At the center of this big factory in the Netherlands, in the midst of a months-long assembly process, there's a revolutionary machine that the
whole world has come to rely on.
You can see an EUV machine right behind me.
The size of a city bus, but working with atomic level precision, these EUV lithography machines are the most expensive step in making every advanced
microchip that powers the modern digital age: data centers, cars and every single iPhone.
We are the only provider on the planet of this critical technology.
These machines are the only way to print miniscule designs on these chips. They cost up to $200 million. And they're only made by a single company:
Advanced Semiconductor Materials Lithography, or ASML.
Today, ASML has a monopoly on the fabrication of EUV lithography machines, the most advanced type of lithography equipment that's needed to make every
single advanced processor chip that we use today. And this company is one of the most extraordinary organizations in the world. The machines that
they produce, each one of them is among the most complicated devices ever made.
In the midst of a chip shortage that's caused backorders of everything from PS5s to Teslas, the need for ASML has never been higher. Its stock has
skyrocketed since 2018. While it's three main customers, chipmakers TSMC, Intel and Samsung vie to be front-of-line for ASML's next breakthrough
technology. The price tag for this next machine, which promises to push the boundaries of known physics, is more than $300 million.
It's so expensive that most companies cannot afford it.
While the chip was rage on, we wanted to find out what's really going on inside the quiet company making the machines that print them all.
This is the optical part of the machine that makes EUV possible.
We got a rare tour inside ASML's cleanrooms in California and the Netherlands to see how these machines use precision lasers, exploding
molten tin, and the smoothest surface in the world to bring our digital age to life.
ASML's crucial role on the chipmaking stage has brought it wild success over the past few years, making it even more valuable today than Intel, one
of the biggest chipmakers it supplies.
It's double digit growth every year. We're not a startup. No, we have now 32,000 people.
Peter Wennink has been CEO since 2013. But he joined ASML back in 1999, just 15 years after its humble beginnings. It started as a subsidiary of
Dutch electronics giant Philips in 1984, conducting research out of a leaky shed next to a Philips office building in Eindhoven in the Netherlands.
They were in financial dire straits, so we had no money. We were poor. And because the problems Philips had were so big, nobody looked at this little
outfit out there that was trying to do something crazy, so they neglected us.
Still, in its first year, the company successfully launched a first-of-its-kind machine that used precise rays of light to print tiny
designs on silicon to make microchips, a technology known as lithography.
The first lithography tool really looked like a projector. There is basically a reticle, which holds the image that you want to project, then
there is an optical system, which is going to take this image and project it on the wafer.
Semiconductor lithography was invented in a U.S. military lab and for a long time, up through the 1980s, the key lithography firms were American,
based in New England.
Chris Miller of Tufts University is writing a book called, "The Chip War: The Fight for the World's Most Critical Technology."
When the industry was getting ready to jump into the early stages of EUV research, none of the U.S. firms were ready to take the plunge on what
would be an expensive and risky proposition, whereas ASML was.
By 1988, ASML had five U.S. offices with 84 employees and a new Dutch office that eventually became its headquarters in Veldhoven, where CNBC
took a tour earlier this month.
We're walking through the EUV factory, which is about 50,000 square meters of space with 1,500 employees, who are working in shifts seven by 24 to
produce 100% of the EUV machines shipped worldwide from this facility.
With a breakthrough machine, ASML started turning a profit and went public on the Amsterdam and New York Stock Exchange in 1995. By the 2000s ASML was
acquiring California tech companies like Silicon Valley Group, and various key suppliers like Cymer in San Diego, where we also got an inside look at
the cleanroom where ASML's light source is produced.
So this is actually the nozzle manufacturing area where we actually build the nozzles. This is actually the piece where the tin shoots out of. That's
what's going to create your EUV.
EUV refers to extreme ultraviolet, an incredibly short wavelength of light that ASML uses to print smaller, more complex chips. But developing this
revolutionary technology was incredibly expensive.
We didn't have the money. So we went out and we found partners, which actually was the basis of the way that we built the company. So we were
forced to be a system architect and a system integrator.
In 2012, ASML offered about a quarter of its shares to its biggest three customers: Intel, Samsung and Taiwan Semiconductor Manufacturing Co., or
TSMC.
They had to accelerate the r&d for EUV and the only way they could do this is to get their largest customers involved. And one way you can make your
commitment real is to make them a shareholder.
ASML is a Dutch company, but it's also a Dutch company that relies very heavily on U.S. components, in particular for its machines, and at this
point, relies also very heavily on one Taiwanese customer for its sales.
TSMC made up nearly 40% of ASML's sales last year. In 2019. The Taiwanese chipmaker was the first to deliver high volume chips made with EUV, a
milestone that's kept it at the head of the pack ever since, its chip technology at least one node ahead of Samsung and Intel.
And it has been TSMC's customers that have gained a lot of benefit, like AMD, Nvidia and others. And yeah, you can argue that this has come at the
expense of Intel not executing.
Intel is just now producing its first chips with EUV this year, three years behind TSMC. But it's made a bold move in hopes of catching up: an early
investment to secure the first prototype of ASML's next machine, High Numerical Aperture. To understand why the success of a giant like Intel
hinges on ASML, let's take a look at how EUV lithography revolutionized chipmaking.
When you start breaking down, what does it take to make an EUV lithography machine it's sort of Nobel Prize winning in terms of the engineering
involved.
Chips are made from silicone, an abundant element found in rocks and sand, that's purified, melted down, then sliced into circular wafers, the surface
on which chips are built in a grid formation. Each wafer can have dozens of thin layers, making up billions of transistors that determine what the
chips can do. These layers are printed using lithography. Extremely precise rays of light are projected through a mask of the chip design. When the
light hits the surface of the wafers, which have been coated with photoresist chemicals, it prints the minuscule designs on each layer at
extremely high volumes.
If you think of a typical processor chip in an iPhone, for example, will have over 10 billion transistors on a chip and Apple will sell 100 million
or more iPhones for each model that's rolled out. So you're already talking in numbers that are far bigger than you or I remember how to pronounce.
As the wavelength of the light source in making chips gets narrower and narrower. It gives us the ability to make chips with smaller features,
which means the chip is faster, the chip can be smaller, the power consumption of the chip can be lower.
The smallest transistors are more than 10,000 times thinner than a human hair. The designs have gotten so small ASML had to develop new methods of
printing at the very edge of known physics. With the help of customer investments and a consortium of scientists, ASML figured out a way to
create large amounts of extreme ultraviolet light with a wavelength so short, it's not only invisible to the human eye, it's absorbed by all
natural substances, even air, so the entire process has to happen in a vacuum, a first for lithography. At 13.5 nanometers, ASML's EUV wavelength
is the size of just five DNA strands lead side-by-side. The previous generation machines used deep ultraviolet light, or DUV, with a wavelength
of 193 nanometers. The vast majority of ASML's business 268 of the 309 machines sold in 2021, still use DUV technology which is used to print the
less advanced chips which are in shortest supply.
DUV is for anything that is low technology like a toaster, or refrigerator, or even some of the electronics in your car. Today's iPhone 13 is EUV.
Both DUV and EUV lithography is so advanced, it requires precision down to the atom.
This is an EUV cabin of our cleanroom, which is 10,000 times cleaner than the outside air. We're wearing this clothing not to protect ourselves from
the environment, but we're protecting the machine from the contamination that's created by us.
This tiny threat may look like the strand of a spiderweb, but it's actually molten tin being shot out at a pressure of 4,000 psi. And it's how the EUV
light is created.
This is continuous tin. It never ever, ever stops.
The tin is streaming through a perfectly calibrated nozzle which we saw being built in San Diego, at a rate of 50,000 droplets per second. A 30
kilowatt carbon dioxide laser hits each droplet twice per second, vaporizing them into plasma. These tiny explosions are what emit photons of
EUV light. A huge number of tin explosions need to happen because only about 5% of the photons reach the actual wafer. The light particles are so
short they get absorbed by mirrors, the typical method used to precisely aim light through a lens. So ASML partnered with German optics company
Zeiss, which makes the flattest surface in the world.
The flatness is really just incredible. If you took a mirror element that is maybe this big, and you blew it up to the size of the country that we're
in, the biggest bump would only be about one millimeter across the entire surface of a mirror the size of this country.
EUV light bounces off these groundbreaking Zeiss mirrors until it hits photoresist chemicals on the surface of the silicon wafer to print
miniscule designs that make up the chips. The aim needs to be so precise, TSMC says it's equivalent to shining a laser from the moon to hit a coin on
the earth.
So your tin is inside a reservoir here, and then you're firing out this way.
Pete Mayol has been running this cleanroom for six years.
If any kind of defect particle whatsoever is even on the tip of that capillary, it's a fail. We'll remove and start all over again.
And the speed and scale at which this has to happen is staggering. ASML says an EUV machine churns out about 3,000 wafers a day. There can be
hundreds of chips on a 300 millimeter wafer, and up to 10 billion transistors per chip.
They take extraordinary achievements of engineering and physics, and they're able to replicate these on a mass production scale, and at a low
enough cost where these machines can be used in chip fabs to churn out thousands and millions of chips for the companies that buy them.
A completed EUV machine is actually made up of seven different modules, each built at one of ASML's six manufacturing sites among its 60 total
locations around the world, then shipped to and reassembled in Veldhoven for testing. Then it's disassembled again for shipment, which takes 20
trucks and three fully loaded 747s. In 2021, ASML sold 42 EUV machines, bringing the grand total it's ever shipped to just about 140. With each
machine costing up to $200 million, only five customers can afford to buy EUV systems: Micron, SK Hynix, Samsung, Intel and TSMC, the last three
making up nearly 84% of ASML's business.
It certainly has eliminated a lot of players out of that market. So we saw GlobalFoundries back five years ago or more say that they weren't going to
pursue a seven-nanometer chip.
The handful of huge customers it does have are furiously adding capacity to try to ease the global chip shortage, which is impacting ASML, too.
We got a lot of messages from our suppliers that said, hey, we might be late in delivering our modules to you guys because we cannot get the chips.
And we said, if we cannot get the chips, we cannot make the machines to make more chips. So there's a catch 22. We're still managing, keep our
fingers crossed. But it's a daily struggle.
The question is, can ASML keep up with demand?
I think the answer is probably yes. Maybe the growth will exceed even their targets, that's possible. But they're certainly preparing to ramp up the
production, which is I think good news if you're worried about a chip shortage.
The world needs more chips, so we need to make more machines, which by the way will keep growing in average selling price as long as we can drive the
cost per transistor down, which is exactly what we've been doing for the last 38 years. And we will keep doing for the next couple decades.
Before EUV, chipmakers had three companies they could choose from for their photo lithography tools: ASML, Nikon and Canon. Nikon, in Japan, is still a
competitor for DUV, but ASML is the only option for EUV. Experts say it could take decades for any other company to catch up, not only because of
ASML's proprietary tech, but because it's built complex, often exclusive, deals with nearly 800 suppliers.
And we're unique to our customers, like some of our suppliers are unique to us. And those almost symbiotic relationships, some people say are worse
than being married because you cannot divorce.
It takes 10 years to not only get the technology but then be accepted. So the buyers for semiconductor manufacturing fabs are very risk averse.
One of the ways ASML has insulated itself against supply chain risks is by purchasing some of its suppliers, like Berliner Glas in 2020. A fire broke
out there in January. But Wennink says it won't significantly impact system output in 2022. Instead, ASML projects a 20% sales growth this year, and an
annual revenue growth rate of 11% until the end of the decade.
It's actually driven by you. You're asking for more solutions that will help you to have a better life, to make your life easier, your life more
productive. We're changing into a sensing world. There are sensors everywhere. They're in your car, they're in your fridge, they're in your
PC, they're everywhere. Sensors, they need semiconductors.
All of the world's most advanced semiconductors are made in Asia by two of ASML's biggest customers, TSMC and Samsung. But the chip shortage has
raised concerns about overseas dependency.
This is why you see all these initiatives around the globe: the U.S. CHIPS Act, the EU Chips Act, the Korean Chips Act, the Japanese Chips Act, the
Chinese Chips Act. It's now a very strategic commodity.
Intel just announced a $20 billion chip fab in Ohio. And it's also building one in Arizona, just down the road from a massive new fab where TSMC will
make advanced chips in the U.S. for the first time. And Samsung is building a $17 billion fab in Texas. All this came after President Joe Biden
proposed the CHIPA Act, with $52 billion in subsidies for chip companies to manufacture on U.S. soil.
It means that we need to ship our machines sooner, earlier, and at higher volume. So it means we need to hire more people in the U.S. It's talent,
it's people. I think that's where the biggest challenge will be.
But this movement toward domestic production has another side that poses a challenge for ASML: a desire to stop sharing chipmaking technology with
China.
China has wanted to get into that race. But there's been politically generated reasons why China has not had access to the same type of
technology as other companies.
As far back as 2018, the Trump administration reportedly pressed ASML not to sell EUV systems to China. ASML still hasn't sold a single EUV machine
to China.
43, 42 countries around the globe have agreed to put export control measures on it because it's so critical. So it's not our choice. It's the
choice of governments.
ASML also refurbishes older lithography systems and sends many of those to China, more recent DUV machines all the way back to its early systems from
the 90s.
96% of all the machines we ever sold, we ever shipped, are still working.
There's a lot of debate about whether selling additional DUV equipment to China is also a national security risk by letting China increase its
ability to manufacture close-to-cutting-edge semiconductors. So I think there's some chance that in the coming years, there are new restrictions
that are imposed on ASML's ability to sell DUV equipment to China as well.
If export controls were expanded to include DUV machines, it could greatly impact ASML's bottom line.
This is where the biggest demand is. This is where the exponential curve is. So trust me, we need every manufacturing capability on the planet,
whether it's in Korea or in China, to just keep adding capacity.
Let's go look at the big boy.
And then there's the question of whether demand for the most advanced chips will remain high enough to support continued development of ASML's next
generation EUV machine, High NA. This is the machine Intel announced it will have first, by 2025. And ASML has already sold four other units.
This is the EXE 5000. So this is what we'll be testing for High NA.This will be what makes our next generations even better.
But even now, before the bigger, better machines, the whole world's reliance on ASML is only growing, no matter what gets in the way.
What can really get in the way is the geopolitics like the Russia and the Ukraine war right now. Those are big geopolitical friction points that can,
of course, not only hurt us, but hurt the world economy. But apart from that, let's hope and let's pray that can be controlled, then it's all about
execution. And we will keep shrinking the cost per transistor and we will provide the world with ever more powerful semiconductors. That's not going
to stop.