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1) Good interview with the brilliant @p_ferragu. Likes $INTC, $AMSL and Tesla. Love two of these, dislike one but going to focus on $ASML which is one of the best businesses in tech. Stronger, more strategic monopoly than $ADBE. $GOOGL might be the only comparably dominant co
2) $ASML has a monopoly on leading edge lithography, which is foundational for the entire semiconductor industry/world economy and at the heart of Moore’s law and its slowdown. Their dominance in EUV – next gen lithography – is going to let them improve their business model.
3) As highlighted by @p_ferragu $ASML is going to get a per wafer fee – i.e. effectively an explicit unit based royalty – for semiconductors made with EUV (eventually all semiconductors on a far enough time horizon).
4) Profound shift in business model that amplifies an extant shift to svc revenue (think how so many aviation co's have improved their business models by driving service revenue and what $AAPL is trying to do). $ASML svc revenue growing 2x faster than system revenue since 2010.
5) $ASML expects 5-6m of these fees per EUV machine (which costs 120mish) annually. This will start slow and build inexorably. Seems like it will be incremental to the existing svc. revenue streams and will be much higher margin.
6) The semiconductor industry has been getting steadily less cyclical for the last 20 years. The shift to fabless models ($TSM also a quasi monopoly) and the consolidation of the memory industry have effectively eliminated/softened true capacity cycles.
7) And while changing lead times will always lead to inventory cycles (customers want a stock of buffer inventory that equals lead time = changes in lead times are what drive inventory cycles), more sophisticated supply chain mgmt. is ameliorating the severity of these cycles.
8) Semi-equipment has always been on the tip of this cyclical whip; subject to ups and downs that are becoming less violent. The consolidation of each major segment has improved the businesses cycle to cycle and the slow ramp in svc is making them slightly less cyclical.
9) If ASML can double their service revenue per EUV machine via per wafer fees in 2020, I think the already optically high multiple here might go up especially given the per wafer revenue is much higher margin than other svc revenue.
10) Royalty revenue - however named - is high multiple revenue. $ASML is a compounder (hate the word but unavoidable) hiding inside a seemingly cyclical company that is using its monopoly power to steadily improve its business model.
11) And many analysts focus on timing accelerations/decelerations in bookings which drive the stock over short 1 yr periods but are irrelevant LT. Good news is that this focus creates lots of buying opportunities.
