ASML has become the voice of the industry

Only a few years ago, major media outlets referred to ASML as a “relatively obscure Dutch company” (BBC), a “little-known tech juggernaut” (CNBC) and a “low-key Dutch company” (The Economist). These days, it’s a figurehead of the semiconductor industry. Unlike Applied Materials and Lam Research, which are hit by export restrictions to China as well, ASML has been in the limelight.

It didn’t have to be that way. Government measures that affect business obviously need to be addressed, but ASML could have easily brushed them off, repeating what it said about the EUV ban: if Chinese customers can’t buy the equipment, someone else will. If anything, the incentives offered by governments to build fabs will lead to more equipment sales.

Instead, CEO Peter Wennink has been tirelessly pointing out the consequences of political interventions, as well as an inconsistency or two. He’s not doing that to steer decision-making, Wennink said at the presentation of Q4 and full-year results last week. It’s to make sure decision-makers understand the full complexity of the semiconductor supply chain before they fiddle with it. “Our role is to provide information and insight, what the consequences are of certain scenarios,” he told an audience of journalists.

In an interview with Bits&Chips, CFO Roger Dassen added that the European industry is more fragmented and less well-organized compared to its US counterpart. Somebody needs to speak for ASML’s pan-European supply network, customers and end-customers (such as car makers), all of which may be affected by political interventions, Dassen said.

Selfish

What are the dangers that ASML wants politicians to be aware of? After decades of globalization, “perhaps it’s mind-boggling that only now governments seem to realize that we’ve created single-sided dependencies on certain countries because they basically host 80 percent of the world’s manufacturing capacity,” Wennink analyzed. Now, countries and regions are rushing to regain their relevancy in the semiconductor realm. Their Chips Acts, along with the export controls spearheaded by the US, lead to a “bifurcation of the world into new social-economic blocks.”

This clashes with today’s reality of a smooth semiconductor ecosystem, in which all stakeholders – manufacturers, suppliers, researchers and customers – come together to streamline innovation and supply of the components that underpin so many industries these days. This borderless ecosystem now “faces hurdles. It will not be as seamless going forward as it is today,” Wennink said.

“Chip availability could be reduced as a result of export controls that go too far and cut off certain parts of the chip manufacturing capacity, which will have an impact on significant industries like the car industry, like the energy transition, like medical tech. I think export controls are a legitimate instrument, but it’s how you want to use them.”

Government incentives for fabs also throw sand in the gears. “Countries will double down on investing in their own industry, be it in the United States or in China or in Korea or in Europe. That also means that we’ll have a less efficient infrastructure. Costs will very likely go up.” The upside for ASML and other equipment makers, Wennink acknowledged, is that these companies will sell more systems. “You could say it’s a positive. [But] that’s a bit selfish.”

Law of physics

There’s a downside for equipment manufacturers too. If the US and its allies cut off China from certain semiconductor and semiconductor manufacturing technologies, it will be forced to double down on efforts to develop its own. “You can’t be naive about this. This will happen,” Wennink said.

He did note that ASML’s machinery, compared to that of its peers, is more complex. “A lot of the equipment industry focuses on a very complex process, but the machine itself isn’t very complex. Lithography is a very simple process. But we do it in a very complex machine,” built by a network of hundreds of suppliers, “each of them world-class.” That won’t be easily matched by the Chinese, Wennink asserted.

“It took us forty years. I’m not going to say that laws of physics are different in China or in the US or in Korea or in Russia for that matter. The laws of physics are the same. But [generating] the accumulated know-how of hundreds of companies, and ASML as a system integrator bringing it all together, that’s a bit of a challenge.”