Source: Applied Materials.
Speaker of the U.S. House of Representatives Nancy Pelosi’s recent visit to Taiwan was largely publicized—not just because of its geopolitical significance, but because it also underscored Taiwan’s importance to the global tech industry. Part of a whirlwind tour around Asia, Pelosi’s stop in Taiwan included a meeting with Chairman of the world’s largest chip maker, TSMC, in a sign of how critical semiconductors are to U.S. national and economic security. During the meeting, TSMC’s Chairman and Pelosi discussed the recently passed U.S. CHIPS and Science Act, which is a movement to bring chip manufacturing back to the U.S. by offering financial incentives for new capacity.
Spurred by the chip shortage, the onshoring movement is driven by a desire to increase chip independence from other countries. Small but powerful, chips fuel our devices, networks, datacenters, modes of transportation and factories. In fact, semiconductors have a become a major source of U.S. and China rivalry in the past few years as economic growth has become largely dependent on them. Not having access to the latest chips would mean to fall behind on the global stage.
Unfortunately, a complex and vast supply chain means no one can progress alone. When it comes to memory or processors, Asia is clearly ahead in developing technology to make advanced chips, but that would not be possible without the tools and equipment needed to make the chips themselves. The U.S. accounts for over 80% of the world’s chip design equipment, 50% of core intellectual property for chip design, and around half of the world’s chip manufacturing equipment. Despite a seemingly small market size of US$95bn, there’s no denying that equipment is the pillar of the US$600bn semiconductor industry and the larger electronics market of US$2.5tr.
While many players in the semiconductor supply chain look to benefit from the structural demand growth from new applications like Artificial Intelligence and 5G, we believe equipment makers are the arms dealers in this all. In addition to benefiting from the rising cost and complexity of chip manufacturing, they should benefit from policy support that incentivizes companies to accelerate capex to keep up in the global arms race. Major equipment companies include Applied Materials, ASML and LAM Research, but we see ASM International as one of the biggest beneficiaries given its innovative products and early customer engagement.
Semiconductor Supply Chain
Source: BofA Research, SIA, Gartner.
ASM International
When studying the global semiconductor equipment industry, it is difficult to ignore two companies that sound strangely alike: ASM Lithography (ASML) and ASM International (ASMI), both headquartered in the Netherlands. Known as the father of the European semiconductor equipment industry, Arthur del Prado founded ASMI in 1964, specializing in the design and manufacturing of semiconductor wafer processing equipment. In 1984, ASMI and electronics giant Philips entered a joint venture to develop lithography systems for the growing semiconductor market, resulting in the birth of ASML. Today, ASMI continues to make products that are used in the front end of chip-making across the globe, which include processes like ALD (atomic layer deposition) and epitaxy, while ASML continues to focus on lithography.
ASMI’s technology enables the deposition of material layers on wafers that create the chips of the future. More applications, transistors and design complexity mean more layers on semiconductors, and the different layers are being combined to create a new world of possibilities. Complex 3D structures and new materials are allowing chips to become increasingly fast and powerful, and the ongoing 3D architecture evolution that led to chip designs like 3D NAND and FinFET look to be followed by 3D DRAM and GAA (gate all-around). ASMI is positive about the innovative products that enable such customer roadmaps, and foresees sales to rise from US$1.3bn in 2020 to US$3.1 – 3.7bn by 2025, with a high operating margin of 26 – 31%.
ASMI is well positioned as a leading player in ALD with more than 50% global market share, and hopes to expand share further in both ALD and epiwafer. In light of the growth opportunities ahead, ASMI expects to step up R&D efforts and prepare a substantial capacity increase in Singapore that will be ready by 2023. We are convinced about ASMI as an enabler of technological breakthroughs with strong engagement with all major chip makers of the world.
ALD to Outgrow the Market as Device Complexity Increases
Source: SemiconductorEngineering, Transistors Reach Tipping Point At 3nm.
