9 ms·

Their margin is approaching 40%. They're basically printing money at this point. It's hilarious how a manufacturer can be so profitable nowadays.

by pcurve 5y ago

ozarkerD 5y ago
Genuine question because I’m unfamiliar with the market. Why aren’t competitors undercutting these big players? 40% is ridiculous
- abricot 5y ago
  There are no small players, only the big ones. The machines they use cost $300m and then comes the expertise needed.
- klohto 5y ago
  What competitors lol? You can't exactly make chips in a basement.
  - hathawsh 5y ago
    That's starting to change. Sam Zeloof is inspiring. https://www.youtube.com/channel/UC7E8-0Ou69hwScPW1_fQApA https://www.youtube.com/channel/UC7E8-0Ou69hwScPW1_fQApA
    - Kirby64 5y ago
      What he's making is basically caveman technology compared to actual cutting-edge nodes. No offense to his accomplishments, but the modern fabs like TSMC are so advanced you cannot just make the things they make without billions of capital investment. It just is not possible. Unfortunately, many of the chips in short supply are on pretty small nodes, so you need extremely specialized equipment limited to a few of the big players to make them. Certainly there's some stuff that can be made in larger nodes, but if you want something in 5nm you basically have one game in town.
      - hathawsh 5y ago
        No disagreement here. It's just good to see someone trying. :-)
      - kragen 5y ago
        It's possible, we just haven't figured out how to do it yet.
- londons_explore 5y ago
  Building a new factory is a 10+ year effort for a competitor. (They have to do the R&D to get on-par with performance, and physically build the factory). The shortage won't last that long. But in the meantime, anyone who owns a suitable factory can pretty much set the prices as high as they like. I'm really surprised the price hike is only 20%, rather than 10% per month for the next 3 years.
  - reportingsjr 5y ago
    I imagine if things get too out of hand that governments will step in to limit prices. Maybe.
    - fennecfoxen 5y ago
      Which government? Taiwan, where it matters? This is a major part of their economy; they all win big. I bet they'd sooner surrender to China. Some other government? This wouldn't have much impact on chips, except to make it a lot less likely anyone makes chips in that country ever again — which isn't to say no nation would do it; economic history is full of this sort of thing, particularly as nations start going the way of Venezuela.
    - zsmi 5y ago
      Probably the limiting factor is one needs to make sure the customers of chips stay viable. I mean, one hopes the shortage will eventually be over and foundries will want to make sure they didn't gut their own market.
      - londons_explore 5y ago
        Few consumers will say "eh, modern tech is too expensive, I don't need the internet, phones, computers or cars anymore". For most uses of tech, demand is there even if the price doubles.
    - imtringued 5y ago
      That just disrupts the profit incentive of competitors. The entity that manufactures the product is compensated for it, meaning the money isn't being siphoned off by a random third party. Price controls grant a wind fall to consumers who are in no position to build another semiconductor plant. It's basically a wealth transfer away from the semiconductor industry into the consuming industries. If you want semiconductor prices to drop then either grant a subsidy or let the government build a plant that produces way more than the market really needs. A single shortage plus price increase might not be able to pay for a whole plant, but any plans to expand capacity will be shifted forward rather than be delayed. If the profit motive exists the construction of the new plant will happen one year sooner and it will be bigger in anticipation of future shortages.
- reportingsjr 5y ago
  Because all of their competitors are also raising their prices. Why would companies reduce prices and profits when the demand exists even with higher costs? Samsung, which is the largest IC manufacturer, recently increased prices: https://www.tomshardware.com/news/samsung-foundry-to-hike-wafer-production-prices https://www.tomshardware.com/news/samsung-foundry-to-hike-wa... If you look at prices for the stuff a lot of wafer capacity is going towards, particularly Flash and RAM, you'll see that the prices have gone up 20%+ over the last year. I think people like to pick out TSMC because of the politics surrounding Taiwan and China, and maybe because a lot of companies use TSMC for their IC production and like to complain. People don't notice as much when other ICs like flash, ram, micros, etc are slowly increased in price.
  - kragen 5y ago
    People like to pick out TSMC because they're the winner of the foundry wars; GlobalFoundries bowed out of further process node development, I think two years ago, and Intel is trying and failing to equal TSMC's performance with their in-house fabs. GF and Samsung and other players are still around, but only TSMC offers the highest-resolution parts, so they're your only option if your part needs current fabrication technology, and they may be your cheapest option even if it doesn't.
- tomp 5y ago
  Their competitor is Intel which stands for I am NoT really Even trying Lol
- zsmi 5y ago
  ASML is trying to increase the world's capacity by ramping up their production of EUV machines to 50 per year. [1] The ASML CEO stated it's probably not possible for the world to produce more than that. These machines are ~$150 million ea and building one is insanely complicated. [2] [1] https://www.anandtech.com/show/15428/asml-ramps-up-euv-scanners-production-35-in-2020-45-50-in-2021 https://www.anandtech.com/show/15428/asml-ramps-up-euv-scann... [2] https://www.youtube.com/watch?v=jJIO7aRXUCg https://www.youtube.com/watch?v=jJIO7aRXUCg
  - ericd 5y ago
    So they don’t have the potential to make more than $7.5B in revenue per year? With a market cap of $338B? Something doesn’t add up there.
    - 1123581321 5y ago
      Their max is about double that (other kinds of systems, and service.) That’s about a p/e of 60 which is too high but what this market has done to many stocks. There is some expectation of growth, too, of course. ASML will keep pushing their capabilities and if trends continue, they should eventually be selling individual machines worth an order of magnitude more.
- thereddaikon 5y ago
  There are three companies (TSMC, Samsung and Intel) that compete at the top end of chip fabrication in the whole world. One of them (Intel) didn't make chips for anyone but themselves until about 4 months ago. Preparing a semiconductor for a given companies fab process takes time. You cant just call them up and ask for however many units of your design. Its a months to year long process of your engineers working with their engineers to optimize your circuit design to work best with their methods. Also there is only one supplier (ASML) in the entire world who makes a critical machine (extreme ultraviolet laser photolithography machine) needed for these cutting edge processes. It is unable to match the increased demand for their tools. And even if they were these super advanced might as well be magic machines have a lead time in years themselves as do the factories they go in to. If you want to start marking modern semiconductors or increase your existing capacity to do so it isn't as simple as throwing a couple million at it and having it running in a few months. Its billions of dollars in a massive sterile factory using machines made by a handful of suppliers taking up acres of land and consuming impressive amounts of electricity and water to do so. Semiconductor fabs are massive sprawling industrial campuses https://images.anandtech.com/doci/13749/intel_kiryat_678_678x452.jpg https://images.anandtech.com/doci/13749/intel_kiryat_678_678...
  - makapuf 5y ago
    Many missing chips for automotive or devices are not gpu or top of the line level but simple microcontrollers. Those can be done with 130nm to 40nm process for the most modern. 130 nm has been used for pIII or amd athlon64 and dates from 2001. Those need near UV, not extreme UV.
  - paulmd 5y ago
    > One of them (Intel) didn't make chips for anyone but themselves until about 4 months ago. actually iirc they've tried to get into the custom foundry business a couple times now (see: "Intel Custom Foundry" that got discontinued a couple years ago) but they never really attracted any major customers. https://semiwiki.com/semiconductor-manufacturers/intel/7912-intel-discontinues-the-custom-foundry-business/ https://semiwiki.com/semiconductor-manufacturers/intel/7912-... Part of this was due to the fact that Intel's design rules (the "rules" that govern chip design: how small wires and transistor features can be and so on) are completely different from every other foundry, so while porting from TSMC to Samsung or something like that certainly isn't easy, it's at least straightforward, whereas Intel's stack is basically totally different from everyone else's. One of the advantages Intel has is that the chip design and the process are tightly intertwined, if there is a problem with the chip design the designers can go down the hall and talk to the process people and see if they can come up with a solution at the process level. This obviously also became their downfall when 10nm slipped, and likely also it severely reduced their ability to sell their foundry services to other customers. According to that article they were apparently also rather secretive about their process (seeing it as part of their "special sauce" I guess) and I've heard many customers doubted Intel's commitment to the program as well as their neutrality. And I think the final piece of the puzzle was probably price - I'm guessing Intel was asking a royal sum compared to GF or Samsung or TSMC. After all... they're intel, and their process is the best! > One of the funniest stories I heard was about the first copy of the Intel 14nm design rules Atera got from Intel. They were heavily redacted, which is something I had never seen in the foundry business. After many delays Intel put their own implementation team on the first 14nm Altera tapeout and the result was a very competitive FPGA chip. If not for the continued delays, Xilinx would have been in serious trouble as the Intel 14nm FPGA, based on my experience with customers, beats the Xilinx 16nm in both density and performance. They are now trying to get back into the custom foundry business of course. Different management, and a very different business situation for Intel - if they can get other customers to help finance their node development that's a big win for them at this point.
- bzbarsky 5y ago
  In the short term? Because building a fab takes time and money, I would expect.
ren_engineer 5y ago
"service economy" was always a meme being sold to the gullible masses, manufacturing capacity is the only thing that matters for an economy. Manufacturing has always printed the money It amazes me how the US allowed itself to be nearly deindustrialized after manufacturing effectively won them WWII and global dominance. Now the US can't even make ventilators or face masks
- minikites 5y ago
  Capitalism contains the seeds of its own destruction. The relentless drive to shave fractions of a cent off costs in the short term creates the conditions you describe in the long term. In other words, it's like being penny wise and pound foolish on a global scale.
  - syshum 5y ago
    Fake News... that is not capitalism, that is a by product of decades and decades of tex based incentives that push people in to market index funds, mutual funds and other institutional investment where it is all managed funds These managed funds are driven by quarterly earnings people expect to see... This intern drives public companies to focus on quarterly earnings Privately held companies almost never look at quarterly earnings, they look at a 5 year picture... It is mainly public companies majority owned institutional investors (401k's, pensions, etc) that focus on quarterly earnings So once again what people blame capitalism for, is in reality government putting their hands on the scales and tipping the market in ways that have unintended consequences
- Alex3917 5y ago
  > "service economy" was always a meme being sold to the gullible masses, manufacturing capacity is the only thing that matters for an economy. Service economies work great in places where food and housing are free, so money is only needed to buy luxury goods. They only work poorly in the US because capitalists have leverage over service workers.
  - Ekaros 5y ago
skybrian 5y ago
On the other hand they are spending billions on building new plants. I guess those are assets, though? I wonder what cash flow looks like.
spfzero 5y ago
To their credit, they own unique tech that makes the chips built on it the most attractive in the market. Very very few manufacturers are in that position.

Their margin is approaching 40%. They're basically printing money at this point. It's hilarious how a manufacturer can be so profitable nowadays.

by pcurve 5y ago

Their margin is approaching 40%. They're basically printing money at this point. It's hilarious how a manufacturer can be so profitable nowadays.

ozarkerD 5y ago

Genuine question because I’m unfamiliar with the market. Why aren’t competitors undercutting these big players? 40% is ridiculous

abricot 5y ago
There are no small players, only the big ones. The machines they use cost $300m and then comes the expertise needed.
klohto 5y ago
What competitors lol? You can't exactly make chips in a basement.
- hathawsh 5y ago
  That's starting to change. Sam Zeloof is inspiring. https://www.youtube.com/channel/UC7E8-0Ou69hwScPW1_fQApA https://www.youtube.com/channel/UC7E8-0Ou69hwScPW1_fQApA
  - Kirby64 5y ago
    What he's making is basically caveman technology compared to actual cutting-edge nodes. No offense to his accomplishments, but the modern fabs like TSMC are so advanced you cannot just make the things they make without billions of capital investment. It just is not possible. Unfortunately, many of the chips in short supply are on pretty small nodes, so you need extremely specialized equipment limited to a few of the big players to make them. Certainly there's some stuff that can be made in larger nodes, but if you want something in 5nm you basically have one game in town.
    - hathawsh 5y ago
      No disagreement here. It's just good to see someone trying. :-)
    - kragen 5y ago
      It's possible, we just haven't figured out how to do it yet.
londons_explore 5y ago
Building a new factory is a 10+ year effort for a competitor. (They have to do the R&D to get on-par with performance, and physically build the factory). The shortage won't last that long. But in the meantime, anyone who owns a suitable factory can pretty much set the prices as high as they like. I'm really surprised the price hike is only 20%, rather than 10% per month for the next 3 years.
- reportingsjr 5y ago
  I imagine if things get too out of hand that governments will step in to limit prices. Maybe.
  - fennecfoxen 5y ago
    Which government? Taiwan, where it matters? This is a major part of their economy; they all win big. I bet they'd sooner surrender to China. Some other government? This wouldn't have much impact on chips, except to make it a lot less likely anyone makes chips in that country ever again — which isn't to say no nation would do it; economic history is full of this sort of thing, particularly as nations start going the way of Venezuela.
  - zsmi 5y ago
    Probably the limiting factor is one needs to make sure the customers of chips stay viable. I mean, one hopes the shortage will eventually be over and foundries will want to make sure they didn't gut their own market.
    - londons_explore 5y ago
      Few consumers will say "eh, modern tech is too expensive, I don't need the internet, phones, computers or cars anymore". For most uses of tech, demand is there even if the price doubles.
  - imtringued 5y ago
    That just disrupts the profit incentive of competitors. The entity that manufactures the product is compensated for it, meaning the money isn't being siphoned off by a random third party. Price controls grant a wind fall to consumers who are in no position to build another semiconductor plant. It's basically a wealth transfer away from the semiconductor industry into the consuming industries. If you want semiconductor prices to drop then either grant a subsidy or let the government build a plant that produces way more than the market really needs. A single shortage plus price increase might not be able to pay for a whole plant, but any plans to expand capacity will be shifted forward rather than be delayed. If the profit motive exists the construction of the new plant will happen one year sooner and it will be bigger in anticipation of future shortages.
reportingsjr 5y ago
Because all of their competitors are also raising their prices. Why would companies reduce prices and profits when the demand exists even with higher costs? Samsung, which is the largest IC manufacturer, recently increased prices: https://www.tomshardware.com/news/samsung-foundry-to-hike-wafer-production-prices https://www.tomshardware.com/news/samsung-foundry-to-hike-wa... If you look at prices for the stuff a lot of wafer capacity is going towards, particularly Flash and RAM, you'll see that the prices have gone up 20%+ over the last year. I think people like to pick out TSMC because of the politics surrounding Taiwan and China, and maybe because a lot of companies use TSMC for their IC production and like to complain. People don't notice as much when other ICs like flash, ram, micros, etc are slowly increased in price.
- kragen 5y ago
  People like to pick out TSMC because they're the winner of the foundry wars; GlobalFoundries bowed out of further process node development, I think two years ago, and Intel is trying and failing to equal TSMC's performance with their in-house fabs. GF and Samsung and other players are still around, but only TSMC offers the highest-resolution parts, so they're your only option if your part needs current fabrication technology, and they may be your cheapest option even if it doesn't.
tomp 5y ago
Their competitor is Intel which stands for I am NoT really Even trying Lol
zsmi 5y ago
ASML is trying to increase the world's capacity by ramping up their production of EUV machines to 50 per year. [1] The ASML CEO stated it's probably not possible for the world to produce more than that. These machines are ~$150 million ea and building one is insanely complicated. [2] [1] https://www.anandtech.com/show/15428/asml-ramps-up-euv-scanners-production-35-in-2020-45-50-in-2021 https://www.anandtech.com/show/15428/asml-ramps-up-euv-scann... [2] https://www.youtube.com/watch?v=jJIO7aRXUCg https://www.youtube.com/watch?v=jJIO7aRXUCg
- ericd 5y ago
  So they don’t have the potential to make more than $7.5B in revenue per year? With a market cap of $338B? Something doesn’t add up there.
  - 1123581321 5y ago
    Their max is about double that (other kinds of systems, and service.) That’s about a p/e of 60 which is too high but what this market has done to many stocks. There is some expectation of growth, too, of course. ASML will keep pushing their capabilities and if trends continue, they should eventually be selling individual machines worth an order of magnitude more.
thereddaikon 5y ago
There are three companies (TSMC, Samsung and Intel) that compete at the top end of chip fabrication in the whole world. One of them (Intel) didn't make chips for anyone but themselves until about 4 months ago. Preparing a semiconductor for a given companies fab process takes time. You cant just call them up and ask for however many units of your design. Its a months to year long process of your engineers working with their engineers to optimize your circuit design to work best with their methods. Also there is only one supplier (ASML) in the entire world who makes a critical machine (extreme ultraviolet laser photolithography machine) needed for these cutting edge processes. It is unable to match the increased demand for their tools. And even if they were these super advanced might as well be magic machines have a lead time in years themselves as do the factories they go in to. If you want to start marking modern semiconductors or increase your existing capacity to do so it isn't as simple as throwing a couple million at it and having it running in a few months. Its billions of dollars in a massive sterile factory using machines made by a handful of suppliers taking up acres of land and consuming impressive amounts of electricity and water to do so. Semiconductor fabs are massive sprawling industrial campuses https://images.anandtech.com/doci/13749/intel_kiryat_678_678x452.jpg https://images.anandtech.com/doci/13749/intel_kiryat_678_678...
- makapuf 5y ago
  Many missing chips for automotive or devices are not gpu or top of the line level but simple microcontrollers. Those can be done with 130nm to 40nm process for the most modern. 130 nm has been used for pIII or amd athlon64 and dates from 2001. Those need near UV, not extreme UV.
- paulmd 5y ago
  > One of them (Intel) didn't make chips for anyone but themselves until about 4 months ago. actually iirc they've tried to get into the custom foundry business a couple times now (see: "Intel Custom Foundry" that got discontinued a couple years ago) but they never really attracted any major customers. https://semiwiki.com/semiconductor-manufacturers/intel/7912-intel-discontinues-the-custom-foundry-business/ https://semiwiki.com/semiconductor-manufacturers/intel/7912-... Part of this was due to the fact that Intel's design rules (the "rules" that govern chip design: how small wires and transistor features can be and so on) are completely different from every other foundry, so while porting from TSMC to Samsung or something like that certainly isn't easy, it's at least straightforward, whereas Intel's stack is basically totally different from everyone else's. One of the advantages Intel has is that the chip design and the process are tightly intertwined, if there is a problem with the chip design the designers can go down the hall and talk to the process people and see if they can come up with a solution at the process level. This obviously also became their downfall when 10nm slipped, and likely also it severely reduced their ability to sell their foundry services to other customers. According to that article they were apparently also rather secretive about their process (seeing it as part of their "special sauce" I guess) and I've heard many customers doubted Intel's commitment to the program as well as their neutrality. And I think the final piece of the puzzle was probably price - I'm guessing Intel was asking a royal sum compared to GF or Samsung or TSMC. After all... they're intel, and their process is the best! > One of the funniest stories I heard was about the first copy of the Intel 14nm design rules Atera got from Intel. They were heavily redacted, which is something I had never seen in the foundry business. After many delays Intel put their own implementation team on the first 14nm Altera tapeout and the result was a very competitive FPGA chip. If not for the continued delays, Xilinx would have been in serious trouble as the Intel 14nm FPGA, based on my experience with customers, beats the Xilinx 16nm in both density and performance. They are now trying to get back into the custom foundry business of course. Different management, and a very different business situation for Intel - if they can get other customers to help finance their node development that's a big win for them at this point.
bzbarsky 5y ago
In the short term? Because building a fab takes time and money, I would expect.

ren_engineer 5y ago

"service economy" was always a meme being sold to the gullible masses, manufacturing capacity is the only thing that matters for an economy. Manufacturing has always printed the money It amazes me how the US allowed itself to be nearly deindustrialized after manufacturing effectively won them WWII and global dominance. Now the US can't even make ventilators or face masks

minikites 5y ago
Capitalism contains the seeds of its own destruction. The relentless drive to shave fractions of a cent off costs in the short term creates the conditions you describe in the long term. In other words, it's like being penny wise and pound foolish on a global scale.
- syshum 5y ago
  Fake News... that is not capitalism, that is a by product of decades and decades of tex based incentives that push people in to market index funds, mutual funds and other institutional investment where it is all managed funds These managed funds are driven by quarterly earnings people expect to see... This intern drives public companies to focus on quarterly earnings Privately held companies almost never look at quarterly earnings, they look at a 5 year picture... It is mainly public companies majority owned institutional investors (401k's, pensions, etc) that focus on quarterly earnings So once again what people blame capitalism for, is in reality government putting their hands on the scales and tipping the market in ways that have unintended consequences
Alex3917 5y ago
> "service economy" was always a meme being sold to the gullible masses, manufacturing capacity is the only thing that matters for an economy. Service economies work great in places where food and housing are free, so money is only needed to buy luxury goods. They only work poorly in the US because capitalists have leverage over service workers.
- Ekaros 5y ago

skybrian 5y ago

On the other hand they are spending billions on building new plants. I guess those are assets, though? I wonder what cash flow looks like.

spfzero 5y ago

To their credit, they own unique tech that makes the chips built on it the most attractive in the market. Very very few manufacturers are in that position.