Is ASML Unbeatable?

Apr. 3.12 | About: ASML Holding (ASML)

A decade ago it was a three company race to achieve dominance in the semiconductor lithography market, but ASML (ASML) has emerged as the clear leader with no signs of relinquishing its lead, according to a report from The Information Network entitled "The Global Market for Equipment and Materials for IC Manufacturing."

The chart below shows unit shipments back to 1992.

Click to enlarge
(Click to enlarge)

In 2001 Nikon (OTC:NINOF) held a 41.6% share of units shipped, compared to 34.8% for Canon (NYSE:CAJ) and 22.4% for ASML. In 2011, Nikon's share dropped to 27.8%, Canon's share dropped to 15.2%, while ASML's share increased to 57.0%

Total Shares (units)

2001

2011

ASML

22.4%

57.0%

Canon

34.8%

15.2%

Nikon

41.6%

27.8%

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In the low-end, the i-line stepper market, which is the least sophisticated lithography technology to make a chip, Canon held a 48.8% share in 2006, Nikon was second with a 34.9% share, while ASML was third with only a 16.3% share.

In 2011, Canon held a 52.9% share, Nikon held a 40.0% share, and ASML held a 7.7% share.

I-Line Stepper Shares (units)

2006

2011

ASML

16.3%

7.7%

Canon

48.8%

52.9%

Nikon

34.9%

40.0%

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While the product mix landscape was similar in 2006 in the i-line market, these tools sell for only $5 million. However, the really big money is in ArF immersion tools that sell for $30 million and more depending on all the bells and whistles.

In 2006, the first year of the immersion market, ASML jumped to a 72.4% share while Nikon held a 27.6% share and Canon did not participate.

In 2011, ASML's share increased to 82.0% while Nikon's share dropped to 18.0%.

IArF Immersion Stepper Shares (units)

2006

2011

ASML

72.4%

82.0%

Canon

0%

0%

Nikon

27.6%

18.0%

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We see a bifurcation in the market that started in 2004, when ASML for the first time led the ArF market with a 37.5% share followed by Nikon with a 33.8% share, and Canon with a 28.8% share. It appears the current lithography landscape is set, and the next battleground will have to be EUVL for Nikon or Canon to regain market lead in premier technology.

Indeed, Nikon got off to an early start, shipping one Extended Ultra Violet Lithography (EUVL) tool in the fourth quarter of calendar year 2008, but delayed further development. In mid-2010, Nikon announced its high-volume EUVL tool will "ready" in 2014-2015.

Meanwhile, in 2011, ASML shipped 6 EUVL units with an average selling price of $52 million (equivalent to the price of 10 i-line steppers) and got paid for 3 by the end of the fiscal (and calendar) year. All the shipments discussed above in this article are actually paid for by the end of a calendar year, so ASML will register at least another 3 shipments in 2012.

The monopoly held by ASML in the high-end stepper market (ArF and EUVL) has and will continue to have an impact on semiconductor manufacturers. ASML products command a much higher selling price than competitors, and in the semiconductor market advanced lithography is so critical that buyers are willing to pay the higher price.

For example, while ASML held a 57.0% share of unit shipments in 2011, it held an 81.6% share of revenues.

Who are ASML's customers? According to their press kit, ASML supplies most of the world's major chip manufacturers, the world's largest DRAM company - Samsung, the world's largest digital signal processing company - Texas Instruments (TXN), the world's largest foundry (made-to-order chipmaker) - TSMC (TSM), and Intel (INTC).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.