ASML’s hold over the future of chipmaking is weakening

{"text":[[{"start":4.64,"text":"Monopolies are like Christmas cake: they can last a surprisingly long time, but must eventually expire. The English East India Company’s stranglehold on trade routes lasted centuries. In the US, Standard Oil managed a couple of decades before the Supreme Court called time in 1911. Where on that spectrum should one put chipmaking machine manufacturer ASML?"}],[{"start":28.24,"text":"Worries that China is producing its own version of ASML’s chip printing tools knocked 8 per cent off ASML’s shares last week. To be clear, the Dutch company’s monopoly isn’t at imminent risk. China is one technological generation behind when it comes to the “deep ultraviolet” machinery used to etch smaller circuits, according to a report in The Information."}],[{"start":49.52,"text":"Moreover, those DUV tools are in turn probably a decade behind ASML’s more advanced “extreme ultraviolet” machines. That’s a much wider gap than Chinese contenders must bridge in products like chips themselves or AI models. While China has shown aptitude for warp-speeding industrial processes, it took ASML 12 years to ship a prototype EUV kit and another eight to reach the productivity rates that attracted customers."}],[{"start":null,"text":"

"}],[{"start":76.967,"text":"Unlike chips and large language models, there is no “good enough beats best” when it comes to lithography. This is a process of many moving parts. Precision is measured in atoms; tolerance is infinitesimally lower than it would be for, say, electric vehicles. Constant tweaking requires feedback, which ASML gets from shipping hundreds of data-generating machines every year. China cannot yet match that."}],[{"start":102.85,"text":"Still, a world of fractured trade flows — the US forbids ASML from shipping its EUV machines to the People’s Republic — has forced the country to try. True, the obstacles are immense: the Dutch group’s 40-year head start; a supply chain comprising 100,000 different parts. ASML has been careful not to invite competitors in, too, by pricing its tools broadly fairly. Hence a gross margin of 54 per cent in the latest quarter is almost a third lower than Nvidia’s in its last reported quarter."}],[{"start":132.32,"text":"Eventually, China will succeed. Talent and money, or at least the government’s ability to direct it, are abundant. The country outstrips Europe and the US many times over in terms of manufacturing workers and engineers. Chinese companies are superb at building and running efficient supply chains; just look at electric vehicle maker BYD. And a nation that sets five-year agendas has no qualms about putting in the time."}],[{"start":156.446,"text":"All this means that ASML’s monopoly is no longer unassailable. It looks likely to lose at least its sales into China at some point — worth nearly a third of the total last year. And investors are putting a lot of weight on the distant future: over 60 per cent of ASML’s current enterprise value is dependent on its cash flows after 2035, Lex calculates. Sure, having a monopoly is valuable, but keeping it is what counts."}],[{"start":186.53,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785801759_1695.mp3"}