ASML: a monopoly in lithography that still keeps digging its moat

ASML, based in Veldhoven in the Netherlands, is the only company in the world that builds extreme ultraviolet (EUV) lithography systems, the machines that print the finest features on today’s most advanced chips. Each system costs well over a hundred million euros, and the technology took decades of development to make reliable enough for mass production. Every leading chipmaker that produces at the most advanced nodes depends on them.

Two older decisions explain a good part of that position. In July 2012 ASML launched a Customer Co-Investment Program: Intel, TSMC and Samsung bought a combined 23% minority stake for 3.85 billion euros and committed a further 1.38 billion euros over five years to its research on EUV and other next-generation lithography. In November 2016 ASML agreed to buy 24.9% of Carl Zeiss SMT, the maker of the optics inside its machines, for one billion euros, with further funding committed for the next generation of EUV optics. Since 2019 the Dutch government has not licensed EUV exports to China, and in December 2025 Reuters reported that a team in Shenzhen, including former ASML engineers, had built a prototype EUV machine that had produced EUV light but no working chips.

A rare USP, read honestly

Most companies that claim a unique selling proposition are describing a feature a competitor can match within a year. ASML holds one of the few that is literally unique, and in the books it is the contemporary example of a USP-led strategy: the value proposition leans on the unique object, and everything around it exists to protect and amplify that object and to prepare for the day it stops being unique.

That last clause is the part companies tend to skip. A unique machine is an exclusive asset, and every exclusive asset has an expiry, through patents running out, physics being solved another way or a state deciding to fund a rival. ASML’s choices read as a company that took the expiry seriously while it was still far away.

The ten-times-capital test

The diagnostic question for a moat is short: if a competitor with ten times your capital decided to copy you tomorrow, what would they still fail to replicate? For ASML the answer goes well beyond the machine. A rival would need the optics, which come from a supplier ASML part-owns and has co-funded for years. It would need the light source, a network of thousands of specialised suppliers and the installed base that teaches engineers how the systems behave in real factories. Above all it would need customers willing to bet their roadmaps on an unproven tool.

The Shenzhen prototype is a live version of the test, with a state behind it in place of a company. It shows that the machine can be approached. The distance that remains is the rest of the system: making EUV light and running a profitable fab on it are separated by years of yield, servicing and supply work.

Customers who funded the moat

The co-investment program is the most instructive move. Intel, TSMC and Samsung paid to accelerate the technology they would then buy, which turned three customers into partners with a stake in its success. In our vocabulary that is a bridge built into the moat: relationships and shared roadmaps that make the position harder to attack and harder to leave. When your customers pay for your research, they are buying a place on your roadmap, and every year on it makes the alternative harder to imagine.

The same logic runs backwards into the supply chain. Taking a stake in Zeiss’s optics business secured the one input ASML could not build itself and tied the supplier’s future to the next generation of machines.

Where design stops

There is a limit the method cannot design away. Export rules decide which customers ASML may serve, and they are set by governments in The Hague and Washington. A moat protects against competitors; it has little to say about a state that funds a rival or closes a market. The China story is still moving, and how it ends will shape ASML’s next decade more than any product decision.

For most companies the lesson sits one level down. A strong product advantage invites complacency, and the time to build the relationships, the supplier ties and the shared roadmaps is while the advantage still looks permanent. If you want to see what your own position would look like under the ten-times-capital test, start with what we do.