13 to 14 years late, so no rival can catch up soon.
Customers co-funded the EUV bet. In 2012 ASML persuaded Intel, Samsung and TSMC to co-invest. Together they took a 23% share with ASML, alongside EUR 1.4bn of R&D funding. This spread the risk of a technology that was years behind schedule.
Vertical integration was forced on a supplier-led model. ASML relies on outside suppliers for about 80% of cost of goods sold, which is both its advantage and its vulnerability. It holds a stake in ZEISS and bought Cymer, the San Diego light source maker, after it could not source that part elsewhere.
Installed machines keep earning for decades. New machines are about 75% of revenue, and service and upgrades make up the rest. About 90% of machines sold in the last 30 years still run. Field upgrades make older machines more productive, and a machine costs over EUR 150m.
ASML shares gains instead of price-gouging. Walsh says ASML could in theory double prices but does not, because customers would look for alternatives. Productivity gains are split roughly 50-50 with customers. Gross margins have still risen from about 30% in the 2000s to around 50%.
Moore's Law is the real competitor. Walsh argues the main threat is disruptive technology, such as NAND moving to 3D, rather than a rival toolmaker. Customers keep buying as long as ASML's machines deliver affordable productivity gains. Customer concentration adds risk, with the top two near 60% of revenue.
Geopolitics is the near-term risk. Sales are heavily concentrated in Taiwan, South Korea and China. Walsh expects cancellations and order pushouts to continue, with growth now mainly secular and structural. He lists supply chain, disruptive technology and geopolitics as the three big risks.
ASML's path from spin-out to leader
Philips struggled for over a decade to enter photolithography, then spun ASML out in 1984 with no revenue, no credible product and wooden barracks in Eindhoven.
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On this episode 2
Show 1
Cash injections from Philips and ASM kept it alive through the 1980s.
A 1986 recession hurt competitors, which Walsh counts as luck for ASML.
By the mid-1990s it was one of three leaders alongside Nikon and Canon.
A US consortium that lacked a domestic lithography maker invited ASML to take EUV forward.
In 2002 ASML overtook Nikon as number one, the goal it set at spin-out.