ASML: Competing with Moore’s Law - [Business Breakdowns, REPLAY]

19:58Business Breakdowns Host:Obviously, it was late. By 2010, it still wasn't there. 2012, ASML managed to persuade Intel, Samsung, TSMC to support them, to co-invest in the company. It took 23 % share between them and ASML. They put 1.4 billion euros of R &D funding into ASML. And finally, in 2019, it will take 13, 14 years after it was supposed to be delivered. these first EUV machines came out. And it's all just about being able to make the patterns smaller, make them more efficiently, and therefore make them at lower cost, but also to make them better. They're high quality patterns because you're not having to use lots of tricks to try and get a really wide bandwidth of light down to a very, very tiny design size.

20:41Tom Walsh:That's incredible in terms of the storyline for how they were trusted with developing this technology. Did the Americans put all their chips in the ASML basket? Were there any other businesses that they trusted to try to develop this? Obviously, none of the companies within Japan, but was there anybody else that they looked to or hoped would develop this?

21:02Business Breakdowns Host:So the idea of the consortium that was set up in the late 90s was just to research and produce fundamental research into the potential of extreme ultraviolet for that light technology to be available to anyone he wanted. So had there been a domestic US player that was strong enough to carry it on, then they could have done so. The Japanese set up their own consortium and the coordinate collaborated there to try and develop extreme ultraviolet. And they continued to progress. And around 2007, Nikon had a prototype of an EV machine. But the sheer cost of developing it and the sheer technological challenge meant that ultimately first Canon and Nikon gave up on it.

21:39Business Breakdowns Host:They had to give up. They couldn't get it to work. They didn't think it would work. And yet only ASML had the funds, the resources, and the support in order to push through and bring this to market. That's incredible.

21:50Tom Walsh:And where they stand today, is there anyone else relatively in the ballpark of developing a competitive machine?

21:58Business Breakdowns Host:The short answer is no. It's taken from the first time they discussed it at ASML through to today is 25 years plus. They've sunk over 10 billion euros of R &D into the development of it. The components that go into it are not the sort of things you buy off the shelf. They're things that had to be created for this. You need to use a light source that I described the transition from light bulb to laser. The light source for an EUV machine involves shooting a laser at droplets of tin that are smaller than a dust particle. And you have to strike each dust particle twice, once to flatten it, once to vaporize it, to turn it into plasma, which is 40 times hotter than the surface of the sun.

22:39Business Breakdowns Host:And you have to do that 50 ,000 times a second as these things are shot through a vacuum. It's not the light source you find on the shelf. It was so difficult to make. About a decade ago, Aesimel had to buy in the light source provider at a company called Symer in San Diego. So no one else to make that light source, never mind the mirrors that he used to focus the light, nor all the other components that go into an EUV machines. I don't see how anyone would catch up. Maybe in 10 years, you might want to come up with an approximation of the current EUV machine. But by that point, you're onto the multiple generations forward of UV.

23:12Business Breakdowns Host:So of all the competitive advantages, of all the technological advantages that I've ever come across, I can't think of one that's more significant than AS miles.

23:21Tom Walsh:There's some barriers to entry, to say the least. In terms of the actual value chain and where they fit in, you mentioned the cost of one of these machines. Do you have a sense of what this represents in terms of the overall production cost of a semiconductor and how much this particular step in the process, this machine, how much that represents of the overall pie?

23:46Business Breakdowns Host:Yeah. So the way they tend to look at it is their share of wafer fabrication equipment. So what we know is roughly what it costs to build a new wafer fabrication site. And we know what the equipment share of that is. And we can see there's industry stats produced. The ASML tends to account for somewhere between 20 % and 25 % of that. It varies according to the type of semiconductor, so it's much higher in logic chips, which are the chips that Intel make. It's lower in parts of the memory market where they've got a slightly different technology power.

24:16Tom Walsh:In terms of what they've been able to unlock for customers with introducing this technology, obviously things have gotten smaller. What have been the outcomes of that in terms of tangible results that customers have seen?

24:30Business Breakdowns Host:In simple terms, what they've been able to do is enable the continuation of Moore's Law. So as I think other people have spoken to you about in the past, the nodes as we describe them now, this is five nanometers, three nanometers, they don't exactly correlate to the size. Once upon a time, these were actually the size of the smallest dimension on the surface of a chip. That's no longer exactly the case. They're slightly marketing terms. But the fact of the matter is that there is still this process of squeezing more transistors and smaller transistors onto a piece of silicon. The more transistors you have, the more calculations you can perform, the more memory you have on that single chip.

25:05Business Breakdowns Host:So every time they're able to advance the manufacturing process, that enables the production of more advanced semiconductors at the same price, which enables your iPhone to get that little bit better, which enables the processing chips made by NVIDIA to do that more complex an algorithm that enables the things like chat GBT and artificial intelligence to be done. So in terms of pinpointing single things, there's lots of single things you could point to, but essentially it's the whole of computing progress. Anything that's happening at the leading edge needs advanced manufacturing, needs photolithography to keep progressing so they can keep squeezing more transistors onto a chip.

25:43Tom Walsh:Jumping a bit into the business model itself, when a company buys one of these machines, what's the typical life cycle like? Is this something that it's incredibly huge, as you mentioned, in terms of requiring three jumbo aircrafts to get it over? How long is that in operation for a customer?

26:03Business Breakdowns Host:So once these machines are in operation, they tend to be there for a very, very long time. They recently gave out a stat that 90 % of all of the lithography machines they've sold in the last 30 years are still in operation on the floors of wafer fabrication facilities around the world. And some of these are still in the same place they were originally sold. Some of them, when they reach the end of their natural life with one manufacturer, may be sent back, refurbished and then sold secondhand. But these machines last forever. Well, not forever, but they last a very, very long time. That's the nature of the semi-industry.

26:36Business Breakdowns Host:once the largest part of the cost of making semiconductors is in the capital cost of building the facility. Once you've depreciated that, the cost of running these machines actually is relatively low. The actual marginal cost of production is pretty low. And what ASML has been very good at is ensuring that once these machines are installed, that's not the end of it. They're able to continue to service them and upgrade them in the field so they get ever more productive. So the machine that's installed 10 years ago can have an upgrade put through that markedly improves its productivity. And that obviously is good for customers and that incentivize customers to keep buying from because they know they get a machine today, that same machine can get better and better over the next 30 years.

27:16Tom Walsh:And do you have a sense of the breakdown of the revenue that they generate from new machine sales versus whether it's refurbishing, upgrading, or anything else?

27:25Business Breakdowns Host:Yes, their new machine sales account for about 75 % of revenues. And the balance is from service and fuel options, which is essentially maintenance and upgrades in the field.

27:38Tom Walsh:And how cyclical is that revenue stream? I assume that they're developing these machines, but there might be major breakthroughs at certain points in time. Is there much cyclicality to it? What ends up driving the sales, whether it's a constraint on amount of volume they can produce, demand, or anything else?

27:58Business Breakdowns Host:The industry is cyclical, and ASML in its history has been very cyclical. If you go back and look at the company's history, well, from the 80s onwards, but even just since it was IPO'd, it's experienced and it's gone through the pain of vicious cycles in the industry. Those have tended to become less severe in recent years. Partly that's down to the fact that they've emerged as the sole producer of lithography equipment. There is no one else to go to. There's no competition on price that they have to cope with in that sense at the very leading edge. If you want to build a wafer fab to produce the next generation of chips, you have to get your order into ASML because there's no other show in town to get that lithography machine.

28:36Business Breakdowns Host:And if you cancel your order because things are a bit tough this year, you're to the back of the queue when things are starting to look better again. There's no avoiding that. So what you've found in recent years is that ASML's revenues have become less cyclical. That's not to say it won't see another cycle. That's not to say you won't see machine orders pushed out. You've seen, obviously, across the semi-industry in the last few months, In particular, a series of companies coming up and confessing that things are actually a little bit tougher than they were expecting. TSMC recently cut their revenue guidance.

29:06Business Breakdowns Host:So I would expect that there will continue to be cancellations and oscillations along the way. But these days, it's much more about that secular structural growth, I think, in terms of that ability to keep producing leading edge machines that are needed for leading edge logic manufacturing and memory manufacturing.

29:24Tom Walsh:I think you said they sold just north of 300 machines last year. What could they do? Is that the limit to the capacity that they could produce? Do you have any sense of how much they can ramp that up?

29:36Business Breakdowns Host:They had a capital markets day last year, and they've put out some pretty punchy numbers in terms of saying what they would like to be able to expand their capacity to. They are investing so they can produce 90 EUV machines per year. That compares to about 40 or so sold in each of the last two years. and 600 deep ultraviolet machines for the next generation of equipment. So a very material step up and also something approaching 20 high NAEV, the next generation of EU machines by around 27, 28. So they're investing very hard at the moment to expand capacity. And a lot of that is around ensuring that you don't get bottlenecks.

30:11Business Breakdowns Host:They're conscious that at the very leading edge of the semi-industry, they are the bottleneck and they don't want to be the bottleneck. They don't want to incentivize their customers to start thinking about different ways of making semiconductors. So they're really being very explicit out there and saying, look, we're going to do what we have to do in terms of making sure we've got the manufacturing capacity to produce as many EUV machines, as many EUV machines as you need for as long as you can see forward into the future.

30:39Tom Walsh:And when it comes to the manufacturing capacity and the investment in that, when you mentioned before, a lot of this is actually completed on site. So they might ship it in several different parts. When they invest in manufacturing capacity, are they actually investing in large facilities that are used to produce certain parts? Or are there other things that are playing a role just trying to bridge those two things together?

31:04Business Breakdowns Host:This is a manufacturing business. It's not really a manufacturing business. It's one of the quirks and one of the very special aspects of it. They call themselves architects and integrators. They actually produce a relatively small proportion of the components that go into the machine, but they assemble them. It's a relatively capital-like. What you really have is when they talk about building out their capacity, it's building out their capacity to assemble these parts. About 80 % of their cost of goods sold is in components and materials that they're buying from outside the business. And the remaining 20 % is coming from labor actually on site.

31:36Business Breakdowns Host:So it's very much about components that others are making, a very specialist list of suppliers that they then integrate and assemble into a single machine. It's a core strength of the business, but it's a core strength that actually it's become a virtue, but it actually was born out of necessity at the company's beginning. Back in the beginning, everyone thought the best model was the Nikon and Canon model where everything was vertically integrated. They had lens manufacturing in-house and they could do the whole thing. That meant they made better machines. But ASML didn't have enough money and they didn't have enough time when they started out to do anything like that.

32:09Business Breakdowns Host:So they went down this path of using suppliers, of being an assembler, and building a relationship with their suppliers that I think is probably second to none that has enabled the whole ecosystem to move forward together.

32:22Tom Walsh:It is a fascinating industry in that sense that there are so many fragmented pieces within the value chain. And it's something I've learned through these conversations. And I think the way you described the architectural design and how key of an element that is in this overall process, it's really something I didn't expect from the outside until I went a bit deeper. We've touched on cost of goods sold a little bit and pricing a little bit. Can you talk about the margin profile of this business, how they go about setting price, particularly in a product where they seem to be the only supplier of that product?

32:55Tom Walsh:What does that look like over time? And what does that look like today?

32:59Business Breakdowns Host:The margin profile has, as you might imagine, improved over time as they've gone from scrapping away from market leadership to becoming the dominant player. So their gross margins are now around 50%. That's up from in the mid-40s last decade and are averaging around 30 % gross margins back in the 2000s. That translated last year to operating margin of around 30%. And that's likely to improve further from here as the next generation EUV machines start to come into production and the existing generation of EUV machines starts to increase in volume. So there's room for those margins to improve. But again, what's interesting and I think what's been key to the success of ASML is in spite of the fact it's been the dominant marketplace for nearly 20 years now, it's never looked to price gauge.

33:48Business Breakdowns Host:Its approach is incredibly collaborative. I've spoken a bit about their relationship with their suppliers, but it's also the same with their customers. This is an industry that is, I think, unlike any other in terms of the way that the companies collaborate in order to agree on and advance technologies. And that only works really if you're honest and open with your customers and they're honest with you and you can see the sharing of risk and reward. ASML puts billions and billions into developing new machines. TSMC's business model, Intel's business model, Samsung's business model, they don't work if they don't have the equipment to make these advanced semiconductors.

34:20Business Breakdowns Host:So there needs to be sort of a quid pro quo in terms of, well, I'm going to invest now, you're going to buy these at a price that enables me to generate an appropriate return for all that investment and risk that I've taken. But equally, you having supported me in developing these machines, the quid pro quo from me is I'm not going to gouge you. I know I'm the only house in town for an EV lithography machine. In theory, economic theory would say, ASML could jack up their prices by twofold and take what they like. But they know that if they took advantage of their position of pricing power, that just produces this massive incentive for their customers to look elsewhere, to look at alternative technologies, to look at alternative providers, and to sink money into providing themselves with an option.

35:00Business Breakdowns Host:So you have this, what looks from the outside, quite a comfortable position in terms of having a relatively small number of customers who are in themselves incredibly powerful, but they're really codependent on each other. and the success of the relationship has been born out of ASML not trying to take advantage of its position, either with its customers or with its suppliers, but seeking to price its products solely on the basis of the improvement that they deliver to their customers. And they talk about trying to split 50-50 in terms of the profitability improvements they hand on to their customers.

35:29Business Breakdowns Host:They want to split the benefit of that 50-50 between themselves and their customers. And they need to share that benefit down their supply chain as well.

35:38Tom Walsh:Yeah, it's a fair point. and seems like it's an incredibly important factor. If it's not going to be a vertically integrated industry, there needs to be some level of cooperation on the supply chain side of things where no individual piece in that value chain is bottlenecking the overall industry and on the pricing as well. You're not extracting more value than you're creating or not sharing in that value creation. So it's a pretty fair point and an interesting point to make. you mentioned the concentration of customers. What exactly does that look like for ASML?

36:14Business Breakdowns Host:So their top two customers were nearly 60 % of revenues last year. I guess they don't disclose the third customer, but I guess if you put that in, you'd be somewhere around 65, 70 % of revenues. So it's a very concentrated customer base. There are relatively few companies left in the industry that are capable of making leading edge semiconductors. They are very large businesses and they have deep pockets. They are the customers. They're the only people who can afford to buy ASML's equipment. And they're the only people, frankly, that have the know-how of how to make the most of it and use that equipment to make the world's very best semiconductors.

36:52Tom Walsh:I think this is probably a fairly obvious question, but in terms of being an acquisition target, is that just a regulatory, absolutely not happening scenario? it seems like there's such an important piece of the pie what stops one of these players from trying to acquire the business.

37:10Business Breakdowns Host:I suspect the market cap provides a reasonable hurdle today. It's a fair question if you roll it back. It's not that long ago that it had a market cap of 20, 30 billion dollars. And why didn't someone come in and buy it there? I think it is the nature of the industry. Semiconductor industry has been successful because over a series of multiple decades, it's been carved up into a series of niches with companies playing their own role in different parts of it. Companies that are involved in the design of semiconductors, companies involved in manufacture, companies that are involved in making materials or equipment that's used in the manufacturing and companies that take those semiconductors and stick them into products that are sold to consumers or industry.

37:47Business Breakdowns Host:And the success of the industry has generally been around these pockets of expertise being carved out to companies that focus and become world leading at it. And then you've seen concentration within those niches, but you haven't perhaps seen so much in the way of vertical integration. Samsung or TSMC tried to buy ASML in a decade ago. I think the odds are they wouldn't have been able to develop a UV. They certainly wouldn't have had cooperation from the other major semiconductor manufacturers in funding the R &D that was necessary to make EUV work. So everyone benefits really from ASML being an independent company, because Samsung is able to piggyback on the work that's being done by TSMC, and work that's being done by Intel, and the work that's being done by Microon and so on.

38:33Tom Walsh:Back to the financials, reference some of the investment that they're making into manufacturing capacity. What is the cash flow stream look like as an investor, when you look at the business, you have a certain margin profile, how much of that is just immediately getting plowed back into the business in the form of capital investment or some other form of investment? And how much is either being returned to shareholders or doing something different?

38:57Business Breakdowns Host:The company's cash generation is actually pretty fantastic. Not least it's helped because customers pay a down payment. They pay for this equipment. Often there's only the development machines that are able to take deposits upfront. So that's been helped to support as they've had to spend heavily on R &D and building that capacity. So the cash generation of this business has actually been fantastic over the years. So pretty much net income converts to free cash flow generation. And that free cash flow generation has generally been recycled either into dividends, which is highly unusual for a company that is growing as rapidly as it is, or share buybacks, which the company has been pretty consistent about doing at modest levels, if you go back 10 years or more, but at fairly substantial levels over the last five years or so.

39:38Business Breakdowns Host:So the company is able to continue to invest. It spends every year about 15-16 % of revenues on R &D. It's investing as heavily as it ever has on CapEx, but it's still able to pay a dividend and give its cash back to shareholders through buybacks.

39:53Tom Walsh:You mentioned capacity expansion, having leading edge technology. These seem like drivers of the business over the next several years. Is there anything else when you think about a bull case from an investor's perspective that stands out as an opportunity for ASML or anything else we didn't talk about in that category?

40:13Business Breakdowns Host:The opportunity really is the history of the company has been about smaller images, better resolution, faster throughput. That's what they do. Make things smaller, make them sharper and make them faster. And that's going to be the core of this business for a very long time because that in itself is just this massive structural growth story because the number of transistors we need, the number of chips we need in the world is going to keep growing unless something very dramatic happens is going to keep growing for a very, very long time. So simply delivering on that, I think, is a massive opportunity out of them.

40:46Business Breakdowns Host:There are aspects that they are able to leverage more and more beyond the simple manufacturing, I say simple, beyond the manufacturing of lithography equipment. And that comes around some of the computational stuff that's done around what they call holistic lithography. You can't use an optical examination technique on leading edge semiconductors anymore because the feature size is so small, you just you can't see them. So nowadays you need to fire electrons at the surface of a semiconductor to identify where the defects are arising. And they're able to do this down to a resolution of a single nanometer.

41:19Business Breakdowns Host:That's four silicon atoms. And that's not a marketing spin. That is actually four silicon atoms wide they're able to measure. So the better they get at doing that, the faster they can do that with their e-beam metrology equipment, the better information they can feed into the computers, the better they can adjust the manufacturing of the actual lithography machine, the better the semiconductors coming out of the other side will be. And really, that's the cycle that they will go through. They'll keep working on that until Moore's Law runs out.

41:46Tom Walsh:I guess in terms of monitoring that as an investor, I can make the extreme comparison to something like biotech, where you have a drug and there's very clear stages of FDA approval, where you get to a point where you know whether this is going to be an economically viable product. Here, there's some level of technology that's being tested. how do these milestones get measured or the events that determine which, yes, this has been a success and we're able to go on and sell this? How has that been announced historically? Is it something that's coming from the company or from customers? And how do you expect that to evolve in the future?

42:24Tom Walsh:I'm just curious, with something like a drug approval, these are kind of big announcements that have major impacts. What does that look like in this market?

42:32Business Breakdowns Host:It's quite different, I think, would be short form. The one thing that was maybe closest to, say, a biotech process would be maybe the development of EUV, which was a major generational shift in manufacturing. It was give or take 20 years on from the previous generation of machines, and it took a fundamental design of the machine. And there was a lot of uncertainty as to whether it would work, because you were changing so many different things. You were changing the way that the light was focused. You were going from using lenses to using mirrors to focus the light. We had an entirely new light source that needed to be invented and created and powered up.

43:05Business Breakdowns Host:And you had to do everything inside the machine in a vacuum because the light they were using was so delicate that it got absorbed by air particles. So that was a massive risk. We hope and gradually they would report to the market on terms of test achievements. They had achieved a certain amount of power in their light source. But one of the, I think, strengths, again, of the ASML businesses, a lot of the improvements are incremental. And they're able to do this because they have a modular approach to design. And again, something that dates back right to the beginning of the company's history.

43:35Business Breakdowns Host:It had to take an approach that enabled it to get something to market quickly. And it worked. Rather than trying to make the machine as one piece, they just break it down into components. And they make each of those in parallel and then put them together. and the brilliant thing about that is it means that they can take the current machine and they upgrade a single part of that take one of the modules and upgrade that and there's risk obviously in upgrading that module but if it doesn't work it's not as if the whole machine falls over they'll be working on another part of the machine as well so a lot of the technological development though incredibly high risk in the sense that you are pushing the boundaries of physics and boundaries of what most people would think was physically possible, the actual process they've developed for introducing each of these new improvements is as de-risked as I think you can possibly do it.

44:24Business Breakdowns Host:So yeah, it's about monitoring it. It's about seeing things come through. Yeah, we'll be able to get some readouts on how things are going with the mirror development for high NA, which is the next generation of UV equipment down the line. But a lot of the continuing improvement in terms of existing stuff that's in the market, that's pretty gradual and incremental. It's happening all the time. And it's as low risk as anything can be when it's as complex as what they're doing. They have de-risked it to a certain extent.

44:52Tom Walsh:That's actually an incredibly helpful explanation. I didn't appreciate the incremental progress you can make on the various components of the overall machine. So that makes sense. When you do think about the risks to the business, what stands out the most to you?

45:09Business Breakdowns Host:I would say there are probably three big things that I would worry about in terms of the key risks. The first one would be the ability of their supply chain to keep up with them. The supply chain they would describe as their biggest competitive advantage, but it's also a vulnerability because they need their supply chain to be able to keep up with the technology advance that they are trying to push. And over the years, some of their suppliers haven't been able to do that and ultimately they've had to buy them in. So you saw that, I mentioned previously in 2013 when they bought in Syma, their light manufacturer.

45:41Business Breakdowns Host:You saw that when they took a stake in Zeiss, their lens manufacturer. They don't own it, but they have a stake there. And that was just recognizing that the amount of capital investment required to bring the next generation of equipment to market was beyond the budget of Zeiss as an entirely standalone company. So there is that challenge. Each of their suppliers needs to keep part. It's not just about what ASML are doing within their own R &D facility. So that is always a challenge, but it's something they've managed, I think, very, very well over the years. And I think I would expect them to continue to manage it pretty well.

46:12Business Breakdowns Host:The next thing would be disruptive technologies. Again, this is really comes down to the idea that ASML's competition is not really another company, but it's Moore's law. So people keep buying ASML's machines as long as they're able to deliver the productivity improvements at a price that's acceptable. So as long as it enables next Apple trip to be produced at an acceptable price that makes a commercially viable product, then those machines will still be bought. If they struggle to do that, then the technology path might prove to be something different. And you saw that a few years ago, about a decade ago in NAND, one of the types of memory that exists.

46:52Business Breakdowns Host:They could see the EUV was not happening. It was not going to happen anytime in the near future back in 2012, 2013. And new approaches were developed and started to be adopted and that was specifically going three-dimensional so instead of scaling it two-dimensionally across the surface of the chip they started to build upwards on the surface of the chip so essentially they went three-dimensional and by doing that it meant they didn't need leading edge lithography anymore in order to make more advanced memory chips of that type they could simply build it up by layering more and more through etch and deposition so the the share of lithography capex within that part of the market fell quite precipitously as a result and it hasn't disappeared you still need lithography there and it still grows as that market grows but it was a really big hit and i think there's a really good example when asml can't deliver something quickly enough the market has to keep moving they're not going to wait around so if that happens in another part of the market if someone else comes up with a clever way of making transistors in a way that is cheaper and faster and more efficient than can be done using leading edge lithography, then the semi-industry will go down that path because that's the way it's got to be in order for Moore's Law to continue progressing.

48:06Business Breakdowns Host:So I think that's the risk. Again, you've got to back ASML in the near future in terms of their ability to keep delivering and the relationships that have their customers to see what each of their roadmaps is. But that is one of the long-term challenges. And then the third one would be geopolitics. That's probably more of a near-term risk, but you can't ignore the fact that last year we made nearly 40 % of sales were to Taiwan, nearly 30 % of sales were to South Korea, and give or take 15 % of sales were into China. Now, you don't need to be particularly imaginative to work out how things could become difficult given that customer base.

48:42Tom Walsh:A very interesting and diverse set of risks there. When we wrap up the conversations, we always talk about lessons that you can pull away from looking at this business and potentially apply to others. What do you think stands out in that category for ASML?

48:57Business Breakdowns Host:I think there's probably three things in terms of takeaways that I've taken from looking at ASML. The first one is the importance of looking beyond the cycle. I think a lot of people look at ASML, I confess when I first looked at it, there's this feeling that I know this is a cyclical industry, I know things are going to go down at some point. And you sort of worry about this. Am I timing it right? Am I going to look silly if I decide to take a shareholding there? And of course, the industry does remain cyclical and you can't ignore that. But that obsession on the perfect entry and exit point can blind you to the structural opportunity that's there, to blind you to the excellence of the underlying business and the long-term prospects when you stretch it out over 5, 10, 20 years.

49:36Business Breakdowns Host:The other thing would be, I guess, this goes back to the very early days of ASMR, but don't underestimate the role that luck can sometimes play in the company's early years in terms of how it comes to be where it is. You look at the company's history before IPO, don't get me wrong, the history of ASML is one of extraordinary ingenuity, tenacity, and innovation excellence. But in its early years, there were certain things that played out pretty well for them in terms of in 1986, when they still didn't really have a product to market. There was a massive recession and it killed a couple of their competitors and many others couldn't spend much on R &D.

50:09Business Breakdowns Host:So they were otherwise on their knees their business with the technology transfer on EUV the fact that they were the only other player versus the Japanese if they'd been a viable US player would they have been given such an easy road into that I don't know and then the third thing was this is the really biggest part of things about looking at ASML is not to underestimate the power of human ingenuity because I've looked at all the research we've written on ASML going back over decades and there's always been a huge amount of uncertainty about what this company is going to look like and what the semiconductor industry might look like five or ten years out there's a great story back when peter venenke tells the story when he joined the company back in 1999 before he did he spoke to martin van denbrink and asked him is moore's law going to still be running how long is moore's going to run for and martin van denbrink said to him i think at least 15 years and 15 years later come back to Peter, to Martin and says, that's still going.

51:06Business Breakdowns Host:How long do you give it? Martin says, I think about another 15 years. And it's never been possible, even for the guy who's probably the smartest guy in this industry, who knows more about it than anything else. He's never been able to look forward that. And we struggle to look forward five years. But what we don't appreciate is just how much is going on under the bonnet at ASML and just how much innovation is taking place at that business and the drive there is to keep bringing through innovations. that have kept advancing Moore's law many years beyond when people thought it would die.

51:38Tom Walsh:One of the things that I enjoy talking to you and your colleagues the most about is that deep history of notes and the deep history that you have with these businesses where you could reflect not just on what's happened in the past three years or five years, but often the past 20 years. And it shines such a light on how things often feel the same as they feel today. And if you look at the path that the business took 20 years ago when it was very much the same feeling. I might just provide a little bit of extra perspective on today. This was an excellent conversation, Tom. I really enjoy learning.

52:13Tom Walsh:And every bit of this conversation was me learning about this business and this industry some more. So thank you very much for joining us. Thank you. To find more episodes of Breakdowns ranging from Costco to Visa to Moderna, or to sign up for our weekly summary, check out joincolossus.com. That's J-O-I-N-C-O-L-O-S-S-U-S dot com.