ASML’s hold over the future of chip making 

Mono pol ies are like Christ mas cake: they can last a sur pris ingly long time, but musteven tu ally expire. The Eng lish East India Com pany’s strangle hold on trade routeslas ted cen tur ies. In the US, Stand ard Oil man aged a couple of dec ades before theSupreme Court called time in 1911. Where on that spec trum should one put chip -mak ing machine man u fac turer ASML?

Wor ries that China is pro du cing its own ver sion of ASML’s chip print ing toolsknocked 8 per cent off ASML’s shares last week. The Dutch com pany’s mono polyisn’t at immin ent risk. China is one tech no lo gical gen er a tion behind the “deep ultra -vi olet” machinery used to etch smal ler cir cuits, accord ing to a report in The Inform -a tion.

Moreover, those DUV tools are in turn prob ably a dec ade behind ASML’s moreadvanced “extreme ultra vi olet” machines. While China has shown aptitude forwarp-speed ing indus trial pro cesses, it took ASML 12 years to ship a pro to type EUVkit and another eight to reach the pro ductiv ity rates that attrac ted cus tom ers.

This is a pro cess of many mov ing parts. Pre ci sion is meas ured in atoms; tol er ance isinfin ites im ally lower than it would be for, say, elec tric vehicles. Tweak ing requiresfeed back, which ASML gets from ship ping hun dreds of data-gen er at ing machinesevery year. China can not yet match that.

Still, a world of frac tured trade flows — the US for bids ASML from ship ping its EUVmachines to the People’s Repub lic — has forced the coun try to try. True, theobstacles are immense: the Dutch group’s 40-year head start; a sup ply chain com -pris ing 100,000 dif fer ent parts.

ASML has been care ful not to invite com pet it ors in, too, by pri cing its tools broadlyfairly. Hence a gross mar gin of 54 per cent in the latest quarter is almost a thirdlower than Nvidia’s in its last repor ted quarter.Even tu ally, China will suc ceed. It out strips Europe and the US many times over interms of man u fac tur ing work ers and engin eers.

Thus ASML’s mono poly is no longer unas sail able. It looks likely to lose at least itssales into China. And investors are put ting a lot of weight on the future: more than60 per cent of ASML’s enter prise value is depend ent on its cash flows after 2035, Lex

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