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# ASML Holding N.V. (Nasdaq: ASML): Business, Risks and Management Discussion ASML reports in euros, with US GAAP as its primary accounting standard. Every money amount in this document is converted from euros to US dollars. Flows use the average Federal Reserve (FRED) daily euro rate for the period they cover. Balances use the closing rate on the stated date. Forward-looking amounts (outlook ranges, the share buyback program ceiling and the declared interim dividend) all use the closing rate at the end of the third quarter of 2026 (the September 25, 2026 rate, the last published before the September 27 quarter end), so they can be compared with each other. Where a growth rate is attached to an amount, it is the change in US dollar terms, with the euro-reported rate alongside where the two differ materially. Margins and percentages given without an amount are the company's own figures as reported in euros. ASML's registered ordinary shares trade on both Euronext Amsterdam and Nasdaq, so per-share amounts apply directly to the Nasdaq-listed shares. ASML's fiscal year ends on December 31, but its first three fiscal quarters end on a Sunday: the third quarter of 2026 ran from June 29 to September 27, 2026, and the third quarter of 2025 ran from June 30 to September 28, 2025. ## Business *Source: Annual Report on Form 20-F for the financial year 2025 (year ended December 31, 2025), accession 0001628280-26-011378.* ASML makes the lithography systems that semiconductor manufacturers use to print circuit patterns onto silicon wafers. It sells them, along with metrology and inspection tools and computational lithography software, to a small group of Logic chipmakers (foundries and integrated device manufacturers) and Memory chipmakers (DRAM and NAND). Revenue comes from two streams. Net system sales, the sale of new and refurbished systems, were $27.67 billion in 2025, or 74.9% of the total. Installed Base Management, ASML's term for service, field options and upgrades sold into systems already running in customer fabs, was $9.26 billion, or 25.1%. Total net sales were $36.93 billion. ASML is the world's only manufacturer of extreme ultraviolet (EUV) lithography systems. Lithography determines the smallest features that can be printed on a chip, and ASML notes it is the only step in chipmaking where each chip on a wafer is processed individually. The portfolio spans every wavelength used in the industry: - **EUV 0.33 NA (TWINSCAN NXE).** These systems are in high-volume production for the most critical layers of advanced Logic and DRAM chips. ASML recognized 44 NXE systems for $11.81 billion in 2025. The NXE:3800E shipped at full specification of 220 wafers per hour, 37% more than the NXE:3600D. - **EUV 0.55 NA, or High NA (TWINSCAN EXE).** It lets customers avoid double and triple patterning. ASML recognized four EXE systems for $1.31 billion in 2025, shipped its first EXE:5200B (175 wafers per hour) in April 2025, and expects the platform to start supporting high-volume manufacturing in 2027. - **DUV immersion (TWINSCAN NXT ArF immersion).** These are the workhorse tools for most chip layers. ASML recognized 131 systems for $11.66 billion in 2025. - **DUV dry (ArF dry, KrF, i-line).** These are lower-cost tools for less critical layers and mainstream chips. The family includes the XT:260, ASML's first advanced-packaging (3D integration) product, which shipped in 2025. - **Metrology and inspection.** YieldStar optical overlay metrology and HMI e-beam inspection, including the 25-beam eScan 1100 multibeam system, measure printed patterns and feed corrections back to the scanners. - **Computational lithography and control software.** These model and optimize each exposure. - **Installed Base Management.** This covers service contracts, field upgrades that raise throughput or overlay, and refurbished systems. About 95% of the systems ASML has sold over the last 30 years are still in use. ASML reports one segment. In 2025 Logic customers accounted for $18.15 billion of net system sales and Memory for $9.52 billion. Sales are concentrated. Four customers each exceeded 10% of total net sales, together $22.61 billion or 61.2%. The largest alone bought $8.82 billion, or 23.9%. By customer location, China was the largest market at $10.76 billion (29.1% of total net sales), followed by Taiwan at $9.43 billion (25.5%), South Korea at $9.23 billion (25.0%) and the United States at $4.62 billion. Customers buy under volume purchase agreements covering up to five years. Most contracts require a down payment on systems to be shipped, and revenue on a system is generally recognized on delivery once its factory acceptance test is proven, or on customer site acceptance for new products. At December 31, 2025 remaining performance obligations were $54.57 billion, of which ASML expected 65% to be recognized within 12 months. Its system backlog was $45.54 billion. ASML assembles and tests systems in cleanroom facilities in Veldhoven, Eindhoven and Oirschot (the Netherlands), Berlin (Germany), Wilton and San Diego (US), Pyeongtaek (South Korea), and Linkou and Tainan (Taiwan). It depends on Carl Zeiss SMT as the exclusive supplier of its optics. ASML is headquartered in Veldhoven and employed more than 44,000 full-time equivalents at the end of 2025, more than 16,000 of them in R&D. In 2025 it became lead investor in the AI model developer Mistral AI, investing $1.47 billion for a stake of about 11% on a fully diluted basis. The partnership is meant to apply AI models across ASML's products, R&D and operations. ## Risk factors *Source: Form 20-F for the financial year 2025, accession 0001628280-26-011378. ASML's Statutory Interim Report for the first half of 2026 (Form 6-K, accession 0001628280-26-048235) states that no new risk factors were added.* The substantive risks, condensed: - **Export controls and geopolitics.** ASML needs export licenses from the Netherlands, the US and others for EUV systems, certain DUV immersion systems and some other products. US measures also require licenses for dealings with certain Chinese entities and limit support by US persons for non-US items destined for advanced-node fabs in China. China accounted for 29.1% of 2025 net sales, down from 36.1% in 2024. In 2025 the Netherlands added metrology and inspection systems to its license requirements, and the EU extended Dutch controls to all member states. The US "Affiliates Rule", which extends Entity List restrictions to entities at least 50% owned by listed parties, and China's export restrictions on rare earth materials have both been suspended until November 10, 2026 under a US–China trade agreement. When it raised its outlook in April 2026, ASML said the range accommodated potential outcomes of ongoing discussions around export controls. Taiwan (25.5% of 2025 sales) and South Korea (25.0%) carry their own cross-border political risks. - **Customer concentration.** A handful of chipmakers buy most of ASML's systems, so losing or delaying one major customer can move results materially. The three largest customers accounted for 35.4% of accounts and finance receivables at the end of 2025, which also concentrates credit risk. - **Single-source optics and supplier capacity.** Carl Zeiss SMT is ASML's sole optics supplier under an exclusive arrangement, and its production capacity limits how many systems ASML can build. ASML says that if Zeiss stopped supplying optics for a prolonged period, ASML would effectively be unable to conduct its business. Many EUV components are single-sourced. - **Capacity mismatch.** ASML is expanding its own and its suppliers' capacity to meet AI-driven demand. That brings two risks: falling short of demand, which would hurt customer relationships, or building more than demand needs later, which would add costs. Permits, hiring and supplier investment all constrain how fast capacity can be added. - **Lumpy, few-unit revenue.** Most revenue comes from a small number of high-priced systems: 327 lithography units in 2025, against 418 in 2024. A shipment delay or a later acceptance date can shift a quarter's results, and "fast shipments" that complete final testing at the customer site defer revenue until acceptance. - **Cyclicality.** Sales depend on customers' capital spending, which follows industry cycles and, increasingly, government pushes for self-sufficiency that can create global overcapacity. Having expanded headcount and infrastructure, ASML says it would struggle to cut costs quickly in a downturn. - **Technology execution and competition.** The success of High NA EUV depends on continued technical progress by ASML and its suppliers, and failed programs could lead to impairments of capitalized technology or inventory. In DUV, ASML competes with Canon and Nikon, whose position strengthens when the yen weakens against the euro. It also faces new, state-backed entrants. Applied Materials and KLA compete in patterning-control applications. - **Concentrated manufacturing and security.** All manufacturing takes place in a limited number of cleanroom sites, which are not fully insured. ASML has experienced cyber incidents and IP theft in the past, and it says its growing prominence makes it a more likely target. - **Currency and tax.** Costs are mainly in euros, while sales are exposed to the US dollar, Japanese yen, Korean won, Taiwan dollar and Chinese yuan. The effective tax rate depends on R&D incentives such as the Dutch innovation box and US R&D credits, and on the OECD global minimum tax. - **Shareholder rights.** As a Dutch "structure regime" company, ASML concentrates certain decisions with its Supervisory Board. Its preference share foundation holds an option on cumulative preference shares that, if exercised, would halve the voting power of ordinary shares. ## Management's discussion of 2025 results *Source: Form 20-F for the financial year 2025, accession 0001628280-26-011378, supplemented by the fourth-quarter and full-year 2025 results release (Form 6-K, accession 0001628280-26-003701).* **Sales.** Total net sales rose 20.8% to $36.93 billion (15.6% in euros). Net system sales grew 17.5% to $27.67 billion (12.4% in euros), and Installed Base Management grew 31.8% to $9.26 billion (26.2% in euros). Growth came from greater NXE and NXT immersion adoption as leading-edge foundries invested for AI demand, and from EXE systems delivered to more customers. Lower ArF dry, KrF and i-line volumes partly offset these gains. EUV system sales rose 45.7% to $13.12 billion (39.4% in euros), with revenue recognized on 48 EUV systems against 44 in 2024. DUV system sales declined 1.7% to $13.62 billion (5.9% in euros) as DUV units fell from 374 to 279. Metrology and inspection system sales rose 33.5% to $932.31 million (27.7% in euros). By end market, Logic system sales rose 27.1% to $18.15 billion (21.7% in euros). Memory was $9.52 billion, up 2.6% in dollars but down 1.8% in euros, which ASML describes as continued high Memory demand following strong growth in 2024. Taiwan sales roughly doubled to $9.43 billion (up 91.5% in euros), while China sales fell 2.4% to $10.76 billion (6.6% in euros). ASML attributes Installed Base Management growth to its larger installed base, heavier tool use by some customers and more NXE field upgrades. **Margins and costs.** Gross margin rose to 52.8% from 51.3%. A favorable NXE mix and higher service and field-option sales and margins drove the improvement, partly offset by the dilutive effect of EXE systems recognized in sales. R&D rose 14.1% to $5.31 billion (9.2% in euros). The spending went to the NXE:3800E/3800F, EXE for future Logic and DRAM nodes, next-generation DUV (NXT:2150i, NXT:870B, XT:260) and metrology, including multibeam. SG&A rose 12.7% to $1.42 billion (7.9% in euros), mainly on higher wages per FTE and community programs. Income from operations was $12.78 billion, a 34.6% margin against 31.9%. **Earnings.** The effective tax rate fell to 17.7% from 18.6%, because a correction to a historic tax position booked in 2024 had less effect in 2025. Net income rose 32.6% to $10.86 billion (26.9% in euros), or 29.4% of sales. Basic earnings per share were $27.96, against $20.83. **Cash flow and capital.** Operating cash flow was $14.31 billion and free cash flow, a non-GAAP measure, was $12.47 billion. Investing outflows rose mainly because of the $1.47 billion Mistral AI investment, partly offset by lower capital expenditure. ASML returned $9.61 billion to shareholders, including $6.67 billion of share buybacks. It also repaid its 3.500% senior notes at their December 6, 2025 maturity. Cash, cash equivalents and short-term investments were $15.61 billion at year end. Eurobonds outstanding had a principal of $4.40 billion, and $813.30 million of Euro Commercial Paper was outstanding. The bond maturity schedule included 1.375% senior notes due July 7, 2026 and 1.625% senior notes due May 28, 2027. A $1.76 billion committed credit facility, maturing in May 2030, was undrawn. **Orders.** Net bookings for 2025 were $31.70 billion, against $20.45 billion in 2024. The fourth quarter alone brought $15.37 billion, of which $8.62 billion was EUV. ASML said many customers had markedly stepped up their medium-term capacity plans late in the year, on more robust expectations that AI-related demand would last. **Initial 2026 view and long-term targets.** In January 2026 ASML guided 2026 total net sales to between $38.76 billion and $44.46 billion, with a 51%–53% gross margin. It expected EUV sales to rise significantly, non-EUV to be similar to 2025 and Installed Base Management to grow again. Its long-term opportunity, set at its November 2024 Investor Day, is 2030 revenue of between $50.16 billion and $68.4 billion at a 56%–60% gross margin. On January 28, 2026 ASML also announced it would streamline its Technology and IT organizations, which could cut around 1,700 positions, mostly in the Netherlands. It also proposed a total 2025 dividend of $8.48 per share, 17% higher than for 2024 in euros. Shareholders adopted the dividend at the April 22, 2026 annual general meeting. ## Current quarter: third quarter of 2026 *Source: third-quarter 2026 results release, presentation and summary US GAAP financial statements (Form 6-K filed October 14, 2026, accession 0001628280-26-065813), with first-half context from the second-quarter release and Statutory Interim Report 2026 (Form 6-K, accession 0001628280-26-048235) and the first-quarter release (Form 6-K, accession 0001628280-26-025147).* **Results.** Total net sales were a record $13.42 billion, up 52.8% from $8.78 billion a year earlier (55.2% in euros) and up from $10.85 billion in the second quarter. ASML said the figure was toward the high end of its guidance. Net system sales rose 48.5% to $9.64 billion (50.8% in euros) on 121 lithography systems (113 new and 8 used), against 72 a year earlier. Installed Base Management rose 65.1% to $3.79 billion (67.6% in euros), above guidance, which ASML attributed to continued strong demand for productivity upgrades. That service strength lifted gross margin to 57.5%, above the 55%–57% guided in July, from 54.0% in the second quarter and 51.6% a year earlier. R&D was $1.35 billion and SG&A $405.86 million. Income from operations more than doubled to $5.95 billion, a 44.4% operating margin. Below the operating line, ASML booked a $586.69 million gain on equity investments, against none a year earlier; the release does not say which holding it came from. With a 16.1% effective tax rate, net income rose 130.0% to $5.71 billion (133.5% in euros), or 42.5% of sales. Basic earnings per share were $14.91 against $6.42, and diluted earnings per share were $14.88. For the first nine months, sales were $34.56 billion, up 34.6% (29.7% in euros), and net income was $12.35 billion, up 63.1% (57.1% in euros). **Cash and balance sheet.** Operating cash flow was $13.58 billion, against $653.32 million a year earlier, and free cash flow (non-GAAP) was $13.07 billion. Changes in working capital contributed $8.07 billion. On the balance sheet, non-current contract liabilities rose to $10.60 billion at September 27 from $4.07 billion at June 28. The 20-F describes contract liabilities as consideration received for goods and services not yet recognized as revenue. Accounts receivable reached $10.55 billion. Equity investments rose to $2.55 billion from $1.51 billion at June 28, alongside the gain above and $466.98 million of new equity-investment purchases in the quarter. ASML spent $4.69 billion buying back about 2.8 million shares and $830.25 million on dividends. It also repaid $1.15 billion of debt during the quarter; the 1.375% senior notes listed in the 20-F fell due on July 7, 2026. Long-term debt was $2.24 billion at quarter end. Cash, cash equivalents and short-term investments rose to $14.52 billion from $8.65 billion at June 28. Total assets were $67.24 billion and shareholders' equity $25.15 billion. **Demand and capacity.** Management said customers keep raising their short- and medium-term equipment demand forecasts, driven mainly by their views on the size and duration of AI-related investment. Some customers have expressed interest in placing orders for 2029 and even 2030. In July, ASML had set out the baseline. Its 2026 capacity is around 65 low NA EUV systems and around 130 DUV immersion systems. It planned to add 30% to each for 2027 and was investigating a further 30% for 2028. ASML now expects its currently planned supply for both 2027 and 2028 to fall short of customer demand. It is investigating ways to raise 2028 capacity beyond the 30% increase it previously communicated, alongside its productivity-upgrade business. **First-half mix shift.** The first-half 2026 figures in the Statutory Interim Report show demand rotating toward Memory and away from China: - Memory system sales rose 63.5% to $7.47 billion (53.2% in euros), while Logic fell 10.0% as reported in euros, to $7.52 billion (down 3.9% in dollars). - South Korea sales rose 71.3% to $8.27 billion (60.5% in euros) and Taiwan rose 25.1% to $5.97 billion (17.3% in euros). - China fell 17.1% to $3.36 billion (22.3% in euros), cutting its share of total sales to 15.9% from 24.1% a year earlier. ASML recognized three EXE (High NA) systems for $1.39 billion in the half. First-half R&D included the estimated costs of the Technology transformation announced in January. **Funding and management.** Chief Technology Officer Marco Pieters joined the Board of Management on April 22, 2026. On March 20, 2026 ASML set up a Euro Medium Term Note programme of up to $11.40 billion, under which nothing had been issued by June 28. It had no commercial paper outstanding at that date, and its non-committed credit lines had grown to $3.99 billion. **Capital return.** Under the share buyback program announced in January 2026, ASML intends to repurchase up to $13.68 billion of shares by December 31, 2028. ASML expects to use up to 2 million of the repurchased shares for employee plans and intends to cancel the rest. Treasury share purchases totaled $7.14 billion in the first nine months of 2026. **Outlook.** ASML has raised its 2026 sales outlook in each quarterly release since January, when the range was $38.76–$44.46 billion. It now stands at $50.16–$51.3 billion, with a gross margin around 56% and an annualized effective tax rate around 17%. The gross-margin outlook was 51%–53% in January and April, before rising to 54%–56% in July. For the fourth quarter of 2026 ASML expects: - total net sales between $16.19 billion and $17.33 billion, including Installed Base Management of around $4.22 billion; - a gross margin around 57%; - R&D costs of around $1.37 billion; - SG&A costs of around $456 million. ASML will update its longer-term views at a Capital Markets Day on June 10, 2027, and plans to report fourth-quarter and full-year 2026 results on January 27, 2027. ## Subsequent events *Source: third-quarter 2026 results release and presentation (Form 6-K, accession 0001628280-26-065813); Statutory Interim Report 2026, Note 11 (Form 6-K, accession 0001628280-26-048235); Form 20-F for 2025, Note 27 (accession 0001628280-26-011378).* The third-quarter filing contains summary statements without a subsequent-events note. It discloses no acquisition, divestiture or new financing after the September 27, 2026 quarter end. The one post-quarter item it discloses is the interim dividend: - **Interim dividend.** A second quarterly interim dividend for 2026 of $2.14 per ordinary share is payable on November 4, 2026, the same per-share amount in euros as the interim dividend paid on August 5, 2026. The August payment was the only subsequent event in the first-half statutory report. The suspensions of the US Affiliates Rule and of China's rare-earth export restrictions described under Risk factors run until November 10, 2026.