ASML Holding N.V. (NASDAQ: ASML) and Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) have recently announced a collaborative initiative to improve the economics of chip production and lead the semiconductor industry’s transition to a larger-format Extreme Ultraviolet (EUV) lithography photomask.
The companies plan to transition to larger, 12-inch masks from the current, 6-inch masks, helping increase fab productivity, lower chip making costs and remove stitching constraints.
Marco Pieters, ASML’s chief technology officer, has told Reuters that the successful implementation of the technology would help the productivity of those systems go up by 40%. The initiative could improve the economics of ASML’s newest lithography platform, but also offers its customers such as TSM a tool for manufacturing advanced chips.
The catch, however, is the timeline that remains years away.
What 40% Better Productivity Means for ASML
While High-NA EUV technology can help print finer features, ASML’s current optical design comes with a smaller exposure field. Larger chips therefore require separate patterns that are more complex and reduce profitability.
The solution, therefore, is a larger mask that could remove stitching constraints and also lower manufacturing costs. ASML and TSMC’s collaboration towards a larger mask is the very step towards this direction.
“We expect the adoption of High NA EUV to increase progressively along the device scaling roadmap, first using current 6-inch masks and then further supported by 12-inch masks, which enable greater scanner productivity and allow the industry to meet the demand for smaller, faster and more energy-efficient chips.”
-Christophe Fouquet, president & CEO, ASML.
For ASML, the 40% productivity gain may lead to wider adoption and give TSMC the chance to improve its return on manufacturing investment. The bear case, however, rests on delayed adoption and high capital hurdles.
For TSM, the Economics Matters
Earlier, there were concerns that TSM has been delaying the adoption of ASML’s $400 million High-NA EUV machines due to cost issues. However, the company has now announced its intention to use the High NA EUV for advanced nodes starting in 2030.
The said transition to 12-inches would enable High-NA systems to manufacture larger chips while removing stitching constraints.
However, since TSMC plans on adopting the new technology from 2030, and the larger mask initiative targets a 2031 timeline and production readiness by 2033, TSM would have to go for the existing mask format first.
Hedge Fund Sentiment
Insider Monkey’s hedge fund database tracking more than a thousand funds can help shed light surrounding the interest on both of these stocks. As per the numbers, ownership remains strong across both of the companies.
140 hedge funds held ASML at the end of the second quarter, up from 133 in the prior quarter. Meanwhile, 249 hedge funds held TSM at the end of the second quarter, up from 234.
Overall, it is obvious that larger masks could make High-NA EUV more productive and strengthen the case for wider adoption. However, a pilot line isn’t expected until 2031 while production readiness is targeted for 2033, implying that the 40% productivity opportunity is more of a long-term catalyst rather than an immediate earnings driver.
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