Something remarkable happened this month: the Dutch company – ASML – surpassed the entire Bel20 and became bigger than the largest twenty Belgian companies together.
The largest Belgian company is AB-Inbev , which is partly Brazilian. The Belgian beer giant shrank in recent years from almost 200 billion euros to a good 80 billion euros. Still gigantic, but the head was skimmed off firmly. Although that is not the explanation why the Dutch high-tech company ASML has experienced such strong growth. ASML – short for “Advanced Semiconductors Materials Lithography” – is the leading supplier producing semiconductor manufacturing machines. Without ASML there would be no smartphones, laptops or smart cars. Furthermore, it is a quasi-monopoly supplier of very high-quality lithographic machines for the semiconductor industry. ASML's lead has been built up through years of research and development, and systematically outclassing its competitors. The customers are mostly chip manufacturers such as Intel, TSMC, Samsung and others. ASML originated from a joint venture between ASM and Koninklijke Philips. The company has been listed on the stock exchange since 1995, being also part of the stock indices AEX and NASDAQ. Its main competitors are Canon and Nikon, but these lens specialists can no longer stand in the shadow of ASML, which has far surpassed the Japanese in technology and R&D resources.
Increasingly smaller details
The biggest challenge for ASML and its customers is to be able to apply increasingly smaller details to the chips, whereby they have more computing or storage capacity with lower energy consumption. Particularly, it is the lithography systems that determine whether the details on a chip can be reduced: the images must be reduced further and further, and this requires light of an increasingly shorter wavelength, or using techniques that push light of a certain wavelength to the extreme. Where Nikon and Canon were the leaders in the Stepper era, ASML has become so in the Deep Ultraviolet (DUV) Immersion era. Meanwhile, ASML also sells systems based on extreme ultraviolet light (EUV), which allow even finer details. ASML machine (Low-NA EUV machine) costs about 170 million euros each, for that price you can hardly buy two Boeing 737s! In Eindhoven there is therefore a factory that makes complex machines that have the value of large passenger aircraft! The new system will cost even more: it will hit the market in 2024 and is estimated to cost at least 250 million apiece. In terms of size of the device, you should think of a large truck. Only one can fit in a large Boeing 747 at a time because the weight of the device needs to be exactly in the middle of the plane to prevent the Boeing from becoming unbalanced. The flights from Schiphol to Korea and Taiwan will have good load utilization rates. By the way, the machine will soon also have the value of that Boeing 747...
With a turnover target of 25-30 billion euros in 2025, ASML is growing by almost 20 percent annually. It makes a nice gross margin here of about 50 percent. The company is very profitable and generates huge free cash flows: more than 4.2 billion euros per year! It will grow to double in 2025. Therefore, it’s not surprising that ASML is so big on the stock exchange.
ASML will not lose its unique position anytime soon either. Because the barriers to entry have become immensely high, and the enormous R&D investments make it practically impossible to enter as a new competitor, which is all the true when customers cannot afford to try something new with the risk that production will come to a standstill.
Due to the geopolitical trade and tech war between the US and China, there are now signals that the US, Europe and Asia no longer want to be dependent on each other and therefore want to have their own chip industry in their own region. This should be good news for ASML. Instead of having production in one place, new capacity will now be built in three places. There is only one supplier that can supply the leading-edge systems. In the Netherlands a lot is invested in Mainport (Maasvlakte, Train stations, etc) but also in what they call Brainport (Eindhoven). This results in a whole range of very large technology companies, in addition to ASML, ASMI, BESI, and NXP, among others. The growth of ASML will probably continue along the wave of further digital transformation. ASML originally belonged to Philips, which today has a market value of 36 billion euros. In 2012, ASML overtook its mother. Meanwhile, it weighs eight times heavier than the Eindhoven parent company. Signify, which has just been carved out and produces LED lighting, is on its way to a value of 6 billion euros. If Philips had kept all those spin-offs together, it would have been a dominant tech player in Europe, a European Alphabet (Google).
Macro-economist and founder of Econopolis