ASML is one of TSMC’s big suppliers and the only maker of EUV photolithography machines
in the world. They make the machines that TSMC uses to fab its chips.
But there is so much more to semiconductor production than just photolithography.
I want to continue my series on the industry’s supply chain with another multi-billion dollar
semiconductor equipment supplier that flies under the radar: Tokyo Electron Limited or TEL.
They are Japan’s biggest semiconductor equipment maker and one of its most valuable companies
with a $68 billion market cap. That is as big as Nintendo or Honda.
In this video, we will look at Tokyo Electron's history,
what they actually do, and where they are within the semiconductor manufacturing supply chain.
In the meanwhile we will get to learn more about the process of making a semiconductor.
Tokyo Electron Research Institute began over fifty years ago as a small, independent trading company.
Founded in November 1963 by Tokuo Kubo and Toshio Okada, they started off with just six employees.
Tokyo Broadcasting System, a large Japanese TV station,
saw their potential and invested 5 million yen into their company.
TBS still has a 4% stake to this day. Now worth over $2 billion.
On a side note, some American and British hedge funds have been pressuring TBS to sell their
shares in Tokyo Electron and other investments to boost their stock price. Interesting times.
At first, TEL sold pretty much anything. They were just one of
many such electronics trading companies in Japan.
Over half of their sales came from importing and selling car radios, calculators, and car stereos.
Their big break came in 1965 when the company signed an import contract with
American semiconductor maker Fairchild to import their integrated circuit testers.
The company then leveraged that experience to sign an import contract
for another critical semiconductor production item: Diffusion furnaces from the American
firm Thermco. More on what that does later.
Like with the Chinese market today, American companies in the 1960s could not enter the
Japanese market without first forming a joint venture with a local affiliate. These contracts
were clearly geared towards technology transfer. The Japanese sought to leverage
access to its market to acquire technology and build up its own national champions.
Such practices remain controversial to this day. But Tokyo Electron
clearly benefitted from this joint venture. And by investing in R&D,
they were able to come out with products of their own for the market.
For Tokyo Electron, the big turning point came in 1973. The 1970s saw multiple economic crises like
the Dollar Shock of 1971 (a result of the Plaza Accords) and the Oil Crisis of 1973.
In the midst of the economic crisis in 1973, Tokyo Electron decided that it
would divest its consumer electronics import business entirely. They would
then focus on being the best manufacturer of semiconductor production equipment they can be.
This was risky as the consumer electronics import division represented 60%
of the company's revenues. But leadership believed that semiconductor manufacturing
equipment had higher value-add. Consumer electronics goods drove revenue,
but had low margins. It would not be long before that business died off.
The move was completed in 1975. The next year, revenues grew 13% and profit, 97%.
The results validated the difficult decision. In 1980,
the company listed its shares on the Tokyo Stock Exchange.
Japan's semiconductor industry saw its peak throughout the 1980s.
Companies like NEC, Mitsubishi Electric, Hitachi and Toshiba
explored the cutting edge of semiconductor manufacturing and dominated the market.
Tokyo Electron became one of their top suppliers. Its customers' success was its own.
But as the 1990s came around, low-cost Japanese DRAM exports became a political issue.
Japanese companies in the semiconductor industry built massive overcapacity per
national economic policy. They then dumped that capacity overseas, sparking trade disputes.
Here is an oft-cited example. 256K DRAM prices in January 1985,
before Japanese entry into the market, were about $17 per unit.
After Japanese entry, prices cratered to under $4 by August that same year.
The Japanese industry's per-unit cost of production? $6.34.
The American semiconductor industry successfully lobbied to place limits on their Japanese
competitors. Combined with the yen's appreciation, Japan pulled back. Again, Tokyo Electron faced a
major threat to its business. In 1992, 80% of the company's revenues came out of Japan.
But as semiconductors in Japan declined, it rose in other places around the world.
An opportunity existed to meet their needs too. So throughout the 1990s, Tokyo Electron expanded
their direct sales operations abroad to the United States, Europe, Taiwan and South Korea.
Their continued investment in R&D to create cutting-edge products led to
new customers like Intel, Samsung and TSMC. And today their income is very international.
In fiscal year 2020, Japan now accounts for less than 15% of their total revenues.
The company's size and importance is such that when Applied Materials attempted to acquire
them in 2013 for $9 billion, the antitrust enforcement agencies in the United States,
EU, and South Korea all sued to stop it. The combined company would have
controlled over 25% of the entire super-critical semiconductor production equipment industry.
The merger was eventually called off in 2015, disappointing top management.
But since the company today is worth north of $65 billion dollars, I think they are doing alright.
Okay, okay I have talked about TEL's history enough. What on earth do they actually sell?
Tokyo Electron is different from ASML because they do not build super-sexy, ultra-cutting
edge machinery like lithography steppers. There are no tin droplets or lasers here.
Rather, TEL's products span the entire semiconductor manufacturing chain.
Their technologies help create not only the logic processor chips that power your devices,
but also flat panel displays in those devices' screens as well.
I don't want to bore y'all with a long lecture so I am going to focus on just four of their
most critical semiconductor production business lines: Lithography Coating/Developing, Deposition,
Dry Etch, and Cleaning. These are the lines in which TEL has strong market share as of 2017.
These lines serve certain steps within what is called the "Front
End" of semiconductor manufacturing. TEL does offer packaging and inspection machinery,
essential steps in what is labeled the "Back End", but I am going to exclude those for now.
I will do a video exploring advanced packaging technologies sometime in the future.
The goal of the front end is to turn a pure,
un-patterned silicon wafer into a structured wafer.
That wafer then gets cut into its individual dies.
So a single structured wafer might have hundreds or even thousands of dies within it.
A single structured wafer has many layers to it. Inside your fab, wafers go through a bunch
of development steps many times. Each step adds or modifies those layers until the final design
meets the customer's goals. TEL's products contribute to some of these individual steps.
These steps do not always go in a neat, sequential order.
Some are repeated many times before going to another step. It all depends on the design.
Also note that I am absolutely not looking to be comprehensive of the whole process.
I just want to give a general overview of what TEL's products do.
Deposition is a general phrase for putting down a metal layer onto a substrate or wafer surface.
There are a number of reasons you would want to do this. For instance, if you want to deposit
layers of copper to create connections between the devices within your integrated circuit.
TEL offers devices that do this with various elements and in various ways. For instance,
their NT333 system, which performs a technique called atomic layer deposition.
The NT333 combines several precursor chemicals or reactants
to apply a film of chemicals onto the wafer. It does this by exposing one chemical after the other
in an alternating sequence, so that what is left is an even, uniform layer.
FYI. I like that TEL's website looks like as if
Joe the Plumber can call them up and buy their products for his plumbing business.
The NT333 is notable compared to its competitors because it is able to do this in what TEL calls
"semi-batches", which means they can do more wafers at once. Batch work means
less fine control, but saves cost. The NT333 attempts to offer the best of both worlds.
There are other deposition techniques that TEL's products can do. For instance,
its TELINDY PLUS system, which performs thermal processing. Its furnace uses heat to initiate
a reaction of a precursor gas so to deposit a thin, even layer of chemicals onto wafer batches.
This business line is one of TEL’s oldest. Remember that deal with Thermco?
These two are a pair of sub-steps within another step called "photo-masking".
In photo-masking, we coat the wafer with a UV-sensitive resin called a photo-resist
that "masks" it. Kind of like when painting a car, you put a protective covering on the
windshield to keep it from getting painted on. This step is referred to as “coating”.
Then you expose the wafer to UV light. Or in the case of EUV, extreme UV light. This is
where ASML's $150 million EUV steppers would be used, projecting the chip pattern onto the wafer.
What this pattern is depends on the chip designer's specification.
You end up with an exposed photo-resist and a protected photo-resist. Then a solvent can be
applied that washes away the unwanted parts of the photo-resist. What that might be - the exposed or
unexposed part - depends on the type photo-resist used. That rinsing step is called "Developing".
TEL's coating and developing machines are branded as the CLEAN TRACK and LITHIUS Pro Z.
Now that we have the remaining photo-resist to guide you,
it is time to etch away on the layer. Think of it like having drawn an outline of your hand
onto a block of wood. And now you want to cut away everything outside of the outline.
There are two ways of doing the etching. There is wet etching, which uses liquids. Or dry etching,
which uses a gaseous compound like oxygen or chloride. TEL’s machines do the latter.
TEL's industry leading dry etch system is called the Tactras. This machine shoots a
stream of gas plasma that is able to do the etching in a uniform and accurate manner.
Announced in 2006 but first shipped in 2010, the machine cost about 4-9 million dollars back then.
But if you do not want that then you can visit the GlobalFoundries surplus and used equipment website
and buy a gently used etch machine from there. Hopefully there is free shipping.
30-40% of the steps in modern wafer fabrication
involves some form of wafer cleaning. Naturally, it is really important.
The idea is simple: After the aforementioned steps, you need to clean off any chemical or
particle impurities. Otherwise, those impurities will drastically affect your wafer yields.
Oh and you have to do the cleaning without leaving any damage.
Wafer cleaning comes in many forms and variations. It is not just one thing.
For instance, there is the photo-resist cleaning, where you take off the photo-resist layer
after the etching step is completed. There is a clean step for particle contamination,
where you remove particles using extremely strong acids. And so on.
TEL's brand of cleaning systems is the Cellesta, which sounds to me like a brand of salsa,
and the machine can handle about a thousand wafers per hour. Like with a dishwasher at
a restaurant, the more wafers you can put through the machine, the better.
Alright that’s it for Tokyo Electron’s business lines. I hope this section
helped you better understand the breadth of this billion dollar company’s business.
Tokyo Electron is a pretty low key company considering how big of a role it plays in the
semiconductor manufacturing industry. Finding information about them was pretty difficult.
But without their contributions, the industry as a whole will struggle to function.
When I read the press and mainstream articles surrounding semiconductor manufacturing,
I tend to see a lot of the same names. You see TSMC,
Samsung and Intel of course. And lately, you are starting to see ASML and EUV show up a lot too.
With all this chatter flying around, I think it is easy to get drawn into a belief that
semiconductor production leadership or capacity is basically dependent on ASML shipping a bunch
of EUV machines. I can see the comments now: "ASML has a monopoly on EUV machines,
blah blah blah, no one can catch up. So ASML > TSMC/Intel/Samsung/Tokyo Electron, so on."
I keep talking about this: It takes a massive village to make the chips inside your phones,
GPUs and cars. TEL’s very history is testament to the industry’s global nature. Without systems from
international companies like Tokyo Electron, those expensive EUV machines are useless. You
do not skip steps. It all has to be there for the final product to work as well as it does.
I have always been really impressed with how foundries get all these machines to work together
in harmony to churn out thousands of wafers a month. Exploring what companies like TEL do
only deepens that sentiment. A multi-million dollar machine for
this tiny step that nobody talks about. No other word for it. Wow. Just wow.