Equipment Manufacturing Chokepoints: The ASML Monopoly

At the apex of the semiconductor equipment industry stands ASML Holding N.V., a Netherlands-based company that holds a near-monopoly on the most critical technology in chip manufacturing: Extreme Ultraviolet (EUV) lithography. This singular chokepoint grants ASML extraordinary strategic power, making it one of the most important companies in the global economy despite its relatively small geographic footprint. Without ASML's machines, producing cutting-edge chips below 7nm is effectively impossible.

The Lithography Monopoly

ASML's Market Dominance

ASML commands an estimated 90% of the global lithography equipment market and 100% of the EUV lithography market. Every advanced chip manufactured by TSMC, Samsung, and Intel requires ASML's EUV systems. This dependency is so profound that there is a historically strong correlation (+0.85) between TSMC's capital expenditures and ASML's revenue.

What is EUV Lithography?

Lithography is the process of projecting circuit patterns onto silicon wafers using light. As transistors shrink to nanometer scales, shorter wavelengths of light are required. EUV uses light with a wavelength of 13.5 nanometers— roughly 14 times shorter than Deep Ultraviolet (DUV) light.

The technical challenges of EUV are staggering:

• Light Source: EUV light is generated by firing a 50,000-watt laser at molten tin droplets 50,000 times per second
• Vacuum Environment: EUV light is absorbed by air, requiring the entire system to operate in a near-perfect vacuum
• Specialized Mirrors: Ultra-precise mirrors made by Carl Zeiss with surface irregularities less than 0.1 nanometers
• System Complexity: Each EUV machine contains over 100,000 parts, weighs 180 tons, and requires three Boeing 747 cargo planes to transport

Financial Performance and Market Power

Revenue and Profitability

In Q3 2025, ASML reported:

• Net Sales: €7.5 billion
• Gross Margin: 51.6%
• Net Income: €2.1 billion
• Net Bookings: €5.4 billion

Analysts project long-term growth, forecasting annual sales to reach between €44 billion and €60 billion by 2030.

Pricing Power

Each EUV machine costs $150-200 million, with the latest High-NA (High Numerical Aperture) EUV systems priced at $380 million. Despite these astronomical prices, TSMC, Samsung, and Intel have no alternative suppliers. ASML's order backlog extends years into the future, with customers willing to wait 18-24 months for delivery.

Geopolitical Weaponization

Export Controls on China

U.S. and Dutch export controls severely restrict sales of ASML's most advanced EUV systems to customers in China. These restrictions, implemented in 2019 and tightened in 2023-2024, prevent Chinese foundries like SMIC from accessing cutting-edge technology.

Strategic Implications

The export controls effectively create a two-tier global semiconductor industry: countries with access to EUV (USA, Taiwan, South Korea, Japan, Europe) can produce chips at 7nm and below, while China is limited to 14nm and above using older DUV technology.

The Impossibility of Replication

ASML's monopoly is sustained by astronomical R&D investments and a decades-long head start. Key factors making replication nearly impossible:

• Accumulated Expertise: ASML employs 42,000 people, including thousands of PhDs
• Supply Chain Complexity: Integrates components from 5,000+ suppliers across 60 countries
• Patent Portfolio: Over 20,000 patents protecting core technologies
• Capital Requirements: Estimated $50-100 billion and 15-20 years to develop a competitive EUV system from scratch