Neil Hacker explains how Europe built a technology giant.
The phones we carry around in our pockets have two million times more memory and are thousands of times faster than the room-sized computers that guided the Apollo mission to the Moon. This incredible shrinking act has been driven by our ability to make transistors smaller and smaller.
Each transistor is a microscopic switch that can alternate between a one and a zero, the basic language of all computing. Billions are packed onto tiny silicon chips called semiconductors. The more transistors that fit onto a chip, the more logic and memory circuits it holds, and the more it can do.
Advanced semiconductors are, arguably, the most important technology in the world. Over the last five years, they have even emerged as a geopolitical flashpoint between the US and China. But for all this rivalry, any country or company that hopes to manufacture semiconductors is dependent on a single firm: ASML. Dubbed ‘a relatively obscure Dutch company’ by the BBC in 2020, ASML makes the only machines in the world capable of stenciling the transistors onto chips with the precision necessary to fit billions on a 30-centimeter wafer.
These machines are roughly the size of double-decker buses. To ship one requires 40 freight containers, three cargo planes, and 20 trucks. They are the world’s most complex objects. Each contains over one hundred thousand components, all of which have to be perfectly calibrated for the machine to produce light consistently at the right wavelength.
While ASML is now the sole supplier of these machines, and will be for some time to come, it started out as a laggard in the chipmaking industry. Overtaking its competition required many things rarely associated with European companies: close collaboration with the American government, selling large stakes to foreign competitors, and a huge gamble on an unproven technology.
Let there be light
The key to ASML’s success is a technology called photolithography (sometimes just called lithography). The technique involves transferring a pattern onto a semiconductor wafer by exposing it to light. In the 1950s, the first chipmakers had tried to draw these patterns by hand, but anything that physically touches the wafer scratches it, dirties it, or warps the pattern. Scientists working independently for Bell Labs and the US military realized that they could use light to print identical patterns without making physical contact with the wafer.
To make chips, engineers start with a thin wafer of semiconductor material, usually silicon. This wafer is coated with a chemical called photoresist, which reacts when exposed to light. In photolithography, light is projected through a detailed pattern onto the photoresist-coated wafer, softening the exposed areas. The wafer is washed to remove any softened areas, revealing the silicon underneath. It is then moved to an etching machine that blasts it with charged chlorine or bromine gas, carving the desired pattern into the exposed silicon. These features are later filled with metal, such as tungsten and copper, to connect the transistor to power. These etched layers then combine into an intricate network of transistors.
Over time, the semiconductor manufacturing ecosystem has developed increasingly sophisticated etching using ever smaller wavelengths of light. Smaller wavelengths diffract less, allowing the light to travel in straighter lines and print sharper, tinier details without blurring. These allow for more precise pattern projections that, in turn, allow smaller and more densely packed transistors.
Early lithography relied on mercury vapor lamps that were similar to streetlights, while more modern machines rely on lasers created using argon and fluorine gases. By 2010, such lasers made it possible to create a 22-nanometer feature through multiple exposures using a 193-nanometer wavelength.
The most advanced version of this technology, extreme ultraviolet lithography, is used to make the very smallest chips. The smallest in 2025 were marketed as three nanometers, roughly 25,000 times thinner than a human hair.
To make them, a droplet of liquid tin is released into a chamber and hit with a single pulse of light, which melts and flattens it. As the droplet continues to fall, a second, more powerful pulse vaporizes the tin, creating an extremely hot plasma that emits light at the narrow wavelengths needed for extreme ultraviolet lithography. The light beam is then concentrated by reflecting it across a series of slightly concave mirrors so flawless that, if scaled to the size of Germany, their imperfections would be measured in millimeters. Engineers need to use mirrors, rather than the glass lenses used in standard lithography, as almost all solid materials absorb light at such short wavelengths.
The light eventually hits the mask, which contains the pattern to be printed on the chip. As the pattern on the mask is usually several times larger than what is wanted on the chip, the light is then reflected by a second system of mirrors.
After the light reflects from the mask, it carries the pattern as a bundle of rays spreading out from each point. The next mirrors tip these rays inward so that, instead of spreading widely, they reunite over a shorter distance. When the rays from each point come together sooner, the picture they form is physically smaller. By repeating this with several carefully shaped mirrors, engineers shrink the pattern by a fixed amount while keeping it in focus. After being shrunk four times, it hits the wafer.
The great shrinking act
Longer wavelengths act like a blunt chisel, suitable for rough shaping, but they struggle to capture finer details. The longer light waves are larger relative to the tiny features on the reticle that they must reflect from. When a wave meets something smaller than itself, it naturally spreads and bends around its edges instead of casting a sharp shadow. To create the same details, the blunt chisel needs to go over the same spot a number of times (creating blurrier edges). Lithography had to take wavelengths all the way to the extreme ultraviolet range to achieve the high resolution patterning needed for cutting-edge process nodes.
Wavelengths as low as 13.5 nanometers can achieve more precise patterns in a single exposure. In fact, extreme ultraviolet lithography can combine three or four photolithography patterning cycles into a single one on a seven-nanometer node. Without EUV, producing five-nanometer nodes might require as many as one hundred different steps.
Extreme ultraviolet lithography was able to produce more accurate patterns on wafers than older techniques even if they were used multiple times.
Today, ASML dominates the overall market for lithography and has an effective monopoly in extreme ultraviolet lithography. Its EUV machines sell for more than $120 million. With a market capitalization of over $400 billion, ASML is one of Europe’s most valuable companies. But it wasn’t always like this.
Origins
ASML started off life within Philips, the Dutch consumer electronics giant. During the 1970s, Philips had roughly 20 percent of the global electronics market and was a major chipmaker. In this era, lithography machines used wavelengths of over 400 nanometers to pattern 1,000-nanometer features. The industry struggled to shrink features without losing accuracy or letting dust and flaws creep in. Philips began to work on its own prototype, drawing on its expertise in optics and precision mechanics. By the early 1980s, the project was running into trouble. The company was looking to cut costs and engineers estimated that they would need over $280 million in today’s money to finish the machine’s development and production.
In 1984, Philips spun out Advanced Semiconductor Materials Lithography (which later dropped the full name in favor of its acronym) as a joint venture with ASM International, a Dutch conglomerate that sold equipment to the semiconductor industry. The business originally struggled. It had no market share and no brand recognition. Its first product, the PAS 2000, was a commercial failure. The machine used oil pressure, like that in power steering, to move the table that held the wafer during exposure, rather than electric motors. This made it smooth and precise, but it was prone to leaking. At the first conference ASML attended, one industry executive told them: ‘The race has already been run. There’s no room for you here.’ ASML switched back to electric motors.
The company took an unusual approach from the outset. While Japanese giants Nikon and Canon were vertically integrated, ASML outsourced key components like optics and motors so that it could focus on assembling and optimizing the final machine. Given this outsourcing, it made sense for ASML to embrace a modular design with clearly defined subsystems. This approach was mocked in European manufacturing circles. German engineers warned ASML’s leadership that they were ‘asking for trouble’ and would ‘lose all control’ if they didn’t make critical components themselves. But ASML had no choice: it lacked the capital, expertise, and time to build these subsystems from scratch.
By 1988, ASML was on the verge of collapse. ASM International had already pulled out, and Philips considered shutting it down. It was saved by a single Philips board member, Gerd Lorenz, who was particularly worried about Europe’s growing dependence on Asia for strategic technology. Lorenz argued that Europe needed a stake in chip manufacturing. This was enough to convince Philips to give ASML more time, but didn’t fix its fundamental problem: it was still an inferior supplier with no competitive edge.
ASML used the time it was given to develop the PAS 5500, released in 1991 and the company’s first commercial breakout. While Nikon’s contemporary photolithography system was more precise, ASML’s modular design meant that machines could be fixed quickly on site. This reduced downtime and, by making it easy to replace parts when they broke, it was possible to extend the machine’s life. This was a key factor that led John Kelly, IBM’s director of semiconductor R&D, to push IBM to order the PAS 5500 over the Japanese machines. ASML had gone global.
The first breakthroughs
ASML’s success depended on two projects in the late 1990s and 2000s that gave it a huge advantage in research and development. The first was a public-private partnership, started in 1997, called the Extreme Ultraviolet Limited Liability Company. The Extreme Ultraviolet Limited Liability Company began life as a rescue mission. Before 1997, basic semiconductor research was carried out in a small handful of research labs, all dependent on government grants.
The original program for EUV research was a ‘virtual national lab’ that combined Lawrence Livermore National Laboratory, Sandia National Laboratories, and the Lawrence Berkeley National Laboratory. Each covered a different component: Livermore focused on mirrors and optics, Sandia on the light source and systems engineering, and Berkeley on advanced equipment for testing. But in 1996, Department of Energy budget cuts had placed the virtual national lab program on the chopping block.
Intel, then the undisputed world leader in microprocessors, was keen to preserve the work and spearheaded the creation of the Extreme Ultraviolet Limited Liability Company, the largest public-private partnership of its kind in the history of the US Department of Energy. During its six-year life, the company invested over $270 million into extreme ultraviolet lithography development, funded by the sale of shares to member companies, giving them a right of first refusal to purchase the photolithography tools being produced.
The company initially restricted membership to American firms. ASML, along with its main Japanese rivals, Canon and Nikon, was initially barred from membership.
The only established semiconductor equipment manufacturer to join the partnership from the beginning was Silicon Valley Group, which had a market share of just 5 percent to ASML’s 20 percent. Fearing the danger of being reliant on such a small manufacturer, the rest of the companies involved concluded that it would be better to open up to foreign firms, rather than risk ceding the entire market.
ASML was allowed to participate so long as it committed to establish a research center in the US and source 55 percent of components for the systems sold in the US from American suppliers. In practice, this commitment was never enforced. Its Japanese competitors were never allowed to join, due to widespread fear in the US of Japanese competition.
The program built up a vast base of intellectual property and process knowledge. These types of public-private partnerships typically grant the participating companies a non-exclusive license to use the intellectual property generated, but in this case the companies in partnership got complete ownership.
In 2001, ASML acquired Silicon Valley Group after it ran into cash flow difficulties, making ASML the sole surviving equipment manufacturer in the partnership. When the consortium produced the first full-scale extreme ultraviolet lithography prototype – the Engineering Test Stand – ASML stood alone at the vanguard of lithography. This was the first demonstration that 13.5-nanometer light could print dense features on a chip.
By the time the Engineering Test Stand was built, the program had already proved that it was possible to generate extreme ultraviolet light reliably, which let engineers start building mirrors and lenses that could be used in real production tools. To solve outstanding questions, such as how to boost the throughput of their machines or increase the power of their light sources in production settings, ASML needed to test its machines in environments close to the real world. But no chipmakers were willing to shoulder a project so large and risky at such an early stage.
The second project essential to ASML’s success was the Belgium-based Interuniversity Microelectronics Centre (IMEC), a research organization that collects machines from different companies and allows researchers to test them in semi-real environments while protecting the companies’ intellectual property.
As potential customers began to consider different options for next generation lithography technologies, ASML used IMEC to promote its extreme ultraviolet lithography prototype. Topping ASML’s target list was TSMC, which today is the world’s largest semiconductor foundry. Founded in 1987, TSMC’s history had been intertwined with ASML’s since its birth: Philips, ASML’s former parent, owned a 27.5 percent stake in it. Seeing ASML’s machinery exhibited at IMEC was what led TSMC to partner with ASML in EUV development.
By contrast, Canon and Nikon were tight-lipped about their research and made little effort to cooperate with outside companies. While this theoretically allowed them to maintain greater control over their work, and capture more of the value chain, it also made them solely responsible for simultaneously solving a bewildering array of fundamental physics problems, while assuming all the financial risk of doing so.
Since almost all of the parts in ASML’s machines are made by other companies, it has become master of a sprawling supply chain of over five thousand companies. It has diversified its suppliers over the years in a very deliberate way: 80 percent of its spending goes to companies across Europe and the Middle East (notably not the US, despite prior agreements), which reduces the risk of potential export restrictions, tariffs, and other geopolitical risks that may face critical suppliers based in the US or Asia. It also aims for its suppliers to make no more than 25 percent of their revenue from ASML, to force them not to become overreliant on the volatile semiconductor market.
While most of its components come from a large number of small suppliers, ASML has formed deep bonds with its biggest suppliers. It acquired a 24.9 percent stake in optics manufacturer Zeiss. Peter Leibinger, vice chairman of laser manufacturer Trumpf, has said that ASML and Trumpf are a ‘virtually merged company’.
Winning the war
Extreme ultraviolet lithography would not become a successful commercial technology until 2018, over 20 years after the creation of the Extreme Ultraviolet Limited Liability Company and 34 years after IMEC was founded. In the meantime, it was consuming more and more resources. By 2015, ASML was spending more than $1 billion a year on R&D, more than double its 2010 total. According to some estimates, by 2014, the industry had collectively invested over $20 billion in extreme ultraviolet lithography, with no guarantee of any return.
ASML was able to continue pouring money into this black hole partly because it had already beaten its competitors. By 2010, it had two thirds of the overall lithography market and was the dominant supplier for the rapidly growing smartphone market, with deep ties to Intel, Samsung, and TSMC. It had secured this position by winning the decisive technical battle of the 2000s.
At the start of the millennium, the entire semiconductor industry hit a physical wall. Circuits had been getting steadily smaller for decades by simply switching to shorter wavelengths, but the standard 193-nanometer light (roughly one five-hundredth of the thickness of a human hair) was too blunt to draw smaller circuits.
Nikon tried to solve this by developing a new light source with a smaller wavelength of 157 nanometers. But this shorter wavelength light was absorbed and distorted by standard glass, forcing Nikon to build lenses out of calcium fluoride, a rare, brittle crystal that was expensive to polish and prone to cracking under heat. The industry poured hundreds of millions of dollars into this ‘dry’ lithography path, only to find the manufacturing challenges insurmountable.
ASML’s partnerships helped it avoid this dead end. TSMC researcher Burn Lin had advised them to switch to a technology called immersion lithography. ASML continued to use 193-nanometer light but placed a layer of water between the lens and the silicon wafer. Just as a straw appears bent and magnified when placed in a glass of water, the water in the machine bent the light waves, sharpening the focus and allowing smaller circuits to be printed without needing new lenses.
ASML compounded this advantage by introducing a revolutionary machine architecture called TWINSCAN. In older machines, the light source would sit idle while the machine stopped to measure the surface of the silicon wafer to ensure it was flat. ASML replaced this with a dual-stage system: a massive machine with two tables would measure one wafer in the background while another was being printed simultaneously. This eliminated the dead time in the manufacturing process, allowing chipmakers to produce significantly more chips per hour. By the time Nikon abandoned its 157-nanometer project in 2005, ASML had become the industry standard, with 53.2 percent of the market.
ASML’s machines were so much better than the competition that it could charge nearly twice as much for them: $55 million versus $30 million for the comparable Nikon device.
But even this was not enough. While ASML was beginning to ship prototype EUV machines to IMEC from 2006 onwards, they were so slow and prone to breaking down that they were commercially useless. In 2012, ASML, still reeling from the global financial crisis, was struggling to continue financing its EUV efforts.
In a drastic move – part desperate attempt to keep the company’s research efforts afloat and part strategic bet to win the EUV market once and for all – the ASML leadership launched a co-investment program that sold 23 percent of the company to its three largest customers: Intel, TSMC and Samsung.
The funding also allowed ASML to complete a $2.5 billion acquisition of one of its suppliers, Cymer, which produces lithography light sources. The acquisition allowed ASML to invest in Cymer’s R&D efforts to perfect its soft X-ray light source, which involved hitting fast-moving droplets of tin with such force that they lost electrons, but precisely enough that this did not shed so much debris that it coated the mirrors. They accomplished this by moving from a single pulse to two separate laser pulses: the pre-pulse would shape the droplet and the main pulse would generate the plasma. This improved efficiency and stability.
ASML’s close partnership with TSMC proved especially critical. In 2014, TSMC launched its first chip for Apple, which was now its largest customer and was putting pressure on the chipmaker to produce higher performance chips than its existing machinery was capable of. It had become urgent for ASML to complete a commercial EUV machine.
The two companies worked so closely together that Anthony Yen, the Division Director at TSMC responsible for overseeing EUV development, described them as ‘one team’. ASML and TSMC engineers on the ground worked tirelessly, troubleshooting and iterating until they had reached the necessary throughput: 500 wafers a day for a month.
During this period, the joint team redesigned both the tin-droplet generator and the way the laser hit each droplet. The new setup produced droplets that were about half the original size while still yielding the same ultraviolet energy. Smaller droplets throw off far less debris when vaporized, which slows the rate at which tin builds up on the collector mirror. Because the mirror degrades more slowly, it needs fewer replacements, keeping the machine up and running for longer stretches.
The partnership was a win for ASML, as it was able to work through some of its key engineering and commercialization challenges. It also helped TSMC become an early adopter of the most cutting-edge technology. By 2019, TSMC was ramping up mass production of its seven-nanometer process and the first phones with EUV chips were being sold by the end of the year.
Meanwhile, competitor firms like Nikon, which had never believed as strongly in extreme ultraviolet lithography, effectively gave up. In its 2013 annual report, Nikon noted that its own EUV progress had not proceeded as planned, and it was not mentioned in an annual report again. With ASML pulling ahead on R&D and locking up key customer demand, and with competitors struggling to justify their own R&D spending in the wake of the financial crisis, ASML became the last company standing in the race to commercialize the technology.
The importance of tacit knowledge
Early on, ASML cultivated a culture that was more risk tolerant than other players in the industry. It promoted high-potential talent early and had a track record of retaining key employees for decades. Much of this is a product of its challenging early years. ASML needed the talent of its younger generation to save the company, so it was more willing to promote and empower them quickly.
For example, Martin Van Den Brink joined ASML in 1984. Within 18 months, aged 29, he became one of two people promoted to lead the development of one of the company’s early flagship projects. He carried on working at ASML for his entire career, serving as president and chief technical officer until his retirement in 2024. This practice was far less common among ASML’s Japanese rivals, who were more hierarchical and tended to reward seniority over performance.
Retaining the best workers is especially crucial in an area like photolithography, where a huge amount of tacit knowledge is used to assemble its machines. An ASML engineer once told He Rongming, the founder of Shanghai Micro Electronics Equipment, one of China’s top ASML competitors, that the company wouldn’t be able to replicate ASML’s products even if it had the blueprints. He suggested that ASML’s products reflected ‘decades, if not centuries’ of knowledge and experience. ASML’s Chinese competitors have systematically attempted to hire former ASML engineers, and there is at least one documented case of a former ASML employee unlawfully handing over proprietary information. But none of this appears to have narrowed the gap.
A European giant
ASML is a rare example of a European tech giant. Its success was the result of transatlantic cooperation, not continental parochialism. Had the company not joined a program funded by US chipmakers, Canon and Nikon would likely still dominate a less advanced lithography industry.
Cooperation with other companies was just as important. While vertical integration gave Nikon and Canon total control, it capped their innovation at the limits of their internal resources. In a system exceeding one hundred thousand components, that ceiling proved fatal. ASML’s modular approach allowed it to import cutting-edge physics by acquiring Cymer and investing in Zeiss, while distributing the risk to customers like Intel and TSMC. This strategy created a collective engine that outspent and outpaced every rival attempting to shoulder the burden alone.
This took a great deal of courage. ASML sank billions of dollars into the development and commercialization of EUV technology, with no guarantee that it would ever work. As late as the 2010s, many semiconductor experts doubted that the technology could be successfully commercialized. Now it is the most important technology in the world.
But ASML, and by extension the continent, cannot stand still. As ASML enjoys its place as an indispensable pillar in one of the world’s most important industries, others are working to create a new paradigm in chip technology. Moore’s Law probably doesn’t end here, and in a matter of years, five nanometers won’t be small enough.
Neil Hacker runs partnerships at Isometric. Follow him on Twitter.
Nice summary ! At some point, someone should write an article of the intertwining of Semiconductor manufacturing with Electronic Design Automation... which is the key enablement to use these technologies.
Truly excellent article, like one of John Y's at Asianometry. Eventually XUV runs out too, and my impression is that free-electron lasers will be needed to go even tighter. If XUV was a gamble, getting FEL to work economically at scale is like playing Powerball to win. Humanity has been very lucky so far in coming up with lots of similar big wins in innovation in this area just when they are needed.