ASML’s Price Increases: A New Chapter in Chip Manufacturing
ASML, the sole manufacturer of extreme ultraviolet lithography (EUV) equipment essential for producing the most cutting-edge chips, is gearing up for a significant hike in prices for its machinery. The first company to vocalize concerns over this price surge is TSMC, ASML’s largest client. Reports from The Information indicate that TSMC is beginning to resist negotiations regarding these price increases.
The Importance of ASML in the Semiconductor Industry
ASML serves as a critical bottleneck in the semiconductor industry. Major players, including Nvidia, Apple, TSMC, and Samsung, rely on ASML’s machines to manufacture the chips that power the booming artificial intelligence sector. The prospect of raising prices—a rare move for the company—highlights its newfound bargaining power, driven by unprecedented demand for AI capabilities.
Details of the Price Increase
ASML’s price adjustments will impact its two principal categories of machinery. During a recent conference, Roger Dassen, the company’s financial director, confirmed that they will increase the prices of low numerical aperture (Low-NA) EUV systems, which are currently in high demand. Furthermore, ASML has notified several customers, including Chinese manufacturers, about a 10% increase in the cost of deep ultraviolet (DUV) equipment, which, while less advanced, remains crucial. Some Chinese companies have already accepted the new pricing; however, TSMC is yet to agree.
Value-Based Pricing Strategy
Each new generation of ASML machines is designed to process more wafers per hour while enhancing etching precision—resulting in higher quality chips for clients. This strategy aligns with what ASML refers to as “value-based pricing.” Essentially, if their equipment generates significant economic benefits for manufacturers, ASML intends to capture a portion of that additional value, as extensively discussed in their recent analyst conference.
TSMC’s Perspective on Cost Increases
TSMC’s frustration is understandable. For years, the Taiwanese company has maintained that investing in costly High-NA equipment—priced over 350 million euros per unit—was unnecessary. They believe they can continue to optimize their existing Low-NA machines through design improvements and photolithography techniques. According to Tom’s Hardware, TSMC’s entire manufacturing strategy through 2030 is accordingly built on these premises.
Financial Implications for TSMC
If ASML proceeds with increasing prices for Low-NA machines, it could undermine the cost advantage TSMC has worked hard to establish. Additionally, the Taiwanese manufacturer will require a substantial number of these machines for new facilities being built in Taiwan, the U.S., and Japan; even slight price increases could result in billions in additional costs.
Future Outlook and Strategic Implications
ASML has reportedly sold out its production capabilities until 2027 and a significant portion of 2028, with pre-agreed prices in those contracts. Consequently, the new pricing may not take effect for orders delivered until the latter half of 2028. While TSMC may not feel the immediate impact, the negotiations currently taking place could set prices for hundreds of machines in the years to come.
A Historic Moment for ASML
The current pricing negotiations come at a time when ASML is enjoying record results. The company recently revised its sales forecast for 2026 to between 43 billion and 45 billion euros, significantly exceeding market expectations. Moreover, its gross margin is projected to improve to 56%, up from a previous forecast of 53%. To keep pace with growing demand, ASML plans a 30% increase in manufacturing capacity for its vital EUV machines this year and is considering further expansions for 2028.