ASML challenges Canon for no. 2 spot

Electronic News, Feb 16, 1998 by Jeff Dorsch

Dutch Lithography House Threatens Japanese Dominance

Veldhoven, Netherlands--The market is dominated by Japanese vendors. In recent years, however, a supplier from outside Japan has threatened to crack the Japanese hegemony, throwing the long-established order of things into chaos.

The market isn't DRAMs. It's photolithography.

The Japanese vendors, of course, are Nikon and Canon, who have led the lithography market for so long that it seems like forever that they've been number one and two, respectively.

But it wasn't always so. The wafer stepper was invented in the United States, and American vendors dominated the market for years. When the Japanese came into the market with more reliable equipment, they took away the business from the U.S. companies, fab by fab. The situation grew so dire that when Sematech needed to equip its fab in Austin, Texas, a decade ago, it was initially forced to use a Nikon stepper donated by AT&T Microelectronics.

Although Sematech poured millions of dollars into GCA Corp. to bring what was once the predominant stepper vendor up to a technologically competitive position, General Signal Corp. closed the doors at GCA in 1993, after trying for more than a year to find a buyer. Before that, American Semiconductor Equipment Technologies (ASET), formerly TRE Semiconductor Equipment, went out of business in 1990. Perkin-Elmer Corp.'s Optical Lithography operations had to be bailed out in 1990 by Silicon Valley Group, Inc. (SVG), with financial backing by IBM, the original customer for the Micrascan deep-ultraviolet step-and-scan machine.

Even with IBM's continued good graces and ongoing orders, the SVG lithography business has required a $30 million capital infusion by Intel, Motorola and Texas Instruments; a $30 million investment in SVG by Sematech, the only time the American R&D consortium has made an equity investment in a company; and continued funding by Sematech to stay afloat through years of R&D, to the point where Micrascan is now installed at fabs worldwide. Five years ago, SVG was ready to strike a licensing deal with Canon to keep Micrascan going, but the companies were ultimately unable to come to terms.

Ultratech Stepper, one of the few American survivors in microlithography, was in dire straits several times before its management buyout in 1993 and initial public offering in 1994. At one time, General Signal planned to merge Ultratech with GCA, which might have been a fatal development for the California company. Once free of General Signal, Ultratech Stepper avidly pursued the "mix-and-match" business in microlithography and the thin-film head lithography business in manufacturing disk drives. The latter has been a very lucrative niche for the company until recently.

Integrated Solutions, Inc. (ISI), which emerged from the ashes of GCA to make a bid as a mainstream lithography vendor, more recently narrowed its focus to custom-built lithography equipment. It is now taking orders for electron-beam lithography systems based on the Scalpel design created at Bell Laboratories.

Given the sad state of the American lithography business in recent years, it's not surprising that the company challenging the Japanese giants isn't American. It's a Dutch company--ASM Lithography (ASML).

ASML began life in 1984 as an operation of Advanced Semiconductor Materials International (ASMI), also of the Netherlands. In 1990, ASMI decided to divest the money-losing lithography business to focus on its other front-end equipment and its line of back-end equipment. Philips, the Dutch electronics giant, assumed half of the equity in ASML, while the other half went to two Dutch banks.

In retrospect, it may have been the biggest blunder in ASMI's corporate history. ASML, after a rough patch in the early 1990s, began to find favor outside of its traditional base in Europe with American and Taiwanese chip makers. It later penetrated South Korea, where Canon and Nikon had been virtually unchallenged, and set its sights for the Japanese market, the final frontier.

While most semiconductor vendors suffered through 1996 and 1997, a prolonged hangover after the party-hearty years of 1993-95, ASML posted a 35 percent increase in revenues in 1997, to $889 million. That came close to matching the company's 1995 peak of $917.7 million.

Meanwhile, ASMI continued to have a series of setbacks, most notably a 1997 agreement to pay $80 million to Applied Materials to settle a long-running patent battle over epitaxial reactor technology.

ASML, however, is on a roll. At the SPIE lithography conference next week, it will introduce an I-line step-and-scan system, filling in the product line after its introduction of a deep-UV step-and-scan system one year ago. Next Monday, ASML's stock will join the AEX index, a blue-chip roster of 25 stocks traded on the Amsterdam Stock Exchange--the Dutch equivalent of the Dow Jones Industrial Average's 30 stocks on the New York Stock Exchange.

ASML had an incredible year in 1997. Two highlights in particular were its booking the two largest single lithography orders in history--a $150 million order from Micron Technology last summer, followed a few weeks later by a $170 million order from Hyundai Electronics Industries.