Investment bytes – Asia tech
Part two: Faster computation with smaller, more powerful computer chips

In part two of our new series, Portfolio Manager Anita Killian profiles the technology fueling the next stage of computer chips.

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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 fuelled 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 increasingly 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.

FIGURE 1

investment-bytes-asia-tech-part-two-faster-computation-with-smaller-more-powerful-computer-chips_fig1-1

What is EUV Lithography and why is it important?

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. The goal in semiconductor chip manufacturing is ‘process shrink’ – to increasingly miniaturise 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 have the potential to be 40% more area efficient, to increase performance by 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 specialised 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.

Who is likely to benefit from this innovation?

These new techniques are made possible by equipment from highly specialised 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 two lesser-known companies behind the technology will 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 – we believe it has an advantage that should persist for the next decade.

In addition, a Japanese company specialising 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 and its competitive positioning will endure over the long term.

Our team seeks to access rapid innovators such as these at an early stage in their journey. We are trying 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 will not look the same as the tech giants of today.

Up next on Investment bytes: Asia tech…

We are on the brink of a massive change in how we interact with the daily objects of our work and leisure. Advanced chips and microprocessors are spreading far beyond PCs and smartphones into cars, appliances, infrastructure, industrial machinery, consumer electronics and more. In the next edition of Investment bytes: Asia tech, we’ll discuss the pervasiveness of tech across the economy. We believe Moore’s Law 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.

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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