Chinese semiconductor industry

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wxw456

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tinrobert said:
I just wrote this article about ASML and SMEE. It was an Editor Pick on Seeking Alpha, but the vitriol from comments is incredible. Please read the article and also the comments.
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Are SMEE and ASML really competitors though? Sure both companies aim to create products that perform the same tasks/functions, but they do not truely compete across all markets. An analogy would be two fishermen selling their fish in different towns. If the customers won't travel to another town to buy fish, then the fishermen are not competitors. Fabs outside of China are not aiming to buy SMEE lithography equipment and fabs inside China are now strongly incentivized to buy SMEE/domestic where possible due to sanctions risks. In the long run neither SMEE or ASML will be threats to each other because there will be a strong split in customer preference for one or the other that is not dictated by just product quality.

The situation from my perspective is more similar to joint venture ICE car factories in China. Foreign car manufactures like Volkswagen, Buick, Honda, etc have made a massive amount of money from setting up factories in China and selling cars from those factories only in China. It is no simple coincidence that China is the world's largest car producer, but only ranked 16th in car exports. Likewise ASML can sell lithography tools in China with the implicit understanding that SMEE and similar companies will almost certainly not be exporting outside of China in the near or medium-term (10+ years) future.

The vitriol in the comments are more likely the fallout from the US-China rivalry. The previous US government put lithography tool sanctions as a highlight of their foreign policy and politicized the issue. Does anyone truly care about Buick manufacturing cars and competing against Great Wall Motors in China? So why do people care about ASML selling lithography tools and competing against SMEE in China? Buick knows Chinese cars are not going to be exported to the US and ASML also knows that SMEE lithography tools won't be exported to fabs outside China.
 
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gadgetcool5

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wxw456 said:
Are SMEE and ASML really competitors though? Sure both companies aim to create products that perform the same tasks/functions, but they do not truely compete across all markets. An analogy would be two fishermen selling their fish in different towns. If the customers won't travel to another town to buy fish, then the fishermen are not competitors. Fabs outside of China are not aiming to buy SMEE lithography equipment and fabs inside China are now strongly incentivized to buy SMEE/domestic where possible due to sanctions risks. In the long run neither SMEE or ASML will be threats to each other because there will be a strong split in customer preference for one or the other that is not dictated by just product quality.

The situation from my perspective is more similar to joint venture ICE car factories in China. Foreign car manufactures like Volkswagen, Buick, Honda, etc have made a massive amount of money from setting up factories in China and selling cars from those factories only in China. It is no simple coincidence that China is the world's largest car producer, but only ranked 16th in car exports. Likewise ASML can sell lithography tools in China with the implicit understanding that SMEE and similar companies will almost certainly not be exporting outside of China in the near or medium-term (10+ years) future.

The vitriol in the comments are more likely the fallout from the US-China rivalry. The previous US government put lithography tool sanctions as a highlight of their foreign policy and politicized the issue. Does anyone truly care about Buick manufacturing cars and competing against Great Wall Motors in China? So why do people care about ASML selling lithography tools and competing against SMEE in China? Buick knows Chinese cars are not going to be exported to the US and ASML also knows that SMEE lithography tools won't be exported to fabs outside China.
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Of course SMEE and ASML are competitors. Even if there is no market overlap, if the US and China are competitors and ASML serves US industry while SMEE serves Chinese industry, then the competition will play out in that arena. Similar to how Sukhoi and Lockheed Martin did not compete directly in the market during the Cold War but were still competitors. However, if SMEE gets successful enough then I could see it potentially competing with ASML in sales, too, including sales outside China. The main thing holding back competition right now is not politics but the fact that SMEE's technical level is so far inferior. Also, keep in mind that ASML's main advantage right now is that it is a global monopoly, including in China. It wants the Chinese market, too. Anything that breaks that monopoly is a huge blow to ASML.
 
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wxw456

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gadgetcool5 said:
Of course SMEE and ASML are competitors. Even if there is no market overlap, if the US and China are competitors and ASML serves US industry while SMEE serves Chinese industry, then the competition will play out in that arena. Similar to how Sukhoi and Lockheed Martin did not compete directly in the market during the Cold War but were still competitors. However, if SMEE gets successful enough then I could see it potentially competing with ASML in sales, too. The main thing holding back competition right now is not politics but the fact that SMEE's technical level is so far inferior.
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SMEE is already competing against ASML in China. Even if SMEE reaches parity with ASML Western fabs will not purchase SMEE equipment because of sanctions. If politics is not the reason, then why is there a need for sanctions? The very existence of sanctions proves that politics factors into competition.
 
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AndrewS

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wxw456 said:
Likewise ASML can sell lithography tools in China with the implicit understanding that SMEE and similar companies will almost certainly not be exporting outside of China in the near or medium-term (10+ years) future.
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SMEE equipment will be used to produce semiconductors which will be exported from China.

China accounts for 25% of global semiconductor demand. Another 35% passes through Chinese factories for export.
 
horse

horse

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tinrobert said:
I just wrote this article about ASML and SMEE. It was an Editor Pick on Seeking Alpha, but the vitriol from comments is incredible. Please read the article and also the comments.
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That was an excellent article.

There are no simple answers, not with tech.

People who seem upset, maybe wanted a simple answer, or wanted to hear something they want to hear.

Can't please everybody.

:p
 
FairAndUnbiased

FairAndUnbiased

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tinrobert said:
I just wrote this article about ASML and SMEE. It was an Editor Pick on Seeking Alpha, but the vitriol from comments is incredible. Please read the article and also the comments.
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The comments are extremely hostile, no doubt, but it must be noted that OEM parts for semiconductor instruments are indeed low volume, high cost and highly specialized. That is why many of the commenters are skeptical of that argument, but not the hostility. The hostility comes from chauvinism, lack of technical knowledge and arrogance.

You make a point that things could be foreseen i.e. multiple machine shops for custom metal fabrication or stockpiling electronics and PCBs. However, the lead time for these items is long, and some precision mechanical parts that are customized for ASML such as wafer stages and precision positioning systems have very limited suppliers. These high cost items might only be ordered when they need them. So that is indeed something that could lead to backlogs.

This is not directly related to the technical side, just my opinion: the PE ratio is far too high and unrepresentative of a semiconductor manufacturing company. But you compared to Tesla... Their PE is even higher, and rising without, in my opinion, even the pretense of justifying it through fundamentals. They've failed to deliver key products multiple times, whether on time or not at all. Do you believe their valuation is accurate?
 
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tokenanalyst

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The strange thing that ASML say it themselves, the Chinese market is extremely important to them, not only for current earnings but also for future growth, with China being the country that is investing most aggressively in this area. But people also underestimate SMEE. Put it in perspective Arf DUV lithography machines are extremely difficult to manufacture, it is physics to the extreme, there are only 3 companies in the world capable of manufacturing this type of Arf DUV machines and SMEE is the third. And that makes it dangerous for ASML, With sanctions any breakthrough would lead to a significant loss of future market for ASML. They are willing to give up selling EUV for now because they know that the Chinese will take at least 5 years to develop one. but DUV? Forget it.

The Dutch MEP specifically opposes U.S. efforts to block the sale of argon fluoride (ArF) immersion technology, which uses liquid solutions as a lens to focus electromagnetic light from the deep UV spectrum. Not only are these machines not listed among dual-use goods subject to controls under the international Wassenaar Arrangement, Beijing can already purchase them from Nikon of Japan, ASML’s closest competitor.

“His administration is increasing pressure on ASML to also ban the export of these DUV immersion machines to China,” he explained. “I believe the current administration has gone too far.”
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Export controls against China will not only fail to halt its technological progress but also hurt the U.S. economy,
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Chief Executive Officer Peter Wennink said, after trade tensions between Washington and Beijing led to restrictions on the sale of the Dutch company’s advanced chip equipment to Chinese firms.
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supersnoop

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wxw456 said:
Buick knows Chinese cars are not going to be exported to the US and ASML also knows that SMEE lithography tools won't be exported to fabs outside China.
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Correction Buick Envision is exported from Shanghai PRC to North America.

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So following up on my previous post. this would be the more professional analysis than mine, but the conclusion is essentially the same. The overseas fabs for TSMC are not really optimal business decisions.

This article and another one regarding the architecture of the Apple M1 Pro/Max chips made me think...
The debut of the M1 chip by Apple is basically the first chip in 20 years that can trade blows with Intel/AMD (and nVidia if you count the GPU aspect). The power of this chip could only be provided by TSMC 5nm process.

At the same time, it was the profits afforded by fabbing the likes of Apple's previous CPUs provided a lot of the funding to get to 5nm.

Just goes to show how important it is to develop both the fabrication know-how and IP applications in step together.
 
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