ASML is a Dutch producer of photolithography systems for use in the semiconductor industry. The company was formed in a partnership between Philips and Advanced Semiconductor Materials International (ASMI) in 1984.
ASML makes money by selling machines that make semiconductors, with each machine selling for around $150 million. Some of the company’s largest clients include Intel and Samsung.
ASML also sells software and software upgrades to help clients make improvements in chip size and performance. Over the 20-year life of a machine, software upgrades can be a significant source of company revenue.
ASML is a Dutch producer of photolithography systems for use in the semiconductor industry.
The company was founded in 1984 as ASM Lithography by electronics giant Philips and chip-machine manufacturer Advanced Semiconductor Materials International (ASMI).
During the early days, the company occupied a leaky shed next to a Philips office in Eindhoven, the Netherlands.
The first lithography system, dubbed the PAS 2000 stepper, was launched that same year. In 1985, the company moved into a new office and manufacturing facility with the PAS 2500 stepper released the following year.
By 1988, ASML expanded into the Asian market after the company established a joint-venture foundry in Taiwan. But the company was still a small player and experienced fierce competition in a market characterized by many suppliers.
When the global electronics industry suffered a downturn, Philips announced it would embark on significant cost-cutting measures. Major shareholder ASMI also pulled out after its investment in the operation yielded low returns.
Desperate for funding but with a conviction in its research and development capability, ASMI reached out to Philips one last time.
The company managed to secure enough funding to develop the PAS 5500 – a breakthrough platform released in 1991 which helped the fledgling organization compete with the likes of Canon and Nikon. More importantly, the PAS 5500 would prove to be a company maker.
During the 2000s, ASML released systems with revolutionary technology. The TWINSCAN system exposed one wafer while the next wafer was being measured and aligned, maximizing productivity and system accuracy.
Several more acquisitions followed in the 2010s, including lithography light source producer Cymer and e-beam metrology tool supplier Hermes Microvision.
The company also shipped the first extreme ultraviolet (EUV) lithography prototype to an Asian chip maker. This new technology would herald a new era in lithography because it produced faster, more powerful chips.
Cutting-Edge Semiconductor Manufacturing: ASML provides state-of-the-art photolithography systems, particularly extreme ultraviolet (EUV) lithography machines, that enable semiconductor manufacturers to produce smaller, more powerful chips. This technology aligns with the semiconductor industry’s demand for advanced and efficient manufacturing solutions.
Customer Segments:
Semiconductor Manufacturers: ASML’s primary customer base consists of semiconductor manufacturers like Intel, Samsung, Taiwan Semiconductor Manufacturing, and Micron. These companies rely on ASML’s machines to produce high-performance semiconductor chips.
Distribution Strategy:
Direct Sales: ASML directly sells its photolithography machines to semiconductor manufacturers. The company’s sales teams work closely with clients to provide tailored solutions.
Marketing Strategy:
Industry Leadership: ASML focuses on maintaining its position as a market leader in photolithography technology. Its reputation for innovation and reliability serves as a strong marketing point within the semiconductor industry.
Client Partnerships: Building long-term relationships with major semiconductor manufacturers is crucial to ASML’s marketingstrategy. Satisfied clients often become repeat customers and advocates for the company’s technology.
Software Upgrades: ASML markets software upgrades as essential for enhancing chip manufacturing processes. These upgrades generate additional revenue and strengthen the company’s position as a comprehensive solution provider.
ASML revenue generation
ASML makes money by selling machines that manufacture semiconductors.
More specifically, the company sells extreme ultraviolet lithography (EUV) machines that use UV light technology to print circuit pattern designs onto silicon wafers.
Why is this technology crucial and more importantly, lucrative?
Moore’s Law states that the number of transistors in a dense integrated circuit doubles approximately every two years. The ability to print a circuit on a chip of around one-millionth of a millimeter is crucial.
This is because the smaller a manufacturer can print, the more transistors they can fit in and the more powerful the chip will be.
ASML has over 90% market share in the EUV lithography market, with each machine costing around $150 million. Some of its major clients include Samsung, Taiwan Semiconductor Manufacturing, Micron, and Intel.
Software
The company also sells software to meet industry demands for higher productivity, lower cost, and simpler chip manufacturing processes.
ASML executive vice president of Applications Business Jim Koonmen noted that software played a vital part in the relentless quest for more powerful chips.
“As chipmakers continue to shrink the patterns to make small and powerful chips, we continue to address the escalating complexities that require ever-more sophisticated approaches. It would be impossible to manufacture at dimensions of 10 nm or smaller without our software and metrology solutions.”
Software upgrades are also a significant source of revenue for the company as ASML customers seek to increase capacity quickly.
Over the typical 20-year life of a semiconductor machine, these upgrades could earn the company as much as 50% of the original purchase price.
Key Highlights
Founding and Origin Story: ASML, a Dutch producer of photolithography systems for the semiconductor industry, was established in 1984 as ASM Lithography through a partnership between Philips and Advanced Semiconductor Materials International (ASMI).
Business Model: ASML generates revenue by selling photolithography machines, particularly extreme ultraviolet (EUV) lithography machines, to semiconductor manufacturers. These machines cost around $150 million each. Additionally, the company sells software and software upgrades to enhance chip manufacturing processes.
Origin Story: ASML’s early days involved modest beginnings in a shed next to a Philips office in the Netherlands. Despite initial challenges and competition, ASML secured funding to develop breakthrough platforms like the PAS 5500 in 1991, which propelled the company forward. Acquisitions and innovations, such as extreme ultraviolet (EUV) lithography, marked significant milestones in its history.
Value Proposition: ASML provides cutting-edge photolithography systems, particularly EUV lithography machines, enabling semiconductor manufacturers to produce smaller and more powerful chips, aligning with industry demands for advanced manufacturing solutions.
Customer Segments: ASML’s primary customers are semiconductor manufacturers, including industry giants like Intel, Samsung, Taiwan Semiconductor Manufacturing, and Micron.
Distribution Strategy: ASML employs a direct sales approach, working closely with semiconductor manufacturers to provide tailored solutions.
Marketing Strategy: ASML focuses on maintaining its market leadership in photolithography technology, emphasizing innovation and reliability. Building strong client partnerships and marketing software upgrades as essential for chip manufacturing processes are integral components of its strategy.
Revenue Generation: ASML’s primary source of revenue is the sale of photolithography machines, particularly EUV lithography systems, with each machine costing approximately $150 million. Additionally, software upgrades contribute significantly to the company’s revenue over the life of these machines, potentially reaching up to 50% of the original purchase price.
Market Dominance: ASML holds over 90% market share in the EUV lithography market, underscoring its industry leadership.
Element
Description
Value Proposition
ASML offers a compelling value proposition to its customers, including: – Cutting-Edge Technology: Providing advanced lithography equipment and solutions for semiconductor manufacturing. – Process Optimization: Enabling customers to achieve higher chip yields and performance. – Collaborative Partnership: Working closely with semiconductor manufacturers to address their specific needs. – Innovation Leadership: Maintaining a position at the forefront of semiconductor lithography technology. – Global Reach: Offering support and services worldwide to semiconductor companies. – Reliability and Quality: Delivering highly reliable and precise lithography machines.
Core Products/Services
ASML’s core products and services include: – Lithography Machines: High-tech machines used in semiconductor manufacturing for photolithography processes. – Photomasks: Producing photomasks, which are essential for patterning semiconductor wafers. – Service and Support: Offering maintenance, training, and technical support for customers. – Software Solutions: Providing software for process control and optimization. – EUV Technology: Developing Extreme Ultraviolet (EUV) lithography technology. – Customer Collaboration: Partnering with semiconductor companies to customize solutions. – Research and Development: Continuously innovating and advancing lithography technology.
Customer Segments
ASML serves a specialized customer segment, including: – Semiconductor Manufacturers: Companies involved in the production of semiconductor chips. – Foundries: Semiconductor foundry companies that manufacture chips for various clients. – Integrated Device Manufacturers (IDMs): Companies that design and manufacture their semiconductor products. – Advanced Technology Nodes: Focusing on customers requiring cutting-edge lithography solutions for advanced nodes. – Global Market: Serving semiconductor manufacturers worldwide. – R&D Institutions: Collaborating with research and development organizations. – Partnerships: Establishing partnerships with major chip manufacturers.
Revenue Streams
ASML generates revenue through various revenue streams: – Lithography Machine Sales: Earnings from the sale of lithography machines. – Service Contracts: Revenue from maintenance and service agreements. – Photomask Sales: Income from the sale of photomasks. – Software Licensing: Earnings from software solutions and licenses. – EUV Technology: Sales of EUV lithography machines and technology. – Research and Development Contracts: Collaborative projects with customers. – Customer Support: Revenue from technical support and training services. – Spare Parts and Upgrades: Sales of spare parts and equipment upgrades.
Distribution Strategy
ASML employs a strategic distribution strategy to serve its customers: – Direct Sales: Selling lithography machines and solutions directly to semiconductor manufacturers. – Global Presence: Operating offices and service centers worldwide to support customers. – Service Contracts: Offering long-term service contracts to ensure machine performance. – Collaborative Approach: Collaborating closely with customers to understand their specific needs. – Research and Development: Investing in R&D to develop cutting-edge lithography technology. – Training and Support: Providing training and technical support to customers’ engineering teams. – Spare Parts and Upgrades: Offering spare parts and machine upgrades to enhance capabilities. – EUV Technology: Marketing and selling EUV lithography technology to semiconductor manufacturers.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a businessmodel. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
In a franchained businessmodel (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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