How ASML Holding NV Makes Money

Building one requires components sourced from more than 5,000 suppliers across 16 countries, assembled through a process so intricate that delivery, installation, and commissioning at a customer's fabrication plant takes months. EUV systems represent the apex of ASML's product portfolio and the locus of its pricing power. Instead, ASML sells performance upgrades — enhanced throughput, improved overlay accuracy, expanded process windows — as separately licensed software and hardware packages that customers purchase over the machine's operational lifetime. ASML's pricing power is extraordinary by any industrial standard, and it derives directly from the company's monopoly position. This allows ASML to maintain gross margins on EUV systems that consistently exceed 50 percent and to set pricing that reflects the extraordinary economic value the equipment creates for customers. The problem is, ASML captures a small but growing fraction of this value through its pricing. China's share of ASML's total revenue, which reached approximately 29 percent in the first half of 2023, has been progressively curtailed since the Dutch government declined to renew ASML's export license for EUV systems in 2019. Each new generation of EUV technology commands higher pricing, drives higher service revenue, and further widens the technological gap between ASML and any theoretical competitor.

In October 2023, the restrictions were expanded to cover certain deep ultraviolet (DUV) systems as well. It is a story of improbable persistence, visionary engineering investment, near-death financial experiences in the 1980s, and a series of technology bets — most notably the decades-long commitment to EUV lithography — that were widely derided as impossible before they became indispensable. Yet for American investors, policymakers, and technology strategists, understanding ASML is no longer optional. ASML delivered 44 EUV systems in fiscal year 2024, with a target of ramping to 90 or more EUV units annually by 2025 and 2026 to meet surging demand from chipmakers building out AI chip production capacity. Analysts frequently describe the installed base business as ASML's annuity stream — a recurring, high-margin revenue source that grows automatically as ASML ships more systems. TSMC's decision to pause or accelerate EUV purchases directly moves ASML's quarterly financials in ways that would not occur in a more diversified customer base. China, which was growing rapidly as a revenue source through the early 2020s, has been curtailed by export controls. Chinese chipmakers — particularly SMIC and Hua Hong Semiconductor — were purchasing large volumes of DUV systems to build out mature-node capacity, and China accounted for approximately 25 to 29 percent of ASML's total revenue in 2023 before restrictions on advanced DUV systems took effect. The ongoing export control regime will structurally reduce China's share of ASML's revenue over the next several years, a headwind that ASML's management has acknowledged will affect near-term growth but that the company believes will be offset by explosive demand from non-Chinese chipmakers investing in advanced node expansion. This spending is partially subsidized by the European Union and the Dutch government, which have designated ASML as a strategic national asset and contributed to research consortia focused on next-generation lithography. ASML's Veldhoven campus has expanded continuously and today employs approximately 20,000 people, making it one of the largest employers in the Netherlands. Canon similarly retreated from leading-edge competition, focusing on nanoimprint lithography (NIL) — a fundamentally different patterning technology that uses physical contact between a template and a resist-coated wafer — which has potential applications in memory manufacturing but has not yet demonstrated the overlay and defectivity performance required for leading-edge logic chips. Industry analysts generally estimate that even with maximum government investment, China is at least 10 to 15 years behind ASML in lithography capability. However, they collectively represent the competitive landscape that ASML's major customers navigate when building out fabrication facilities, and ASML collaborates with all three on process integration challenges at advanced nodes. Gross margins have been a consistent area of investor focus, with ASML achieving approximately 51 to 52 percent gross margins in fiscal year 2024. Management has guided toward gross margins expanding toward 54 to 56 percent by 2025 and 2026 as EUV system volumes increase (high-volume EUV production carries higher margins than early-generation systems), as service revenue grows faster than system revenue, and as operational efficiency improvements take effect. In October 2023, export restrictions were expanded to cover certain advanced DUV immersion systems, further limiting what ASML can sell to Chinese chipmakers. ASML does not manufacture most of the components in its machines; instead, it depends on a network of approximately 5,000 highly specialized suppliers, including Carl Zeiss SMT (which manufactures the optical systems for EUV machines under a unique co-development partnership in which ASML holds a 24.9 percent stake), Cymer (an ASML subsidiary that produces the laser light sources used in DUV machines), and dozens of precision optics and mechanical systems manufacturers. ASML missed its 2023 EUV delivery targets partly due to supply chain constraints, and management has consistently identified supply chain development as one of the primary limiting factors on revenue growth. Honestly, no other company has demonstrated the ability to replicate this system, and the institutional knowledge embedded in ASML's engineering teams, supplier relationships, and manufacturing processes represents an asset that could not be reproduced quickly even with unlimited capital investment. ASML's growth strategy rests on three primary pillars: technology leadership through relentless R&D investment, installed base monetization through service and field options expansion, and geographic diversification of its customer base away from dependence on any single region. On the technology front, ASML is executing a clear roadmap from current EUV (0.33 NA, maximum single-exposure resolution approximately 13 nanometers per feature) to High-NA EUV (0.55 NA, enabling single-exposure resolution of approximately 8 nanometers per feature) and eventually to Hyper-NA EUV systems with numerical apertures above 0.7. Intel, which has staked its competitive revival on aggressive adoption of leading-edge lithography through its Intel Foundry Services strategy, signed the first agreement for High-NA EUV systems in 2023, with initial systems being evaluated at Intel's Oregon research facility. Installed base monetization is the second major growth vector. As ASML's cumulative installed base of EUV and DUV systems grows — the company has shipped well over 100 EUV systems to date and thousands of DUV systems — the addressable market for service contracts, spare parts, and field options upgrades expands proportionally. Management has identified installed base-related revenue as the fastest-growing component of the business over the next five years, and has made significant investments in field service workforce capacity, remote monitoring and diagnostics software, and predictive maintenance capabilities to maximize machine uptime and service revenue capture. Geographic expansion of customer base — particularly the emergence of new leading-edge foundries in the United States and Europe under government-incentivized programs — represents the third growth pillar, reducing concentration risk while adding incremental demand. ASML's long-term financial targets, articulated at the company's investor day in November 2022 and updated through subsequent communications, project net sales of between 44 billion and 60 billion euros by 2030, with gross margins in the 54 to 56 percent range and operating margins approaching 30 to 35 percent. These targets are premised on continued growth in the number of EUV systems delivered annually (targeting 90-plus units per year by the late 2020s), expansion of the High-NA EUV product line, growth of the service and field options business commensurate with the expanding installed base, and recovery of DUV volumes for mature-node applications excluding China restrictions. The primary demand driver for ASML's growth over the next five to seven years is the explosive expansion of artificial intelligence compute infrastructure. As AI accelerator demand grows by orders of magnitude over the next decade, TSMC and its peers must expand EUV-equipped capacity proportionally, directly driving ASML equipment orders. ASMI had developed a range of chemical vapor deposition and epitaxy systems but recognized that lithography — the most technically demanding and commercially valuable step in chip manufacturing — required a separate, focused organizational effort. Rather than building monolithic, purpose-specific machines that became obsolete with each new technology generation, ASML designed systems around a common platform concept in which the core mechanical and control architecture could be upgraded with improved optical columns, light sources, and wafer stages as technology advanced.