The Economist 29Feb2020

TheEconomistFebruary 29th 2020 51

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sk peopleto pinpoint the centre of the
digital economy and many will finger
Silicon Valley, populated by Apple, Google,
Facebook and too many sexy startups to
count. Others may nod at the area around
Seattle, where Amazon and Microsoft are
based. Some could suggest Shenzhen, Chi-
na’s technology hub. Few would point to a
nondescript suburb of Eindhoven, the
Netherlands’ fifth-biggest city. Yet on clos-
er inspection, the case for Veldhoven looks
compelling. It is home to asml, the world’s
sole manufacturer of the most advanced
equipment critical to modern chipmaking.
If chips make the world go round, asml
may be the closest the multi-trillion-dollar
global tech industry has to a linchpin.
asmlis not the only maker of photo-
lithographic machines, which use light to
etch integrated circuits onto silicon wa-
fers. It competes with Canon and Nikon of
Japan. But the Dutch firm’s market share
has nearly doubled, to 62%, since 2005.
And it alone has harnessed “extreme ultra-
violet” (euv) light, with wavelengths of just

13.5 nanometres (billionths of a metre).

Shorter wavelengths allow the etching of

smaller components—vital for chipmakers

striving to keep pace with Moore’s Law,

which posits that the number of compo-

nents that can be squeezed into a given area

of silicon doubles roughly every two years.

The world’s three leading chipmakers—

Intel in America, Samsung in South Korea

and the Taiwan Semiconductor Manufac-

turing Company (tsmc)—have become as

reliant on asml’s wares as the rest of the

technology industry is on theirs.

The company’s performance reflects

this increased dependence. Its revenues

grew by 8% in 2019, to €11.8bn ($13.2bn), de-

spite a slump in the highly cyclical semi-

conductor business. Although euvdevices

accounted for only 26 of the 229 lithogra-

phy machines the firm sold in 2019, they

made up a third of sales by revenue. The

firm expects this to rise to three-quarters

by 2025, as other chipmakers upgrade from

existing “deep ultraviolet” technology.

With neither Canon nor Nikon pursu-

ing euv technology, investors have con-

cluded that asmlwill enjoy its nanoscopic

monopoly for a while. Since 2010 its market

capitalisation has grown tenfold, to

around €114bn (see chart). It has nearly

doubled in the past year alone. asmlis

worth more than Airbus, Siemens or Volks-

wagen. Its share price has suffered along

with others as covid-19 rattles global mar-

kets, but its longer-term outlook appears as

bright as the white-walled cleanrooms

where its machines take shape. Its shares

trade at a mouthwatering 32 times forward

earnings, double or more those of its big-

gest customers.

Times were not always so good. The

firm started life in 1984 as a joint venture

ASML

Industrial light and magic

VELDHOVEN
A low-key Dutch company has monopolised a critical link in the global
technology supply chain

Shiny performance

Source: Datastream from Refinitiv

Market capitalisation, €bn

2010 12 14 16 18 20

0

20

40

60

80

100

120

Airbus ASML

Siemens

Volkswagen

Business

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