How Does ASML Make Money? The ASML Business Model In A Nutshell

  • ASML is a Dutch producer of photolithography systems for use in the semiconductor industry. The company was formed in a partnership between Philips and Advanced Semiconductor Materials International (ASMI) in 1984.
  • ASML makes money by selling machines that make semiconductors, with each machine selling for around $150 million. Some of the company’s largest clients include Intel and Samsung.
  • ASML also sells software and software upgrades to help clients make improvements in chip size and performance. Over the 20-year life of a machine, software upgrades can be a significant source of company revenue

Origin Story

ASML is a Dutch producer of photolithography systems for use in the semiconductor industry. 

The company was founded in 1984 as ASM Lithography by electronics giant Philips and chip-machine manufacturer Advanced Semiconductor Materials International (ASMI). During the early days, the company occupied a leaky shed next to a Philips office in Eindhoven, the Netherlands.

The first lithography system, dubbed the PAS 2000 stepper, was launched that same year. In 1985, the company moved into a new office and manufacturing facility with the PAS 2500 stepper released the following year.

By 1988, ASML expanded into the Asian market after the company established a joint-venture foundry in Taiwan. But the company was still a small player and experienced fierce competition in a market characterized by many suppliers. When the global electronics industry suffered a downturn, Philips announced it would embark on significant cost-cutting measures. Major shareholder ASMI also pulled out after its investment in the operation yielded low returns.

Desperate for funding but with a conviction in its research and development capability, ASMI reached out to Philips one last time. The company managed to secure enough funding to develop the PAS 5500 – a breakthrough platform released in 1991 which helped the fledgling organization compete with the likes of Canon and Nikon. More importantly, the PAS 5500 would prove to be a company maker.

During the 2000s, ASML released systems with revolutionary technology. The TWINSCAN system exposed one wafer while the next wafer was being measured and aligned, maximizing productivity and system accuracy. In 2007, the company acquired leading semiconductor designer and manufacturer BRION Technologies for $270 million, with the two companies pooling resources to optimize the entire chip manufacturing process. 

Several more acquisitions followed in the 2010s, including lithography light source producer Cymer and e-beam metrology tool supplier Hermes Microvision. The company also shipped the first extreme ultraviolet (EUV) lithography prototype to an Asian chip maker. This new technology would herald a new era in lithography because it produced faster, more powerful chips.

In Q2 2021, ASML reported net sales of €4.0 billion, with this figure expected to grow by 35% for the remainder of the year.

ASML revenue generation

ASML makes money by selling machines that manufacture semiconductors. 

More specifically, the company sells extreme ultraviolet lithography (EUV) machines that use UV light technology to print circuit pattern designs onto silicon wafers. 

Why is this technology crucial and more importantly, lucrative? 

Moore’s Law states that the number of transistors in a dense integrated circuit doubles approximately every two years. The ability to print a circuit on a chip of around one-millionth of a millimeter is crucial. This is because the smaller a manufacturer can print, the more transistors they can fit in and the more powerful the chip will be.

ASML has over 90% market share in the EUV lithography market, with each machine costing around $150 million. Some of its major clients include Samsung, Taiwan Semiconductor Manufacturing, Micron, and Intel.

Software

The company also sells software to meet industry demands for higher productivity, lower cost, and simpler chip manufacturing processes.

ASML executive vice president of Applications Business Jim Koonmen noted that software played a vital part in the relentless quest for more powerful chips. “As chipmakers continue to shrink the patterns to make small and powerful chips, we continue to address the escalating complexities that require ever-more sophisticated approaches. It would be impossible to manufacture at dimensions of 10 nm or smaller without our software and metrology solutions.

Software upgrades are also a significant source of revenue for the company as ASML customers seek to increase capacity quickly. Over the typical 20-year life of a semiconductor machine, these upgrades could earn the company as much as 50% of the original purchase price.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"