The Dutch company ASML is a leader in the production of photolithography equipment for the semiconductor industry and is the business jewel of the Netherlands. Its shares have risen 420% in the last five years, it has a capitalization of 340,000 million euros and is the 22nd most valuable company on the stock exchange worldwide. The secret of your success? Complex machines are emerging for the production of chips that are crucial for the transition to the digital economy, on which giants such as TSMC, Samsung or Intel depend.
ASML's exponential growth is even more valuable when you consider the impact of geopolitics on its business. The restrictions demanded by the United States from the Dutch government on the export of some of its equipment to the Chinese market go beyond financial aspects. Washington also wants to counteract Beijing's technological development for geostrategic reasons, which has led to a chip dispute. A Sino-American fight in which the European Commission and the 27 EU partners may play a larger role.
The United States does not want China to copy technology and use high-end chips in the military sector. Therefore, it has blocked the sale of its own state-of-the-art semiconductor manufacturing machines. It is demanding that its allies do the same, whether through agreements, diplomatic pressure or even unilaterally. For the latter, rules were established that allowed this if the devices contained a single American part. ASML's near monopoly on advanced lithography systems has put it in the spotlight in Washington. In this context, in 2023, the Dutch executive added additional machine types to restrict the export of some photolithography systems to several Chinese customers of ASML. The license suspension was scheduled to take effect on January 1st. According to Bloomberg calculations, China previously imported $1.1 billion worth of chip technology from the Netherlands. Beijing's response to the restrictions was clear: “The Netherlands must respect the law.”
Last October, then-Dutch trade minister Liesje Schreinemacher admitted to parliament that although she had previously negotiated with the US alone, she believed the matter “should be addressed at European level and in coordination with other member states.” . the EU”. The Dutch Interior Ministry declined to comment “on specific authorizations or on matters related to our national security.”
A long distance race
According to Dutch journalist Marc Hijink, author of the book Focus: De wereld van ASML, which will be published in April, “the final use of microprocessors cannot be clearly determined.” In a telephone conversation, he explains that it took the company at least 15 years to develop its most advanced machines and that it was now the most valuable technology in Europe. “The Netherlands usually agrees with the United States on issues such as semiconductor export controls, but with ASML's latest technology light years ahead of its competitors, politicians could have pushed a little harder.” They are forceful in their negotiations with Washington,” he emphasizes. How? “By working together with other European countries. With combined forces, we can overcome challenges of this magnitude.” Although Hijink believes that the cooperation could eventually bear fruit, he maintains that it will take time and “require politicians “The people who are able to understand ASML's role in the global economy are those who are rare.”
In 2023, the company achieved a turnover of 27,558 million euros, 30% more than the previous year, and generated 7,839 million euros compared to a profit of 5,621 million the previous year. ASML may be less known to the general public than other companies of Dutch origin such as Shell or Philips “because it does not sell consumer technology,” says Hijink. However, their machines make the chips that are found in most of the devices we use: from cars and phones to computers or ChatGPT. The photolithography underlying this geopolitical conflict uses shorter wavelength light to draw with great precision the very fine lines of the base of the microprocessor: a type of silicon wafer. The thinner they are, the more they fit on a chip, increasing its performance and speed.
In this story of industrial innovation turned into a struggle for economic and military power, two models are in conflict. As for the first, the extreme ultraviolet photolithography (EUV) device has been subject to an export block to China since 2020. This is an exclusive technology from ASML, which has the monopoly here, and is used to create very complex patterns on wafers. “It uses light with a wavelength of 13.5 nanometers: the shorter it is, the smaller the properties of the microchip that can be printed,” says the company’s information service. A nanometer (nm) is equal to a billionth of a meter, and this machine can be used to develop chips smaller than 10 nanometers. An EUV machine is worth around 200 million euros, the new generation will cost almost 400 million euros.
The other model is deep ultraviolet (DUV) photolithography, whose wavelength is 248 and 193 nm. According to Roger Dassen, ASML's finance director, each machine costs between 80 and 90 million euros and the new restrictions could impact between 10 and 15% of sales to China. In a video released by the company, he added that he expected demand for older devices from Beijing to remain “very, very strong this year and in the future.” In 2023, the company generated 29% of its sales in China. It was the second largest customer after Taiwan (30%). South Korea took third place (24%).
Currently ASML is a company in the hands of large global investment funds such as Capital World Investors, Price or Fisher Asset. It was founded in 1984 by the multinational companies Philips and Advanced Semiconductor Materials (ASM) and is headquartered in Veldhoven, a city near Eindhoven. Around half of the more than 42,000 employees work there, 40% of whom come from abroad. In 1995 the company went public and Philips sold half of its shares on the stock exchange. In the following years he did the same with the others. The company's forecasts for 2024 are optimistic despite business constraints. Thanks to greater demand for chips due to the artificial intelligence boom, it is expected to achieve similar numbers to 2023.
ASML operates almost like a monopoly. It's not easy to stay competitive in your business at the moment. But in technology everything is a matter of time. “China can boost its own chip manufacturing industry, boosted by negative exports,” warned chief executive Peter Wennink when told of the new obstacles. ASML wants to trade with everyone. Also with China. Will it be possible?
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