Is ASML The Most Important Company In The World?

November 07, 2022

Semiconductors are always a hot-button issue, and ASML makes the machines that make all of them.

Thanks for subscribing to my Financial Freedom Newsletter!

Today we’ll be taking a deep dive into the company ASML. This little known Dutch company is responsible for all of the world’s advanced semiconductors.

If you like these issues, be sure to tell a friend! It really helps grow the newsletter.

Let’s dive in!

______________________________________________

Today’s issue is brought to you by Fundrise!

Are you interested in real estate but aren’t quite ready to invest in a whole property?

Fundrise allows investors to buy as little as $10 of property, and make money in several different ways! Whether you want to buy shares in a multi-family building or single-family house, Fundrise uses crowdsourcing and automation to help owners collect rent, manage maintenance, and screen potential tenants through the Fundrise platform.

You’ll get an additional $10 to invest when you use my link!

Built to help smart investors invest smarter.

With Fundrise, you can invest in a low-cost, diversified portfolio of institutional-quality real estate. We combine state-of-the-art technology with in-house expertise to reduce fees and maximize your long-term return potential.

Real estate has traditionally been one of the most sought-after asset classes for professional investors — now it’s available to you.

Advanced Semiconductor Machine Lithography (ASML)

Highlights

  • ASML is a semiconductor machine manufacturer and has a monopoly on EUV machines

  • The demand for chips has made ASML the center of geopolitical strife

  • Dividends have increased steadily with room to raise them in the future.

Company Profile

ASML is one of the world’s leading manufacturers of chip-making equipment. It’s a common misconception that they make chips, also called microchips or integrated circuits (ICs), but they actually design and manufacture the lithography machines that are an essential component in chip manufacturing. Their customers are companies such as Intel, who use their machines in ‘fabs’ – microchip manufacturing plants – to create microchips that are eventually used in many electronic devices, including smartphones, laptops and much more.

Thesis

ASML is the only manufacturer of EUV machines which are used to make the world’s most advanced semiconductors. Each machine is nearly impossible to replicate and demand for semiconductors is primed to keep increasing. With its unmatched products, increased demand, and monopoly on chip manufacturing, ASML is poised to be a powerhouse for years to come.

Recent News

Expected sales for 2022 around €21 billion

The ASML Junior Academy will offer technology lessons to all children in Brainport Eindhoven.

With the creation of DeepTechXL Fund I, the Dutch province of Brabant gets a unique fund which will invest in promising Dutch deep-tech startups and scale-ups.

Quick Background

ASML is in the business of lithography, the process that creates semiconductors. To make a semiconductor, you must first make a “chip” out of silicon, an element found in rocks and sand. The silicon must be melted down and cut into wafers with layers. Lithography prints transistors on these layers with extremely precise beams of light, and each layer has billions of transistors that say what the chip does. To give you an idea, the iPhone chip has about 10 billion transistors on it. They sell 2 machines, the DUV (Deep Ultra Violet) and the EUV (Extreme Ultra Violet), both of which are used for lithography. The DUV is the popular, more affordable model that makes low-tech chips for things like toasters and refrigerators, and the EUV makes the most cutting edge chips on the planet and costs upwards of $200 million. (Mind=Blown)

Positives

Extremely Hard To Replicate Products

Now for fun the fun stuff. The EUV is just fucking insane. It’s the size of a city bus and has prints transistors that are 10,000x thinner than a human hair. If your curious about the measurement, the light emitted measure 13.5 nanometers wide, or the width of 5 strands of DNA. Insane. The light photons are so small they have to be emitted in a vacuum because even air absorbs them. ASML went as far as commissioning glassmaker ZEISS to make the flattest piece of glass known to man so they could use it as a mirror to precisely direct the light. If their glass was the size of the US, its biggest imperfection would be 1 millimeter tall. It could reflect light to hit a coin placed on the Earth from the moon. Pure engineering marvel.

Demand Expected To Grow For Decades

Global chip demand is set to keep increasing, with projections of te chip market reaching $772.03 billion for the year 2030. Chips are in just about everything electronic these days from fridges to phones but a huge driver of growth in my opinion will be sensors. As more sensors get added to cars, phones, warehouses and just about everything else, chips will be needed to do the job. ASML predicts its annual revenue will grow at a rate of 11% until 2030.

Shareholders Are Rewarded Handsomely

In the period from January 2020 to July 2021, ASML bought back $5.2 billion worth of shares. In its latest buyback plan, ASML stated that it intends to buy back $9 billion worth of shares from now until 2023. I appreciate these buybacks because they make my existing shares more valuable, but dividends are my preferred method of capital return to shareholders.

Dividends have been paid every year since 2007 and the company has raised it for the past 12 years.

Monopoly On EUVs

ASML has a monopoly on EUV machines, they’re the only company in the world that makes them. Each EUV machine has nearly 10,000 parts sourced from 800 suppliers. Decades of research goes into them and many of its suppliers have exclusive partnerships where they only supply to ASML. ASML has gone as far as buying some of its suppliers like Berliner Glass to keep supply chain in house and get ahead of any potential risks that could compromise manufacturing. The sheer amount of money spent alone on research & development is enough to keep any potential competitors at bay.

Negatives

Geopolitical Risk

Semiconductors have been a hot button geopolitical topic for years now. On October 13th, 2022, President Joe Biden announced that US companies are blocked from are prohibited from providing certain services to advanced factories in China. ASML told its U.S. employees they must refrain — either directly or indirectly — from servicing, shipping, or providing support for any customers in China until further notice. The US is able to seclude China from buying and building EUVs because the intellectual property of creating small EUV sized transistors belongs to the US. Now that China is blocked from EUVs there is talk that they may be blocked from DUVs as well, potentially hampering ASML’s profits.

Taiwan Semiconductor Manufacturing Company (TSMC), one of ASML’s biggest customers, could potentially get invaded as well. China has reportedly been on the brink of invading Taiwan and if TSMC is forced to stop manufacturing, that will also affect ASML’s profits.

Many Materials To Manage

While having over 10,000 parts in your machine can be a plus, it’s also a lot to manage especially if you can’t get one of those parts. With these machines being extremely precise, I’m willing to bet there aren’t many substitute parts available, if any. ASML also has 800 supplier relations to manage and if things go south with one of them, it may be very difficult to find another supplier for these highly specialized materials.

Extremely Expensive Products

With the amount of work and technology that goes into EUV machines, you can expect a hefty price tag. The EUV machine costs $200 million and very few companies can afford that (more on that later). ASML has a next generation machine in the works called the Twinscan EXE: 5000 (which sounds right out of a video game). The new machine features what is called High Numerical Aperture and will push chipmaking to the known bounds of physics. It will retail for upwards of $300 million and Intel is set to get its hands on it fist in the year 2025. It is yet to be determined that there will be demand for these ultra high-tech chips.

Bulk Of Revenue Comes From 3 Customers

With a gigantic price tag like ASML sports, very few companies have deep enough pockets to buy. ASML sells to 5 companies but the vast majority of sales come from 3 companies: Intel, TSMC, and Samsung. These 3 companies make up 83.7% of revenue and if something were to go wrong with any of them it would put a dramatic cut into ASML’s bottom line.

The Dividend Breakdown

ASML’s scores are shown below:

ASML’s 10-year Dividend Growth Rate (CAGR) is 25.31%, obliterating the Technology sector median of 9.95%. It is worth mentioning that ASML raised its dividend a whooping 51.34% in the trailing twelve months. Their Dividend Payout Ratio is 32.5%, implying that they have plenty of room to grow their dividend. Its dividend yield is 1.56%, which is higher than its 4-year average yield of 0.87%. Compared to the median yield of 1.44% in the Tech sector, ASML’s 4-year average yield is nearly half of the Tech median. Lastly, ASML has been paying a dividend for 15 years & has raised it for 12 consecutive years. Overall, ASML scored 27/31 points, and it’s shown that is a respectable dividend paying company.

Final Thoughts

ASML is a unique opportunity to add international exposure and a company at the forefront of innovation to your portfolio. The company has room to raise its dividends and is innovating to stay on top of the chip game. It’s a rare opportunity to own a true one of a kind company, the only company to make the machines that make the semiconductors we so desperately need.

I’m holding strong.

What do you think about ASML? Is it a company you’ll add to your portfolio? Why or why not? Let me know on Twitter @DrDividend47 or in an email to [email protected]!

Memes Of The Week

LinkedIn is so god damn funny:

Exhibit B:

Exhibit C:

Pick Stocks Like A Sniper

The number one question I get from people is, “How do you know which metrics to use when researching a stock?) So I decided to write a book! My book, “Stock Market Sniper: How To Use The Metrics That Matter To Pick The Most Profitable Stocks” is out now and as a newsletter reader, you can grab it at a discount. Just e-mail the word "sniper" to [email protected] and I'll send you a promo code for 20% off.

Helpful Resources Are Here!

Don’t forget to check out my website full of awesome free resources to jumpstart your investing! 👇

Here’s my list of the best resources for financial freedom, enjoy!

Thanks for reading, be sure to tell a friend!

⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️

Reply

or to participate.