Litho Machine Maker Could Be Major Chip Bottleneck Until 2024

Semiconductor manufacturers are bound to end up against a materials shortage even as they pour billions of dollars into capacity expansions, but it turns out that's not the only issue companies and consumers have to worry about. As reported by the Financial Times, Dutch-based ASML is likely to become an industry's bottleneck over the next two years as the manufacturer of specialty equipment struggles to increase the output of its lithography machines.

Speaking to FT, ASML chief executive Peter Wennick warned that despite best efforts in scaling the company's manufacturing capacity, increases in yearly output for ASML's lithography machines will fall behind the requirements put forward by chipmakers. In fact, Wennick estimated that the company would have to improve its output to the tune of 50% additional machines delivered each year in order to keep up with demand - a need that's nearly impossible to satisfy considering supply-chain and device complexity. 

In 2021, ASML delivered 286 such machines: 50 additional units compared to the company's sales for 2020. That marks an 18% increase in output in a single year, but it showcases the difficulty in achieving the required 50% additional output just to keep up with expected demand levels.

Intel CEO Pat Gelsinger himself is well-aware of the difficulty in scaling ASML's lithography machines. According to FT, the Intel CEO is directly in contact with ASML's Peter Wennick, and expects that the complexity in setting up new factory floors - or expanding existing ones - gives ASML a time buffer that allows it to boost its production in time for when the factory shells (the name given to the factory infrastructure absent of the semiconductor-manufacturing machinery) are ready.

According to Wennick, ASML is working with its suppliers in an attempt to accelerate its output capacity. However, there is only so much that can be done. ASML can only scale its production if its 700-plus suppliers (of which 200 are considered critical) can also increase their output. But due to the extreme complexity of materials and components that ASML employs in its lithographic machines, some of the required scaling is bound to take years to materialize.

One such example is that of ASML supplier Carl Zeiss, which manufactures the lenses that go into the company's lithography machines. Wennick explained that the lenses are the single most complex piece of engineering employed in an ASML machine, and that Carl Zeiss would have to significantly increase its output so that ASML can scale its manufacturing. But in order for Carl Zeiss to scale its production, the company would have to invest in facility and clean room expansions, as well as hire specialist technicians. And even then, Wennick explained that it can take up to 12 months for the almost impossibly complex lenses to go through the entire manufacturing process.

Despite heavy investments, capital can't solve all problems. Semiconductor-related manufacturers have to contend with one of the world's most complex and globalized supply chains imaginable, one vulnerable to territorial disputes as well as geopolitics. It remains to be seen if ASML and its suppliers can reliably increase their output without overextending their hand.