Economically impactful innovation can originate in unexpected places. The cluster of high-tech manufacturing companies set among the fields of southern Holland and born out of Philips, a company better known for light bulbs and razors, is an interesting example.
The development of the Eindhoven cluster over the last several decades mirrors in Europe the extraordinary rise of Taiwanese and Korean manufacturers, over only two generations, to the top table of the world's most strategically important industry. We have been visiting Eindhoven for over a decade.
It’s exactly what active investors should be doing: getting out of the office, meeting experts, gathering data, visiting companies and asking what might be around the next corner -- rather than waiting for the protagonists to become too large to ignore in an arbitrary market cap-weighted index.
Most valuable
ASML is the best known company to emerge from the group. Though little more than 40 years old, it is, at the time of writing, the most valuable company in Europe in terms of market capitalization. Its rise to prominence is an example of what can happen when the academic, industrial and multi-generational engineering expertise of Western Europe are brought together in the service of well-funded entrepreneurial ambition over many years.
ASML is alone in its ability to supply the $250mln+ tools which can print transistors at the required critical dimension. As we contemplate the birth of artificial intelligence, ASML stands as one of the principal gatekeepers to perhaps the 21st century's most valuable technology.
We would recommend the book “Focus - Inside the Power Struggle over the most complex machine on Earth,” by Marc Hijink, for your Christmas stockings. It tells the story of how a $400bln company emerged from a team of engineers whose first product was driven around to customers in the back of the chief engineer's car.
Far-sighted
ASM International, once the parent company of ASML along with Philips, has established itself through decades of sustained and far-sighted investment, as the world leader (>55% market share) in atomic layer deposition chemistry.
Modern semiconductor manufacturing is mind bogglingly intricate, involving the construction of monolithic chips one layer at a time. At the deep critical layers, where the billions of transistors on logic chips are printed, precise control of the chemical films is paramount to achieve commercially viable production yields. These films define the channels of metals and insulators which control the flow of electrons though the circuit. As we contemplate a Moore's Law1 roadmap which will increasingly require verticalization of chip design rather than driving transistor shrink in only 2 dimensions, we see enormous further commercial opportunity for ASM's equipment.
Active effort
BE Semiconductor is a mechatronics company, but has its origins in the pioneering team of engineers who constructed the first photo-lithographic scanner ("stepper") at ASML in the 1980s. Through a similarly determined entrepreneurial vision executed over many years in a highly cyclical industry and sustained at times by extraordinary frugality, BE has emerged as a leading player in die-to-wafer bonding technology. This will be vitally important to drive cost effective microchip performance and power consumption improvements over the next decade and beyond as the price of leading- edge shrink escalates.
We are continuously searching for the new opportunities in the global technology supply chain because we know that Europe is more than a museum. Rather it is full of innovation, even if this requires a bit more active effort to find.
Sources
1Moore's Law, an observation by Intel’s Gordon E. Moore in 1965, asserts that the number of transistors on a microchip doubles approximately every two years, leading to more powerful and cost-effective computing power.
The value of active minds: independent thinking
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