ASML, the Obscure Powerhouse at the Cutting Edge of Chip Technology

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, obviously, we've done a lot of episodes about the semiconductor industry, about chips. There's one specific, I guess I would say, sub-component of the story, that people are like, oh, you guys gotta do that, you guys gotta do that, which we have yet to hit so far.

Tracy Alloway (0:35)

You say there's one thing that we have yet to do, but I have a feeling like this is the endless semiconductor series. And as soon as we finish this episode, we're gonna discover some other hidden component of the semiconductor supply chain, and that's gonna lead to another episode. But yes, you're right. There is one sort of big elephant, big semiconductor thing in the room, and that is a company called ASML.

Not to be confused with ASMR, which I always seem to do, ASML.

Joe Weisenthal (1:05)

But hopefully for a certain kind of person listening to an hour of people talking about chips is a type of, for them, ASMR. So maybe we killed two birds with one stone. But yes, ASML, one of the things that we establish in thinking about how the chip ecosystem works, maybe part of our characterization is Taiwan Semiconductor, the biggest contract fabrication company in the world, I think we sort of think of as like, they're the final boss in chips, like in the end, they're like the central bank of chips, their capacity kind of almost dictates chip capacity overall. There's some other companies that make chips, including Intel and Global Foundries, but TSMC is the big one.

But TSMC has to buy equipment from others too. No one is completely self-sufficient in this industry.

And TSMC is a huge client or a huge purchaser of equipment made by this company. It's a Dutch company, ASML.

Tracy Alloway (2:05)

Yeah, so you mentioned that it's Dutch, and this is the other thing. I mean, in addition to not really understanding what this company does or the type of equipment it's actually making for semiconductor manufacturers like TSMC, the other thing I don't really get about it is why is it a Dutch company? Because the one thing I know about it is it has its origins in the US. I think in the 1980s, it sort of came out of the collapse of a bunch of US lithography firms or something like that.

And yet now it's a Dutch company that has this enormous role in the global supply chain. It's squarely like kind of crowning, like it's sort of like a kingmaker for semiconductor technology or expertise. And I don't know, I just have so many questions already. I know we haven't even started.

Joe Weisenthal (2:54)

Yeah, I know, I have a lot of questions too. We'll get started in a second. But you know, you mentioned the oddity of it being Dutch.

There's another element here. And I don't, you know, I feel like reluctant to like talk in like cliches or stereotypes. But I don't really think typically.

Tracy Alloway (3:10)

I know that's not true.

Joe Weisenthal (3:11)

No, it is true. Of like Northern Europe or Europe in general as being like this like cutting edge, high tech hotbed for anything. When I think about tech, I think about Silicon Valley, maybe more on the consumer end, but also like, you know, obviously a long history. I mean, Silicon Valley for a reason. And I think about various parts of East Asia.

And when I think about the engineering prowess in Europe, hey, I don't think about tech in Europe that much. And when I do think about engineering prowess in Europe, it's typically, I'm thinking more on the sort of like bigger industrial engineering.

So a company like Siemens or companies that are really good at public works or trains or whatever. And I don't think of Europe as being a hotbed of say semiconductor innovation. I know there's probably countless like counter examples. I'm just sort of thinking like it doesn't fit into my mental models of this stuff. So it is interesting that it's Dutch.

Tracy Alloway (4:07)

Well, also just when you think about the European market, like you start thinking about the biggest companies there. And yeah, sure, stuff like Siemens, LVMH, like luxury good makers, but ASML is absolutely massive. And like just looking at the share price chart, it has had a huge, huge run up over the past year or so. I mean, basically since the global pandemic, much like a lot of other semiconductor stocks, but I mean, amazing run up, a huge market cap. And yet it's sort of like this company that outside of the semiconductor sphere, it doesn't seem to get that much attention.