ASML sells ‘picks and shovels’ to the chip industry

Article Excerpt

ASML is the leading global supplier of photolithography equipment for semiconductor manufacturers. Its clients include the major chipmakers such as Taiwan Semiconductor Manufacturing, Intel, Texas Instruments, and Samsung Electronics. Photolithography is the process in which a light source is used to expose circuit patterns from a photomask onto a semiconductor wafer. Technological progress in this field enables chipmakers to continually increase the number of transistors on the same area of silicon. Lithography tools account for a significant portion of chipmakers’ capital expenditures, with the latest extreme ultraviolet systems costing $200 million each. ASML’s advanced lithography tools have let the company capture and maintain its leadership position in the marketplace. Meanwhile, its competitors like Nikon and Canon do not have the scale or resources to compete effectively in this market. ASML is a large and highly profitable company with annual revenues of $25 billion U.S.—about the same as Nvidia and about half of Intel’s revenues. ASML has a sound balance sheet and strong cash…