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ASML emerged as the number 10 lithography player in the 1980s, with no revenue, commercially credible product, or offices. However, it had two industry-leading technologies developed within Philips and a dedicated team of engineers. ASML took advantage of a technology transition in the lithography industry and gradually became one of the top players by the mid-1990s.
Photolithography involves using light projected through a mask to create a pattern on the surface of a silicon chip. ASML's machines, while massive in size, play a crucial role in making electrical circuits on semiconductor chips as small as a handful of atoms. The company's machines employ a lens system to concentrate light, enabling the creation of high-quality and high-resolution circuit patterns.
ASML played a pivotal role in the development and adoption of extreme ultraviolet (EUV) lithography. This technology required significant investment and overcoming challenges in creating light sources and lenses capable of producing patterns with extreme precision. ASML's collaboration with U.S. research consortiums and major semiconductor manufacturers was instrumental in driving the successful implementation of EUV lithography.
ASML currently holds a dominant position in the lithography equipment market, with approximately 100% market share in the most advanced lithography equipment. The company's commitment to continuous innovation and investment in R&D have solidified its position as a leader in the semiconductor industry. ASML's machines have a long lifespan and can be upgraded to keep up with technological advancements.
While ASML has achieved significant success, there are potential risks to consider. These include the ability to manage a complex supply chain, the emergence of disruptive technologies, and geopolitical uncertainties. However, ASML's focus on collaboration, incremental improvements, and long-term strategic planning positions the company to capitalize on the ongoing demand for advanced semiconductor manufacturing technology.
This is Matt Reustle and today we are back covering the semiconductor value chain. ASML was once a forgotten subsidiary of Philips. Today, it's one of the most important technology companies in the world. To break down ASML, I'm joined by Tom Walsh, a portfolio manager at Baillie Gifford. Tom helps explain what's happening inside an extreme ultraviolet lithography machine, and how ASML came to pioneer this technology from the Netherlands. It was a non-traditional path to say the least. This breakdown pairs very well with our breakdowns on AMD, Qualcomm and Cadence. And I'd also highlight the Founders Podcast episode #8 on the Intel Trinity. Please enjoy this breakdown of ASML.
For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.
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Show Notes
(00:02:44) - (First question) - The ASML back story
(00:06:14) - A deep dive into what semiconductors and Lithography are
(00:08:04) - Alternate business directions ASML could have pursued
(00:19:39) - How large ASML is in the industry today
(00:10:37) - A look into the management team over time
(00:14:03) - Moore’s Law and the key components of chip production
(00:15:09) - Overall size of the machines manufactured
(00:16:14) - The evolution of UV light and its important role in the advancement of Lithography
(00:20:29) - Other competing companies within the field
(00:23:10) - A detailed look into the cost of production industry wide
(00:24:04) - Unlocked innovations associated with the development technology
(00:25:32) - The life cycle of a lithography machine
(00:27:04) - Revenue gained from new versus refurbished machines
(00:27:27) - The cyclicality of the ASML machine revenue
(00:29:32) - Potential production limitations due to capacity
(00:31:00) - Margin profile and how ASML sets prices
(00:32:33) - What the concentration of customers looks like
(00:37:00) - Reasons why an acquisition has not taken place to date
(00:38:42) - He explains where investor cash flow is directed
(00:40:01) - An investors perspective on ASML opportunities
(00:42:24) - How milestones in new technology are regulated and measured
(00:45:40) - Potential business risks
(00:49:21) - Lessons he’s learned from studying ASML
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