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Substrate aims to reduce US chipmaking costs

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Substrate's tool uses X-ray lithography for advanced

chipmaking

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Substrate has raised $100 million, valued at over $1

billion

By Max A. Cherney

SAN FRANCISCO, Oct 28 (Reuters) - Substrate, a small

U.S. startup, said on Tuesday that it had developed a chipmaking

tool capable of competing with the most advanced lithography

equipment made by Dutch firm ASML.

Substrate's tool is the first step in the startup's

ambitious plan to build a U.S.-based contract chip-manufacturing

business that would compete with Taiwan's TSMC in

making the most advanced AI chips, its CEO James Proud told

Reuters in an interview. Proud wants to slash the cost of

chipmaking by producing the tools needed much more cheaply than

rivals.

Should the company succeed, it would have economic and

national security implications. President Donald Trump has made

returning chipmaking to the U.S. a key part of his plans, with

the government recently taking a stake in Intel ( INTC ), once a

leading chipmaker that has struggled to keep pace with TSMC's

advances in manufacturing.

Substrate has attracted investments from the Central

Intelligence Agency-backed nonprofit firm In-Q-Tel, General

Catalyst, Allen & Co, Long Journey Ventures and Valor Equity

Partners, raising $100 million at a valuation over $1 billion,

Substrate said.

What the San Francisco-based company has set out to achieve,

though, is hard.

An engineering feat that has eluded even large companies,

lithography needs extreme precision. ASML is the only company in

the world that has been able to make at scale the complex tools

that use extreme ultraviolet (EUV) to produce patterns on

silicon wafer at a high rate of throughput.

"At some point, everyone just gave up on the chip problem,

and were just willing to accept the TSMC and ASML duopoly,"

General Catalyst Managing Director Paul Kwan said.

ASML did not immediately respond to a request for comment.

Substrate said that it has developed a version of

lithography that uses X-ray light and is capable of printing

features at resolutions that are comparable to the most advanced

chipmaking tools made by ASML that cost more than $400 million

apiece.

The company said it has conducted demonstrations at U.S.

National Laboratories and at its facilities in San Francisco.

The company provided high resolution images that demonstrate the

Substrate tool's capabilities. Reuters was unable to

independently verify the company's claims about its technology.

SLASH MANUFACTURING COSTS

"This is an opportunity for the U.S. to recapture this

market with a homegrown company," Oak Ridge National Laboratory

director Stephen Streiffer, an expert on high-energy x-ray

beams, said in an interview. "It's a nationally important effort

and they know what they're doing."

If Substrate succeeds in its plan to drastically reduce the

cost of making chips, it will likely have second-order effects,

much in the same way SpaceX's drive to reduce the cost of rocket

launches has spurred additional space travel, SemiAnalysis

analyst Jeff Koch said.

But there are many steps ahead of the company's engineers

and executives to reach their goal.

"They were steadfast that the (lithography) part was the

first thing they had to solve on a mission to do their own

process," Koch said. "Ultimately that displaces TSMC and ASML."

Developing an advance chipmaking process that could rival

TSMC's costs billions of dollars and has been a challenge for

the likes of Intel ( INTC ) and Samsung to perfect. Chip factories today

cost more than $15 billion to build and require specialized

expertise to build and operate.

The company has not received funding from the government

directly, but U.S. officials have been interested in Substrate's

efforts, Proud said.

"I think that it's really important that what we're doing is

commercially viable on its own," he said. "Secretary Lutnick and

others have been engaged from the very start of the

administration," he said, referring to U.S. Secretary of

Commerce Howard Lutnick.