More than $9 billion in research investment needs to be recouped, spread across relatively few machines sold each year. Unlike software where R&D costs spread across millions of users, ASML spreads comparable R&D across perhaps 50-100 machines annually at the high end.
ASML’s pricing reflects a unique R&D amortization challenge. Each machine must carry an enormous share of development costs. The EUV program took over 20 years from concept to high-volume manufacturing.
The Japanese consortium abandoned the effort in the early 2000s because it was deemed too risky. No one knew how long it would take to be successful. ASML persisted, backed by customer investments from Intel, TSMC, and Samsung who needed the technology to exist.
This co-investment model de-risked the R&D while locking in future customers. Multi-decade R&D cycles and $9B+ investments are amortized over dozens of machines. High ASPs are structurally required, not opportunistic.
Installation Economics
The installation process of ASML’s High-NA Twinscan EXE 150,000-kilogram system required 250 crates, 250 engineers, and six months to complete. This creates several economic effects:
High switching costs: Once a fab is built around ASML equipment, the integration runs too deep to switch. Manufacturing processes are optimized for specific machine characteristics.
Service revenue stickiness: Beyond the $300M price tag, customers also pay $10-15M annually for maintenance, upgrades, and software optimization. Each machine generates recurring revenue for decades.
Capacity constraints as pricing power: With 6-month installations requiring 250 engineers, ASML’s delivery capacity is inherently limited. Customers compete for machine slots years in advance.
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.
