TSMC is the world's largest independent semiconductor foundry.
It has a 50% share in the market. They supply fabless chip designers like Apple,
Nvidia, Qualcomm and AMD. There has been a lot of press and interest recently in its work.
But TSMC has its own suppliers too. These are the people who make the super cutting-edge machines
that TSMC operates 24/7. Dutch multinational ASML is TSMC’s most important supplier
and the maker of the EUV equipment critical to its N7+ and N5 processes.
In this video I am going to profile this rather obscure company and examine its relationship with
TSMC. I’ll also help answer the question of who is “more important” so that the fanboys
can better score points against each other on internet boards. Face-off! Who matters more!?
Spoiler alert: They both matter a whole lot to each other.
ASML is a leading provider of advanced technology systems for the semiconductor industry.
The company was founded in 1984 as a joint venture between Dutch firms ASM International and Philips.
ASML's first machine, the PAS 2000 stepper,
was released in 1985. A stepper is a device, kind of like a slide projector, that projects a design
onto a silicon wafer. ASML would subsequently make over 50 versions of this machine.
For the first ten years of its existence, the company struggled to compete in the
semiconductor lithography space. The semiconductor supplier industry faced immense challenges as the
economy went through various boom and busts. ASML lost money for the first six years of its life
and in 1990 it would be spun out as an independent company.
Two years later in 1991, ASML comes out with its first hit product - an i-line stepper.
I-line meaning that the stepper uses the 365 nm light wavelength.
This lets foundries print smaller designs and continue to push Moore's Law forward.
The product's success allowed ASML to go IPO in 1995, raising money for further product
development. After acquiring a few American lithography companies, the company grew
into an oligopoly alongside Japanese firms Nikon and Canon. Then came the mid-2000s,
where a pair of big product launches allowed ASML to take the lead.
In 2001, ASML developed and released its TWINSCAN system. This machine offered a process
optimization feature that helped foundry customers etch more wafers in the same amount of time.
Nikon and Canon could not replicate this technology and it gave ASML
its first market share lead over the Japanese.
The second big move came with a generational shift in photolithography machinery techniques called
"Immersion Lithography". Roughly speaking, it uses water as a lens to shrink the wavelength of
the wafer etching laser. Yeah it sounds nuts but this technique, discovered by Taiwanese scientist
Burn Lin in the 1980s, helped keep Moore's Law alive for a little longer without needing to
further shrink the light wavelength. This helped cement ASML's 83% market share.
But the industry and ASML continued to think about what could be the next
great revolutionary technology in the semiconductor production space.
They started an R&D office and began investing millions of euro into R&D.
I discussed a bit of ASML's work in Extreme Ultraviolet Lithography in a previous video
of mine. I am not going to tell the same story a second time so you can go watch that
sometime. Instead I want to tell the same story but from a different perspective. Like Tenet.
In 2003, the industry moved forward with the idea of using EUV for the next generation
of lithography tools. This decision at the time was controversial and heavily debated.
EUV at the time did not have any theoretical blockers.
It wasn't a time travel Delorean or a faster-than-light energy drive, after all.
But there were significant practical challenges of all sorts to getting it up to speed.
For instance, the light source would have to be entirely redesigned from the ground up.
End user customers like Intel, Samsung and TSMC would have to retool their fabs.
Some argued that current techniques like Immersion Lithography and another thing
called multi-patterning could carry the industry forward.
So many things are not working out when it came to EUV. Developing it could turn
out to be a money pit. Why shoot for a unicorn? Make what already works, better.
ASML was fortunate to be in a position to try and do
both. They continued development in EUV but invested to retain a leadership position
in current techniques. From 2008 to 2014, ASML as a company invested over 4.6 billion euro in R&D.
Over time by 2010, the industry's big players like TSMC, Intel and Samsung
came to believe that EUV could be brought to fruition. ASML saw an opportunity to steal
Intel from its previous main supplier Nikon. Thus in 2012,
ASML announced a customer co-investment scheme where Intel received ownership of 15% of ASML
in exchange for $4.1 billion. The money would help develop future tools like EUV.
For some reason, Intel did not ask for product exclusivity - something that raised a few eyebrows
at the time. It allowed TSMC and Samsung to also buy in later on. The money and the customer buy-in
gave ASML breathing room to work out all the kinks. Of which there were many.
In 2016, the first EUV devices were shipped out of the Netherlands - 30
years after its concepts were first explored. The technology had been
delayed for over ten years after its 2007 prototypes, but it was now ready to go.
I think what is interesting is how the semiconductor industry's major
players banded together to invest and collaborate towards a final,
finished technology that they would all share in. These companies, ordinarily fierce competitors,
saw the threat of not having anything ready for the future and decided to work together.
ASML could not have finished EUV without intimate participation from its customers.
These customers invested billions of euro into the product development process,
aware that they would not see the results of their investment for many years.
Without this buy-in, ASML would have ended up like Canon - unable to sustain
this decades-long odyssey without going bankrupt. We should acknowledge that.
On a side note. Recently, the US government has intervened to
prevent the export of ASML's EUV machines to China. I have seen some people asking
on what grounds the United States has in restricting the export of EUV. After all,
ASML is a Dutch company and last time I checked, the Netherlands is not an American state.
Additionally in 2012, then ASML CEO had said:
> We welcome Intel as the first customer to agree to contribute
to these [investments in semiconductor equipment],
the results of which will be available to every semiconductor manufacturer with no restrictions
Read my lips. No restrictions. So what gives?
This is because EUV is literally an American-founded technology. Think of
EUV as a startup and the US is its controlling shareholder - its Mark Zuckerberg, so to say.
EUV LLC was founded by American semiconductor firms Intel and Micron in 1997 to partner with
the US Department of Energy to commercialize its EUV studies. EUV LLC invested $250 million
over 3 years at the earliest stages and as a result receives royalties on all EUV revenues.
In February 1999, ASML negotiated for and received a license from EUV LLC for its EUV technologies.
Back in 1999 - long before ASML would come out with the products that won it
the market - Japanese companies Nikon and Canon still had 54%
share of the semiconductor lithography market. ASML had 34%.
There was no American player. Had there been, I believe they would have received this license
first. The EUV LLC participation allowed ASML to leapfrog the Japanese's progress
in EUV and get that critical first buy-in from major customers like Intel, TSMC and Samsung.
Canon and Nikon did not receive a license and eventually declined to develop
EUV to the same degree. Canon in 2007 due to financial issues.
Nikon because they pursued the continued evolution of older techniques that ended up petering out.
Yes, we all agree that ASML invested immense resources in making EUV the final,
usable product that it is today. They took a huge risk and swung at the right pitch,
ending up to be the right company at the right time. And we agree that Europeans
should not always go along with what America says. Maintaining national sovereignty is important.
But the EUV example to me is more clear cut than most. Europeans, South Koreans,
Indians, Taiwanese. A whole bunch of people contributed to the effort. But America founded
and led it. (Side note to the side note. I am aware of an EU-backed EUCLIDES program
pursuing EUV but it apparently did not seem to be as successful as EUV LLC.) And if you
have worked in a tech startup before, you would know that the founder's say matters the most.
I got the idea for this video largely because of the nationalist internet food fight that tends to
flair up every time TSMC appears in the news. You have a choir of comments which immediately sing
“But they all depend on ASML ... which is Dutch.”
Which in turn triggers talk of ASML’s American subsidiaries and so on.
Setting immature nationalism aside, the actual question is a good one to ask.
In my opinion, good questions help you get a better understanding of the situation at hand.
Let us use a metaphor. Semiconductor foundry work is like baking a pound cake. You have
raw materials, you need to process them together in special ways over many steps
for which you use specialized equipment (an oven by Middleby, for instance,
or a blender by Hamilton Beach) to process those materials into a final product.
You can liken TSMC to the baker in the kitchen. ASML is like Middleby here, providing the high
tech oven. The baking of a cake is just one step out of many. A critical one for sure but
if you focus too much on it then you ignore the importance of stirring together the flour and eggs
as well as applying the creamy frosting to give it that extra deliciousness. Your cake might suck.
Same with microchips. Lithography is a critical step in the final development,
but there’s many more that need to be finished off
before the final chip is ready to be put into a computer or graphics card.
Packaging and testing, for instance. Otherwise it’s still just a chunk of silicon.
This makes intuitive sense when you think about the progress made by other companies
using ASML's same EUV machines. TSMC has the most EUV machines in the world, but Intel
and Samsung also got the same machines. Intel was literally the lead investor in making EUV happen.
Neither of those foundries are at the same level of yield and
output. Cooking skills and experience matter - as my sucky cakes can attest.
When the customer sits down to the final product, they see and enjoy a cake. Can you attribute a
percentage “credit” of the cake’s deliciousness to the eggs and the flour from which it was made?
To the heat from the oven in which it was baked? To the skill of the cook who baked it?
You can try but it all ends up in a ridiculous exercise of numbers pulled out of your butt.
Because the reality is they all came together in a single harmonious moment
to give you this amazing thing.