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Smaller and more powerful computer chips are not only necessary, we believe they are inevitable. Companies dedicated to the advancement of chip technology must constantly innovate to stay relevant. And for over 50 years, Gordon Moore’s prediction that computing power would double on average every two years has proved broadly true.
This innovation has consistently fueled technological progress. Still, many have feared we are nearing the physical limits of packing more and more transistors into ever-tighter spaces to create increasingly powerful chips. Figure 1 shows that since 2010, even cutting-edge chips have struggled to keep up.
But the growth in demand for connected devices that generate and process exponentially more data will require progressively more advanced chips. Fortunately, human ingenuity and innovation have helped to tackle these problems. The semiconductor manufacturing process called Extreme Ultraviolet Lithography (EUVL) holds high potential to enable further technological development by improving the current method of manufacturing semiconductor chips.
EUVL is a leading-edge manufacturing technique within the semiconductor industry that has been in R&D for at least the past decade. However, it is only recently that the technology has been ready for mass production and is now more frequently embedded in advanced semiconductor manufacturing. The goal in semiconductor chip manufacturing is “process shrink” — to increasingly miniaturize the building blocks of the computer chip (integrated circuits) — to allow denser patterns to be etched into semiconductor materials. In the manufacturing process, a laser is used to create the complex circuit patterns on the chip. Like a sharper knife, the shorter the wavelength of the laser, the more precise circuits can be made and the tighter they can be packed together. Until EUVL, the most advanced commercial process used a 193-nanometer wavelength light. EUVL uses a 13.5-nanometer wavelength light, 1/14th the length of the previous technology.1
After years of significant refinement and testing, EUVL has achieved the manufacturing yields required to be deployed by semiconductor chip manufacturers. The resulting chips are able to be up to 40% more area efficient, to increase performance by up to 20% and to reduce power consumption by up to 50% compared to recent predecessors.2 In the next two years, it is estimated that leading manufacturers will use this technology to reach a 5-nanometer standard, just twice the size of a strand of DNA.3
We believe this innovation greatly lengthens the runway for Moore’s Law and offers a bright future for chip development. We think enhancing computing capability and storage capacity while lowering both power consumption and costs will provide a substantial tailwind for tech progress.
Notably, however, EUVL requires specialized technology in the form of huge machines that are expensive, complex, and in limited supply. Instead of being a limitation, we think this presents some compelling investment opportunities.
These new techniques are made possible by equipment from highly specialized companies. So, while we believe advanced chips will fuel continued technological progress for everyone, we think EUVL offers a particularly intriguing opportunity for the few companies integral to the manufacturing process.
Though many would automatically think of top chip manufacturers in Asia as the key winners from the introduction of EUVL, we believe there are lesser-known companies behind the technology who may be the largest beneficiaries. In our view, the leading supplier of EUV Lithography equipment has a nearly insurmountable monopoly on the market, due to the many competitive moats inherent in its product — namely scale, cost, and complexity.
In addition, a Japanese company specializing in semiconductor inspection systems has a leading global position in providing many of the component parts and tools necessary for EUVL’s successful deployment. As the demand for EUVL increases, we think its expertise will be highly leverageable.
Advanced chips and microprocessors are spreading far beyond PCs and smartphones into cars, appliances, infrastructure, industrial machinery, consumer electronics, and more. Fortunately, we believe technology innovation marches on and the resultant computer chips will be the backbone of the computational power necessary to store, process, and communicate all of the data this digital age will create. Our team seeks to access rapid innovators such as these companies at an early stage in their journeys. We are aiming to look at what the industry will be like five years from now, as opposed to the next quarter. In our view, the tech winners of the future are sowing the seeds of their success today.
1The International Society for Optics and Photonics, Vivek Bakshi, “Understanding EUV Lithography: The Technology That Enables Extension of Moore’s Law,” 2018. | 2Samsung, “The Advantages of Using EUV,” October 2018 | 3Forbes Asia, “Digital Magic,” November 2019.
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