In the mid 1990s, two companies dominated the lithography space. Both of them were Japanese:
Nikon and Canon. Together, they held three quarters share of the market.
Then a Dutch company called ASML rose to overtake these two, relegating them to bit
players in the industry. Today, the two are no longer trying to compete at the cutting edge.
While ASML is now Europe's most valuable technology company.
In this video, I want to talk about how ASML took the market share and
technological leadership crown. And why the Japanese incumbents failed to keep it.
A photolithography stepper or scanner is basically a nanoscale printer that prints
integrated circuit patterns onto a wafer. A single wafer can hold hundreds of dies,
the eventual parts that go into your Apple M1 or A13 chip.
The photolithography process goes something like this - and I am simplifying here.
We first coat a silicon wafer with a chemical referred to as a photo-resist.
Then we use the stepper or scanner to project the integrated circuit design onto the wafer.
After the tool has done its job,
we etch away the areas that have not been exposed by the baked photo-resist.
The process then starts over and over again until we have reached the level of sophistication that
we want. The photolithography machine is not the only machine used in the process,
but it is one of the most critical.
Ok, basics done. Here is the story thus far.
Throughout the 1960s and 70s, the United States dominated the photolithography tools market.
The top two companies were Perkin-Elmer and Geophysics Corporation of America or GCA.
This market dominance alarmed the Japanese,
and their government reorganized their computer industry.
The powerful Ministry of International Trade and Industry (通商産業省) gathered together the country's
best optical manufacturers and ordered them to catch up to the American leaders. And they do.
This effort is now famously known as the VLSI research project,
and that whole story is really fascinating. Maybe I will do a future video on it.
Maybe if this one gets a thousand likes or something?
Anyway. In 1980, Nikon introduces its first commercial stepper.
Canon quickly followed. These products offered superior performance at a very low price. Thus
the two Japanese companies overthrew the Americans to rule the market in less than a decade.
At this point in time, it seemed like Japan's technical lead in lithography
tools was insurmountable. No other viable competitor was on the horizon.
ASML was founded in 1984 as a joint venture between Dutch firms ASM International and Philips.
During this period of time, the semiconductor supplier industry faced immense challenges as the
economy went through various booms and busts. ASML lost money for the first six years of its life,
forcing ASM to sell its shares to Philips and two banks.
In 1990 ASML would be spun out as its own independent company.
Despite this, ASML retains strong links to Philips. Philips remains a big shareholder,
is located 20 minutes away, and many ASML employees also worked there too. Along
with Carl Zeiss, we can see these companies as practically one bloc.
Philips' backing helped ASML persist and the fledging company managed to gain a foothold
in the market. By the time ASML IPO'ed in 1995, the company had managed to acquire 25%
market share. Third place, tied with Canon (25%) and behind leader Nikon (45%).
Still lagging behind, but then three big industry generational events
in the coming years allowed them to snatch away market leadership from Canon and Nikon.
In 2001, ASML developed and released its first TwinScan system. It is called as such
because it processes wafers in two stages: A measurement stage and an exposure stage.
In the measurement stage, the system measures information about the wafer.
For instance, its position in the machine.
The machine then uses that information in the exposure stage,
where the wafer is actually exposed to the ultraviolet light.
This dual wielding style allows the system to process far more wafers per hour,
but also adds substantial complexity to the overall system.
Nikon and Canon could not replicate this technology fast enough.
ASML rapidly iterated on the product's early success and by 2002,
the company had 50% market share of the lithography tools market.
The second breakthrough came with a generational shift in
photolithography machinery techniques called "Immersion Lithography".
This is how it works.
Previous lithography techniques had an air gap between the wafer and the stepper.
Immersion lithography replaces that air gap with water. So now you are shooting
ultraviolet light through water at the wafer. You have to literally stick the lens into water.
Yeah it sounds nuts but this technique has long been used for optical microscopes.
It even appears in school textbooks.
But the industry largely ignored it until Taiwanese scientist Burn Lin
demonstrated its possible viability for reaching a 45nm process node.
ASML, Nikon and Canon quickly went to work on commercializing the technique.
ASML managed to do it first with the TWINSCAN AT:1150i
in 2003. Three years later, the TWINSCAN XT:1700i, the first volume immersion product,
came out and cemented the company's dominant position in the industry.
The semiconductor industry long knew that immersion lithography was a stopgap measure.
Eventually, the currently used optical wavelengths would eventually be no
longer sufficient for printing the next generation of semiconductors.
The industry debated between multiple next generation options, grouped into two categories:
Particle-based solutions like Ion beam and E-Beam, and X-ray based solutions like EUV.
As most of us know, the industry ended up choosing EUV as the next generation solution,
and the big chipmakers banded together behind ASML to commercialize the technology.
And ASML needed every bit of that help,
because practical systems came a decade late and way over-budget.
Canon never had a chance here, and Nikon largely stopped progress after 2011.
I have yet to see any further updates after then.
I have talked enough about EUV in previous videos. You can go watch those. I just want
to say that it cemented the massive technical gap between ASML and its Japanese competitors.
These events illustrate how ASML managed to win the industry.
However, it does not quite answer the question of how Japan came to lose so badly.
It is a tough question and there are a lot of possible answers.
So in this final section, I want to walk through some theories and ideas proposed
at various times about ASML's rise and Canon and Nikon's fall.
The first theory has to do with software. ASML's machines have exploded in complexity over the
years. This statistic is kind of old, but it illustrates my point. In 2000, ASML's products
use six times the number of CPUs and eight times the number of sensors as their 1989 products.
All of that hardware needs software to run it.
Their 1989 stepper - the PAS5000 - had a total of 200 million source code lines, including comments.
Their 2003 TwinScan has 1.25 billion - a six-fold growth.
A single TwinScan by itself has 12.5 million lines of embedded device code - the code
actually orchestrating the movements of the machine’s components. At one point, the team
writing its code employed over 350 people. Former ASML president and CEO Doug Dunn has
previously said that their software team doubled in size every four years as its code base grew.
ASML has managed to corral this complexity and use it to their advantage. They were one
of the first companies to use Unified Modeling language or UML to visualize and develop their
software modules at a very abstract level. UML was critical in helping them ship TwinScan in 2000.
Canon and Nikon for their part were never that great at software,
and it was not until relatively recently that the
Japanese companies started adopting these abstraction-heavy software practices.
It is hard not to notice that Canon and Nikon's market share rise came at the same time
Japan's entire semiconductor industry had started to gain traction in the world market.
Japan's semiconductor industry saw its peak throughout the 1980s.
Companies like NEC, Mitsubishi Electric, Hitachi and Toshiba
ruled the chip-making market. Especially memory, holding 90% of the 256K DRAM market.
Many of these companies bought their lithography
tools from Canon and Nikon. It made up their core market.
But starting in the 1990s, these low-cost Japanese exports became a political issue.
Japanese companies built massive overcapacity and dumped it overseas at below cost.
The American semiconductor industry successfully lobbied to place limits
on their Japanese competitors. Combined with the appreciation of the yen, Japan pulled back.
And with that, so went a great deal of Nikon and Canon's business.
This also deeply affected another large semiconductor tool supplier from Japan:
Tokyo Electron. It forced Tokyo Electron to look abroad to replenish that lost business.
Tokyo Electron largely succeeded. Maybe Nikon and Canon were not so successful.
Canon and Nikon began their existence as optics systems companies. And while they do develop
their lithography tools' entire stack, the core of their work always harkened back to those lens.
But as semiconductor engineering reaches the very limits of what is possible
under the laws of physics, engineers have to start looking for other avenues to squeeze out gains.
Perhaps because ASML outsources all its optics R&D and research to Zeiss, ASML was able to look
beyond mere optics and find new opportunities to optimize the performance of their tools.
Resulting in a superior product that customers found worked better for them.
For instance, opportunities relating to better utilizing new chemicals in photo-resists and
photomasks. Or the two-stage wafer swap process that would eventually create the TwinScan.
Theory number four if you’re keeping count. R&D and industry collaboration
played huge roles in ASML's rise. For R&D,
the ASML-Philips-Zeiss bloc has benefitted from close ties to a critical industry research center:
IMEC, a semi-governmental non-profit in Belgium
that works very closely with the industry and academia to develop new technologies.
They are one of the most advanced semiconductor research centers in Europe.
Just as importantly, IMEC plays a very big role in facilitating cross-industry collaboration
by helping different companies work together to develop new standards and ideas.
This exposure helps ASML learn how their own tools are used by their customers,
and how those tools interact with equipment made by other vendors.
Even without IMEC participation, we can see real evidence of ASML's collaborative nature
by looking at the number of papers jointly published by the ASML-Philips-Zeiss bloc
and chipmakers, toolmakers and chemical-makers.
Canon and Nikon on the other hand lack a similar collaborating body.
A measure of Nikon's published papers showed that most of their papers were by themselves alone.
Interviews note that the Japanese companies do exchange information with outside partners,
but only those which they have been working with for a very long time.
And even then, those exchanges were not great. The customers talked to the tool makers
only when there was a serious problem, not when they had an idea on how to do things better.
There is a difference between the two.
It is interesting to note that the two companies got to their leading place in the 1980s
because of a similar sharing of resources - the aforementioned VLSI project. But
that project came together at the behest of the government, who forced the grumbling competitors
to work together and solve industry-wide problems. Since then, nothing as good has taken its place.
This one has direct consequences to the immersion lithography breakthrough
that helped along Canon and Nikon's fall.
Burn Lin discovered the theoretical pathway towards immersion lithography.
But the big breakthroughs in developing an actual, practical commercial system
came from an American researcher at MIT.
This researcher was running experiments. And critically, he was running those experiments
using industry standard conditions and settings. Something like that does not happen
without the researcher meeting with industry professionals and learning how they work.
Ties between the industry and academia in Japan are especially weak compared to those in the West.
Industry professionals are weary of disclosing trade secrets to the universities.
And professors in Japan's universities focus more on basic science and concepts,
and are not particularly incentivized to see their work used in the industry.
Japanese universities started reforming this in the mid 2000s,
building technology licensing organizations to gain patent revenue from discoveries.
MIT, Stanford and Berkeley all have similar things to help guide and profit from their discoveries.
For all their strengths, ASML's rise could not have happened without the simultaneous decline in
competitiveness by the Japanese. Nikon and Canon had the advantage, but they ended up losing it.
And despite the plethora of theories, we probably will never really know why.
But one lesson that really stood out to me is that we need to pay
close attention to times of generational shifts. Immersion and EUV were times when
the ground underneath the industries shifted. When those technological continents moved,
winners became losers and vice versa. ASML should consider this as researchers around
the world push towards the next generation of semiconductor manufacturing in the coming years.
Let me end with a bright side for Japan's semiconductor industry. Despite Canon
and Nikon's high profile decline, there still remain many hidden industry champions in Japan.
With legacies and proficiencies built up during those early years.
They made the right decisions, adapted to new times, and survived the fall.
They are not flashy as ASML, Applied Materials, or the like.
But they are doing alright. And the industry goes nowhere without them.