Customer concentration and strategic dynamics

This conversation was originally released in June of 2023.

Today we return to the semiconductor value chain with one of the most important companies in modern technology: ASML. The company began life as an unwanted spin-out from Philips with no real product and little expectation of success. Today, it builds the only machines capable of manufacturing the most advanced chips in the world.

To break down ASML, I’m joined by Tom Walsh, portfolio manager at Baillie Gifford. Tom walks through how photolithography works, what’s happening inside an extreme ultraviolet machine, and how a small Dutch company came to dominate one of the most complex technologies ever built.

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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Timestamps

(00:00:00) Update on ASML and Welcome to Business Breakdowns

(00:04:01) Intro

(00:04:50) The ASML back story

(00:08:20) A deep dive into what semiconductors and Lithography are

(00:10:10) Alternate business directions ASML could have pursued

(00:21:45) How large ASML is in the industry today

(00:12:43) A look into the management team over time

(00:16:09) Moore’s Law and the key components of chip production

(00:17:15) Overall size of the machines manufactured

(00:18:20) The evolution of UV light and its important role in the advancement of Lithography

(00:22:35) Other competing companies within the field

(00:25:16) A detailed look into the cost of production industry wide

(00:26:10) Unlocked innovations associated with the development technology

(00:27:38) The life cycle of a lithography machine

(00:29:10) Revenue gained from new versus refurbished machines

(00:29:33) The cyclicality of the ASML machine revenue

(00:31:38) Potential production limitations due to capacity

(00:33:06) Margin profile and how ASML sets prices

(00:34:39) What the concentration of customers looks like

(00:39:06) Reasons why an acquisition has not taken place to date

(00:40:48) He explains where investor cash flow is directed

(00:42:07) An investors perspective on ASML opportunities

(00:44:30) How milestones in new technology are regulated and measured

(00:47:46) Potential business risks

(00:51:27) Lessons he’s learned from studying ASML