Business Breakdowns
· Matt Reustle, Tom Walsh
[00:00:00] S0: Yes. It's a really interesting area or product to be borrowing from with a completely different use case. You alluded to it in terms of them being the leader in the space today. Can you give us a sense of how big they actually are, whatever measurement you want to use, whether it's revenue or something else? [00:00:00] S1: In 2022, they generated revenues of about EUR 21 billion and operating profits of about EUR 6.5 billion. And they've got a market capitalization of, as of today, just over EUR 250 billion as well. So they're a fairly large company in terms of revenues, and in terms of market capitalization. But when you actually look at the company, it's not actually selling many machines. It only sold 345 photolithography machines last year. It's a mass-produced item, but it's a very low volume, very, very specialized item. The most expensive piece of equipment sells for north of EUR 150 million apiece. [00:00:00] S0: Yes, that's sticker shock. I was surprised when I was doing some research to see the number of units sold, and I was scratching my head in terms of adding up that versus the revenue number, but that explains it well. You mentioned they were somewhat of the orphaned company, the GoodCo, BadCo spin-out. They were the BadCo in this particular instance. What did the management team look like then versus today? Have there been major visionaries in terms of their history who really drove this business to go from being the forgotten child to the leader in the market?
· Tom Walsh
[00:00:00] S1: Right back at the very beginning, someone was actually, individuals brought in to lead the companies. It was spun out of there, somehow he stuck around for a few years and then there was a series of different CEOs over the history of the company. The current CEO, he's been there since 1999. He was CFO for a number of years before stepping up as CEO in 2013. And he's certainly got to take a lot of the credit for the success of the business in terms of steering the business through some pretty challenging times. If you think about how tough things were in the semi industry, in the aftermath of the tech bubble in 2000, he was the CFO there. You have to keep the ship afloat and he ensured that the money kept going into R&D, so the company kept extending his advantage. As he stepped up to CEO in 2013, it was by no means a given that EUV, their leading-edge products that are now the dominant part of their revenue base and their future revenue base. And there's no given that, that would happen, but he was able to steer the company through that. Again, keep it focused, not get distracted and try and branch and diversify into other activities. But back his engineers to eventually get that to work. So he's been key. But if there were one other person who really is associated with the success of ASML, then that would happen to be a man called Martin van den Brink. And he's the CTO and he's the president of ASML and he's been there from the very, very beginning. So he actually applied to join Philips from 1983, just towards the end of 1983. But by the time he arrived at Philips, he arrived in to the ASML division. As well as right at the time that it was essentially being spun off. And the funny thing is, when he joined, the story goes that the old hands that Philips who were working in this semiconductor part of the business were chuckling to themselves that he was joining a part of the business. That was being sent off to die and they were staying behind to continue to develop the EBeam lithography division that was going to be the future of semiconductor manufacturing. Nonetheless, he stuck with it and he think he had a pretty trying time in his first couple of years. And the company lurched towards the brink of disaster as it tried to bring its first commercial product to market. They were struggling.
· Tom Walsh, Matt Reustle
And actually after two years, despite coming out of education into ASML, as his first job, just two years into that job, his boss was moved off and he was moved to head up the development of the company's make-or-break product. So he's a guy, two years into his time working in the lithography industry and he steps up to run that. Now, at the time it was supposed to be a stopgap measure. As I understand it, they wanted to bring someone in ahead. They just needed to get this thing over the line. They needed him there, but they never found someone that was better than him. He brought that product to market. That product was a success. The company went from strength to strength. And in ‘95 he stepped up onto the management board and was appointed CTO. And he remains there today. And he's close to a genius if you'll meet, if you ever get a chance to meet with him. And he's been absolutely instrumental in the success of not just ASML, but in the continued progression of Moore's Law and semiconductor technology, the entire industry. [00:00:00] S0: We've talked about this on past episodes. But can you bring in how photolithography plays into Moore's Law? How they've been able to shrink things? And how key this component is to that overall process of being able to shrink the chips?
· Matt Reustle, Tom Walsh
[00:00:00] S0: We've talked about this on past episodes. But can you bring in how photolithography plays into Moore's Law? How they've been able to shrink things? And how key this component is to that overall process of being able to shrink the chips? [00:00:00] S1: So in very simple terms, the key gating technology for the advance of Moore's Law. So the idea of making transistors smaller and cramming more of them onto the surface of the chip, doing that, essentially doubling it every two years, the key gating technology since 1970s has been photolithography so whenever photolithography is stalled, Moore's Law has stalled. It happened in the late 1970s and to a degree, it happened about 10 years ago, when it was struggling to get extreme ultraviolet technology to work. So photolithography is absolutely vital. [00:00:00] S0: And what does the machine actually look like? What's the size? If you could just give us some type of picture of it?
· Matt Reustle, Tom Walsh
[00:00:00] S0: And what does the machine actually look like? What's the size? If you could just give us some type of picture of it? [00:00:00] S1: So these things are huge. Their current leading-edge machine, the extreme ultraviolet machine that, when constructed, is about the size of a double-decker bus. You can -- if you're lucky enough to get the chance to go and visit the Cleanroom in Veldhoven, which is where the company is headquartered, and you walk around the Cleanroom and see them in manufacturing process. These are huge, huge machines. And they're built in component parts, they're built in modules that ultimately are assembled at the factory of the semiconductor manufacturer themselves. But they are really vast bits of kit and when they transport them to the end foundry, the semiconductor fabricating facility, it takes three jumbo jets to get them there. So these are really extraordinary machines and they're going to get bigger. The next generation of machines that comes out in hoping to go into high volume manufacturing in 2025, ‘26, they'll be bigger still. Because perversely, as you make the pattern smaller, you have to make the lenses bigger and that means the machine has to get bigger. So smaller transistors, even bigger machine.
· Tom Walsh, Matt Reustle
[00:00:00] S1: So these things are huge. Their current leading-edge machine, the extreme ultraviolet machine that, when constructed, is about the size of a double-decker bus. You can -- if you're lucky enough to get the chance to go and visit the Cleanroom in Veldhoven, which is where the company is headquartered, and you walk around the Cleanroom and see them in manufacturing process. These are huge, huge machines. And they're built in component parts, they're built in modules that ultimately are assembled at the factory of the semiconductor manufacturer themselves. But they are really vast bits of kit and when they transport them to the end foundry, the semiconductor fabricating facility, it takes three jumbo jets to get them there. So these are really extraordinary machines and they're going to get bigger. The next generation of machines that comes out in hoping to go into high volume manufacturing in 2025, ‘26, they'll be bigger still. Because perversely, as you make the pattern smaller, you have to make the lenses bigger and that means the machine has to get bigger. So smaller transistors, even bigger machine. [00:00:00] S0: Yes, that's a funny juxtaposition there in terms of one thing getting smaller and the other getting quite bigger. You mentioned EUV, that having a big role 10 years ago. It seems like a technology that's really owned by ASML today. What's been the evolution there? And how has ASML become the dominant player with that particular technology?