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Technology

Rise of TSMC gives windfall to Dutch chipmaking equipment giant

Sales to Taiwan triple as US-China trade war alters supply chains

ASML is the only commercial producer of cutting-edge extreme ultraviolet lithography equipment. (Photo courtesy of ASML)

TOKYO -- Dutch chipmaking equipment company ASML enjoyed solid earnings last year, even amid cooling chip demand, thanks to the advantage its top customer, Taiwan Semiconductor Manufacturing Co. has secured in the foundry market.

The company recorded an 8% rise in consolidated sales to 11.8 billion euros ($13.2 billion) for 2019, while net profit edged up to 2.6 billion euros. This came even amid a 10%-plus decline in global semiconductor demand that dragged down rivals' earnings across the board.

ASML's unusually large share of sales to Taiwan -- 45% -- hints at the key to its success. Its sales from that market nearly tripled in 2019. In its annual report released last month, the company noted that net sales from its largest customer accounted for 39.7% of the total last year, a significant increase from 22.6% in 2018.

This almost certainly reflects sales of extreme-ultraviolet lithography equipment to TSMC, the world's largest foundry.

TSMC handles production of chips designed by its customers, which include telecommunications equipment giant Huawei Technologies. Akira Minamikawa of U.K. research firm Omdia estimates that about half of the 26 units of EUV equipment sold by ASML last year went to the Taiwanese company.

Lithography equipment is used to print circuit patterns on silicon wafers. Smaller features allow for higher processing speeds and reduced power usage. TSMC in 2019 began full-scale mass production of chips with 7-nanometer technology, a process requiring the ultralow wavelengths of EUV lithography -- which is available only through ASML.

2019 "was the milestone year when, after a 20-year EUV journey, our customers started high-volume chip manufacturing on our EUV machines," CEO Peter Wennink said in the annual report.

Samsung Electronics and Intel have also purchased EUV equipment from the Dutch manufacturer. But TSMC is nearly a year ahead in its command of the technology, Minamikawa said.

Relying on a single company for roughly 40% of sales is hard to see as healthy. But ASML was able to parlay last year's EUV lithography breakthrough into big payouts via joint efforts with TSMC.

Semiconductor Manufacturing International Corp., mainland China's largest foundry, reportedly ordered EUV equipment from ASML. But the Dutch government decided not to renew ASML's license to export the gear to China, leaving the shipment in limbo, amid U.S. pressure.

The order had been seen as a golden opportunity for China to gain cutting-edge technology as the country seeks to become more self-sufficient in chips. Instead, TSMC -- based in U.S.-aligned Taiwan -- has extended its lead and further cemented its importance to global supply chains.

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