ASML builds the most expensive machines in semiconductor fabs – and the only ones that reliably make chips cheaper. Here are twelve structural factors that make this business model virtually unassailable.
Lithography enables exponential cost decline per transistor by allowing smaller geometries. Customers buy node access, not equipment. Machine cost increases are justified only if total chip cost continues to fall.
2. Generation-Based Pricing Power
Each lithography generation roughly doubles ASPs: DUV to EUV to High-NA to Hyper-NA. Volume declines as price rises, but revenue concentrates at advanced nodes. High-NA represents a step-change, not an incremental upgrade.
3. Yield as the Value Multiplier
Yield below 90% triggers nonlinear cost escalation. Single-digit yield gains scale into hundreds of millions in savings at leading fabs. ASML tools are priced against avoided yield loss, not tool cost.
4. R&D Amortization Constraint
Multi-decade R&D cycles and $9B+ investments are amortized over dozens of machines. High ASPs are structurally required, not opportunistic. Customer co-investment de-risked development and locked in future demand.
5. Installation-Driven Lock-In
Six-month installs with hundreds of engineers deeply integrate tools into fab processes. Switching costs are effectively infinite once production is tuned. Delivery capacity becomes a strategic choke point.
6. Recurring Service Flywheel
Each system generates $10-15M annually in service and optimization revenue. On-site engineers maximize uptime and yield. Installed tools become multi-decade recurring revenue assets.
7. Process Simplification Advantage
High-NA reduces or eliminates double patterning. Fewer process steps increase yield, throughput, and reliability. Higher upfront cost is offset by lower total cost per wafer.
8. Ecosystem Dependency Moat
A supplier base of approximately 1,000 firms co-evolved with ASML. Critical components took decades to industrialize. Mutual dependency blocks fast-follower competition.
9. Customer Concentration Reality
Only a handful of companies can operate at the leading edge. Concentration increases cyclicality but eliminates substitution risk. No viable alternative supplier exists at EUV or High-NA.
10. Geopolitics as Revenue Shaper
China demand is largely DUV; advanced nodes remain in US-aligned blocs. Export controls reinforce technology stratification rather than destroying demand. Global fab build-outs diversify revenue geographically.
11. Power Efficiency as Upgrade Driver
Energy cost per wafer is becoming a binding constraint. Power efficiency gains justify upgrades even without node shrink. Lithography increasingly optimizes operating cost, not just resolution.
12. The Monopoly Boundary Condition
ASML controls EUV supply but not chip demand. Pricing power is capped by the need to preserve Moore’s Law economics. The model holds as long as cost per transistor keeps falling.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
