Let's kick off our 'Dutch week' with ASML, which is, in 2022, indisputably in the top five of the most strategic European companies. ASML ("Advanced Semiconductor Materials Lithography") was founded in 1984 and has been since then in the business of building the machines that produce microchips (that's photolithography systems for you).
An unknown giant
Chances are you don't know anything about this company if you even know its name! But here are a few amazing facts about ASML:
- Philips initially launched the company in Eindhoven as a small joint venture. In the nineties, struggling to face Nikon and Canon's competition on photolithography, Philips decided to spin it off in a Kodak moment. ASML's sales started to take off in 1991, and by 1995 it had caught up with both Nikon and Canon. Now ASML is as large as its old mother company.
- In 2015, ASML was famously the victim of intellectual property theft from its Silicon Valley subsidiary. The case involved "six former ASML employees, all with Chinese names" tied to the Chinese Ministry of Science and Technology.
- In a rare reversal move for a European company, ASML acquired in 2000 a leading U.S. company: the Silicon Valley Group – No, I'm not making up the name.
- The only reason Moore's law is still working for microchip performance is that ASML invented extreme ultraviolet lithography (EUV) technology. This allows customers such as Samsung and TSMC to design 7 nm, 5 nm, and now 3 nm semi-conductors, breaking the wall of the previous 22 nm generation (to keep it simple: the smaller you can engrave a chip, the denser its surface, the more power you have). Getting there required $9 billion and 17 years of R&D.
- An ASML EUV production tool is a 180 tons machine that requires three Boeing 747 to be shipped to Asia and a $1B local site infrastructure to use it. ASML can only currently produce about 40 units per year, organizing manufacturing with more than 4,000 high-end suppliers.
- Just selling a few hundred products a year, ASML's total revenues were $18.6B in 2021 and a net income of $5.9B. For comparison, UBER made $17B with a negative operating income of $3.4B.
- As a strategic European technology provider, ASML is increasingly caught in the crossfire of U.S. sanctions against China.
Why should you care?
ASML is indisputably one of the most strategic companies embodying Europe's technology leadership, probably more than any other one. In terms of structure, manufacturing, R&D, and net operating income, it's pretty comparable to Airbus in many ways. There's one key difference: unlike Airbus, AMSL is not even in a duopoly stand-off with another significant competitor. No, ASML's worldwide market share in the semi-conductor lithography industry is about 90%. As such, they are the upstream key bottleneck to producing most worldwide electronic devices and appliances, computers, cars, etc.
In 2022, it's worth remembering that we are in a technology cold war that is heating up quite steadily. And in this war, Europe is not a frail player, only surviving because of the benevolence of our U.S. friend while we try to mimic Silicon Valley with startup envy.
Thanks to Trung Phan for the original idea of writing on ASML 👋