ASML Has More Demand Than Machines. How It Allocates Them Is the Real Story

ASML expects its sales to jump about 36% in 2026, yet management now says the machines it plans to build in 2027 and 2028 will not cover what customers want to buy. A supplier in that position stops chasing orders. It decides who gets production slots, on what terms and at what price.

A Record Year on Fewer Machines

The Netherlands-based chipmaking equipment maker reported record third-quarter sales of €11.7 billion on October 14, with a gross margin of 57.5% against 51.6% a year earlier. It guides full-year 2026 sales to between €44 billion and €45 billion, up from €32.7 billion in 2025. For the fourth quarter it guides sales of €14.2 billion to €15.2 billion at a gross margin around 57%, roughly where the third quarter landed. ASML is the world’s only maker of extreme ultraviolet (EUV) lithography systems, the machines that print the smallest circuit features on advanced chips.

Those results rest on fewer machines. ASML sold 327 lithography systems in 2025, down from 418 in 2024, while net sales rose 15.6%. Service and upgrade sales, which ASML calls Installed Base Management, climbed from €6.5 billion to €8.2 billion. In the third quarter they reached €3.3 billion, 68% above a year earlier and almost €400 million above ASML’s own guidance.

Unit sales have started to recover, with 121 systems in the third quarter against 91 in the second, but the service business still grows fastest. Installed Base Management made up about 23% of ASML’s sales in 2024, about 25% in 2025 and about 28% in the third quarter. Chief Financial Officer Roger Dassen guided it to grow around 50% in 2026, compared with more than 45% for EUV system sales and around 20% for non-EUV systems. A 50% rise on 2025’s €8.2 billion implies roughly €12.3 billion.

Dassen credited the margin beat to very high-margin upgrade products and called upgrade demand an important swing factor for margins in 2027 and beyond. Net income of €5.0 billion also includes about €500 million from a higher valuation of ASML’s stake in French AI company Mistral AI, Dassen said. Operating income of €5.2 billion, a 44.4% margin, is the cleaner measure of what the core business earned.

Supply Sets the Ceiling

ASML’s third-quarter release says customers keep raising their demand forecasts. The same release says ASML’s planned supply for 2027 and 2028 “will not fully meet the demand of our customers.” Some customers have started asking to place orders for 2029 and even 2030.

ASML’s 2026 capacity is around 65 low-NA EUV systems, up from 44 shipped in 2025, and around 130 deep ultraviolet (DUV) immersion systems, the workhorses that print most layers on a chip. The company plans to add 30% to both in 2027 and is now studying more than the further 30% it had been considering for 2028. Thirty percent on a base of 65 works out to roughly 85 EUV machines, though management declined to give 2027 or 2028 unit figures, calling it far too early. In July, Dassen said ASML was already close to being fully covered with orders for low-NA EUV in 2027.

Faster tools offer a second way to add supply. ASML’s release says it continues to provide “significant wafer capacity” to customers through its productivity upgrade portfolio, and Dassen called the ability to raise capacity through upgrades on the same footprint “very compelling for our customers.” A fab that cannot get another scanner can still push more wafers through the ones it has. That option helps explain why upgrades lead ASML’s 2026 growth guidance.

The constraint sits with suppliers. Chief Executive Officer Christophe Fouquet said the main challenge is getting suppliers to grow about 30% a year, noting that EUV output rose roughly 50% this year. Dassen added that some suppliers need help to get there. ASML works with about 5,100 suppliers and sources roughly 80% of its bill of materials externally, its annual report says.

Fouquet does not see Zeiss as a bottleneck for the expansion under discussion. Carl Zeiss SMT of Germany is ASML’s sole supplier of lenses, mirrors and other critical optical components, and ASML holds a 24.9% stake in the business. The annual report treats the relationship as a risk factor. It says Zeiss’s production capacity limits how many systems ASML can build, and it states the worst case plainly: if Zeiss ended supply or could not produce optics for a prolonged period, ASML would “effectively cease to be able to conduct our business.” Both statements can hold: the filing describes a structural dependency, and the call describes where the pinch sits today.

Capacity also depends on ASML’s own factories. In September the company broke ground on a second industrial campus at the Brainport Industries Campus North in Eindhoven, the Netherlands, which it says will add manufacturing capacity for its planned growth. The first phase, expected to be completed in 2029, will house at least 3,000 employees, which puts it after the 2027 and 2028 supply window. ASML describes the “flow factory” planned there as a new operating model for its TWINSCAN production, designed to make module production and installation faster.

Memory Has Joined Logic in the Queue

The customers lining up for slots are changing. Dassen guided 2026 memory system sales to grow around 75% and logic system sales around 10%, with advanced logic up more than 25%. In the third quarter, system sales split 54% logic and 46% memory. Memory makers now account for nearly as much of ASML’s system sales as logic chipmakers do.

Customer filings show the same pressure. SK hynix of South Korea disclosed on March 24, in a regulatory filing, a purchase of 11.9 trillion won (about $7.9 billion) of EUV lithography equipment from ASML, valid through 2027, and analysts estimate it covers roughly 30 machines. TSMC of Taiwan, the world’s largest contract chipmaker, kept its 2026 capital spending guidance at $60 billion to $64 billion on October 15. Its chief financial officer, Wendell Huang, said spending from 2026 to 2028 would exceed the previous three years and keep rising with customer demand. Orders and budgets of that size show the volume ASML must weigh before it accepts anything for 2029 and 2030.

Down Payments and Price Rises Do the Rationing

Dassen told analysts that an ASML order carries two commitments. The first is a down payment that is “enough to hurt.” The second is a purchase order that costs more than the deposit to unwind, which is why customers do not sign one lightly.

ASML has not accepted any of the 2029 and 2030 orders customers have offered. Dassen said the company wants to total all requests and compare them with future capacity first, so it does not fill slots for some customers and then tell another it is sold out. Fouquet said ASML checks the demand against customers’ fab construction plans and treats it as real rather than inflated by customers trying to secure a place in line.

Price is the second lever. ASML has raised prices on what Dassen calls its most critical products, the high-volume manufacturing machines that deliver the most value to customers. The increases do not affect 2026, start to show in 2027 and take full effect from 2028, and upgrade prices follow tool prices. Dassen and Fouquet both said ASML does not plan to repeat the increase every year. ASML says it wants prices tied to the value of its tools so that it never has to negotiate cuts if the market softens.

The implication is that ASML is locking in planning certainty through contracts that outlast the shortage, while customers that commit secure their place in the queue. Cash arrives before delivery, slots go out on ASML’s schedule and the price base rises from 2028. Fouquet called the customer discussions more than constructive.

Customers funding ASML ahead of delivery is not new. In 2012, Intel, TSMC and Samsung agreed to buy an aggregate 23% of ASML for €3.85 billion in cash and to commit €1.38 billion to research and development, a programme ASML said would accelerate the development of EUV lithography. Samsung’s piece alone was a 3% stake for €503 million plus €276 million for research over five years. The history helps explain the current arrangement: customers helped pay to make EUV exist, and they now commit cash to secure its output.

The Balance Sheet Replaces the Order Book

ASML’s last reported bookings came with its fourth-quarter 2025 results: €13.2 billion of net bookings and a backlog of €38.8 billion at year-end. The 2026 results releases carry no bookings figure. Analysts now look elsewhere for a gauge of demand.

The substitute is cash. Free cash flow swung from an outflow of €2.6 billion in the first quarter to an inflow of €11.4 billion in the third, which Dassen tied to customer order momentum and the related down payments. The fourth quarter of 2025, the one that produced those €13.2 billion of bookings, brought €10.9 billion of free cash flow. Non-current liabilities rose from €6.2 billion to €12.0 billion in one quarter. Dassen confirmed that the line includes down payments and called it a lagging but useful proxy for order intake.

Cash received before delivery is not revenue, and it does not repeat by itself. Third-quarter free cash flow was more than double that quarter’s operating income, and ASML did not put a figure on the prepayment share during the call. Cash and short-term investments rose from €7.6 billion to €12.7 billion over the quarter even after ASML repurchased about €4.1 billion of its shares, and some of that balance is customer prepayments. The deposit line now carries information that bookings used to carry, and it arrives with a delay.

High-NA Shows Where Customers Set the Pace

Rationing works for products customers cannot buy anywhere else, and low-NA EUV is one of them. ASML’s newer High-NA platform sits in a different position. The company sold one High-NA system in the third quarter, and adoption follows each customer’s own schedule.

On July 15, ASML said Intel Foundry had entered high-volume manufacturing on a subset of its Core Ultra Series 3 processors, built on Intel’s 18A process with High-NA, and called it the first high-volume logic product made with the technology. The product ships at yields matched to ASML’s low-NA NXE platform, ASML said, and specific 18A layers are now dual-qualified on High-NA. Fouquet noted that Intel has announced it exposed more than 1 million wafers.

Other customers sit further out. Fouquet said Samsung and TSMC plan to bring High-NA into high-volume manufacturing in 2028 and 2030. ASML and TSMC also announced in September a push to move the industry from 6-inch to 12-inch photomasks, with a pilot line by 2031 and system readiness for advanced-node production by 2033, while High-NA enters production first on the 6-inch masks. The shortage ASML manages today applies to the tools customers already run at scale, low-NA EUV and DUV immersion.

China Falls to a Fifth of Sales, and the Rules Are Still Moving

China accounted for 36.1% of ASML’s total net sales in 2024 and 29.1% in 2025. ASML guides China to around 20% of total net sales for 2026. Twenty percent of the €44.5 billion midpoint is roughly €8.9 billion, slightly under the €9.5 billion of 2025, so the share falls mostly because the rest of the business is growing.

ASML’s annual report says Dutch, US and other laws require export licences for EUV systems and specific DUV immersion systems. A bill in the US Congress would go further. The Multilateral Alignment of Technology Controls on Hardware Act, known as the MATCH Act, would bar sales of DUV immersion systems to a list of named Chinese chipmakers, including SMIC and Huawei, and restrict servicing of machines already installed at those facilities. It would give the Netherlands and Japan 150 days to match US controls before Washington could act on its own by extending US jurisdiction to foreign-built machines that contain US technology.

The bill cleared the US House Foreign Affairs Committee in April, and backers have attached it to the US Senate’s version of the annual defense authorization bill. It remains a proposal. In answers to parliamentary questions on May 12, Dutch Foreign Trade Minister Sjoerdsma wrote that the cabinet opposes the extraterritorial effect of the American proposal, which he said could require licences for maintaining equipment at certain end users. He added that the effect on semiconductor companies’ revenue, Dutch firms included, could be significant but depends on the implementing rules and any exceptions. ASML’s China guidance covers total net sales, which combine new machines and servicing, so a servicing ban would reach the installed base as well as future machine sales.

Fouquet argues that the risk of serious Chinese competition stays low as long as ASML keeps market access on reasonable terms, and he added that Chinese chipmakers denied access to some tools would have far more reason to build their own. On the October call he put the likelihood of major competition in China as “still pretty low.” Reuters reported in December 2025, citing unnamed sources, that a team in Shenzhen has built a prototype that generates EUV light but does not yet make chips, with a target of producing chips in 2028, though other experts consider 2030 more likely.

What Has to Hold

One customer accounted for €7.8 billion, or 23.9%, of ASML’s 2025 net sales, up from 16.6% in 2024. The annual report warns that losing a major customer, or a sharp cut or delay in its orders, could materially hurt results. It also says customers have scaled back capacity additions before, and that after years of hiring, ASML would struggle to cut costs quickly in a downturn.

The last deep downturn shows what a reversal costs. In 2009, ASML’s net sales fell 46.0% to €1,596 million from €2,954 million, shipments dropped to 70 systems from 151, and the company reported a net loss of €151 million. ASML has more cushion now: services make up about a quarter of revenue and the year-end 2025 backlog stood at €38.8 billion. It also no longer reports quarterly bookings, so investors would see an order slowdown less directly.

ASML’s own long-range plan shows how fast the ground has moved. Guidance for 2026 already matches the low end of the 2030 scenarios the company set out in November 2024: revenue of €44 billion to €60 billion at a gross margin of 56% to 60%. ASML calls those figures an opportunity and says it will update its longer-term views at a Capital Markets Day on June 10, 2027.

Dassen said ASML will give its gross margin outlook for 2027 with its fourth-quarter results in January. Until then, the evidence sits in places ASML does not headline: the deposit line on its balance sheet, the growth rate of its suppliers and the terms of the 2029 and 2030 orders it has not yet accepted. ASML has shown it can turn scarcity into prepayments and higher prices, and holding both depends on suppliers that must keep growing about 30% a year and on customers whose AI budgets it does not control.

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