The Business Of

Semiconductors | ASML | What Do They Do?

Morning All!

Hope you had a great weekend! Today we’re starting the final part of our The Business Of Semiconductors series! In part 1, we explored the chip design industry and analysed The Business Of Nvidia. Last week, in part 2, we turned our attention to the chip manufacturing space. And went through The Business Of TSMC.

For part 3, we’re going to be looking at a company that we introduced last week. They’re the largest company in the Netherlands. The 35th largest company in the world. And they’re one of the most important, but least well-known companies around. So you’re in for a treat here! Yes, we’re going to be diving into The Business Of ASML!

A little bit like TSMC, I doubt many people will be aware of who ASML are. What they do. And why they’re important. But this week will be a great way to end the series. Because the business model of ASML really helps us understand the whole value chain in the semiconductor industry. And will introduce a lot of us to a key process that drives the modern world!

So, without further ado, let’s dive into what ASML does!

Recap - The Semiconductor Value Chain

Okay, it’s the third and final week of semiconductors. And over the last 2 weeks, we’ve gone backwards in the value chain. But it’s a complicated industry. So let’s have a little recap to remind us where we are!

In the graphic below you can see that for a customer like Dell. When they’re looking for chips to power their laptops. Their first point of contact would be a chip designer like Nvidia. Nvidia will work with Dell to design the patterns that the chips powering the laptops require. Nvidia would then contact a chip manufacturer like TSMC to actually implement those patterns. And make the desired chips.

So that’s where we got to last week. But there’s another super important step in this chain. Because as we saw last Wednesday, TSMC need a few things so they can implement the patterns that Nvidia design. In particular, they need machinery and raw materials. And one of the most important machines that TSMC need is a lithography machine.

And this is where ASML enter the picture. Because the Dutch giant is one of the leading providers of lithography machines in the world!

Lithography… The Process That Enables The Modern World

But what exactly do these lithography machines do? How do they help TSMC make chips? Well, to keep it simple - lithography machines use a process known as lithography. And this process uses light to create patterns on silicon wafers. Now, this is an incredibly complex process. And to be honest, I think you only really need to know the basics. But for those of you who are keen to know how the machines work, this article does a great job of explaining things!

The screenshot below shows us what these lithography machines look like. And you may not be able to tell from the photo, but they are absolutely huge. The size of a bus! In fact, they’re so big that it requires 40 freight containers, 20 trucks and 3 cargo planes to transport one machine’s parts…

Whilst very few people are aware of them, these lithography machines form the backbone of our modern world!

Now, I can’t stress the importance of lithography enough. Without lithography, we wouldn’t be able to create patterns on silicon wafers. And these patterns are the reason that our phones, laptops, and every electronic device work! They’re the reason why our phones know to unlock when we type in our password. They’re the reason our laptops know to turn on webcam when we open Zoom. They’re the reason our cars know to keep in the lane when we’re veering into the other lane! So lithography, and hence lithography machines, are an absolutely essential part of our modern lives.

Over the course of this week, we’ll look at how ASML makes money from these machines. The costs required to actually make these machines. And a whole lot more. If you want to get a little head start. This brilliant YouTube video gives you a nice, digestible deep-dive into ASML!

Career Talk - Consulting

So, I didn’t want to flood everyone’s inboxes on Friday with a 3rd email! But I actually had another brilliant Career Talk to share… so I’ll share it now!

I had a cracking chat with my friend, Katerina Strycharczyk (University of Bristol, Assistant Manager @ KPMG) about:

• how she got her role at KPMG, (spoiler: no spring week or summer internship!)

• how strategy consulting differs from management consulting,

• examples of consulting projects she’s worked on, and,

• advice she’d give students wanting to get into this industry.

It really is a great conversation. One I think students will learn a lot from. So I highly recommend it!

15th May 2023

Nigel Jacob CFA