艾司摩爾 (ASML) 2007 Q3 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to ASML's 2007 third quarter results conference call on October 17, 2007.

(OPERATOR INSTRUCTIONS).

I would now like to turn the call over to Mr.

Craig DeYoung.

Go ahead please, sir.

Thank you, Operator.

Good afternoon and good morning, ladies and gentlemen.

This is Craig DeYoung of the Investor Relations Department at ASML.

I would like to welcome our investors to our investor call and webcast.

The subject of today's call is ASML's 2007 third quarter results.

Hosting this call today are ASML's CEO, Eric Meurice and CFO, Peter Wennink.

I'd like to draw your attention to the Safe Harbor Statement contained in today's Press Release and presentation, and you may find the Press Release and presentation on our website at www.asml.com.

The length of the call will be 60 minutes, and now, I'd like to turn the call over to Eric Meurice for a brief introduction.

Thank you, Craig.

Good afternoon, good morning and thank you for attending our Q3 results conference call.

As it is now our habit in our quarterly conference calls, we will split the introduction in two parts.

Peter will start with a review of our Q3 financial performance, with added comments on our short-term outlook.

I will complete the introduction with a longer-term view and, following this introduction, we will open the call to questions.

Peter, please?

Thank you, Eric and welcome to everyone.

First of all, I'd like to review, like Eric said, our Q3 result highlights.

And in that regard, I'm pleased to report that, again, the quarter developed as we anticipated.

And in reviewing our results in detail, you have seen that we reported healthy revenues, operating margins and net profit for the quarter.

Q3 revenues were reported at EUR940m, which is roughly the average of what we have achieved in the past six quarters.

A 41.2% gross margin and operating expenses of EUR176m, R&D at EUR120m and SG&A at EUR56m, resulted in an operating margin on the quarter of 22.4% versus 22.2% in Q2.

ASML remains highly flexible and adapted to market cycles.

Although we have continued to grow our operational cost base to support our future growth, in both our R&D spend and SG&A cost, we keep focusing on creating cost variability, such that we can match profitability in any market conditions.

As a reminder, about 30% of our R&D costs are variable within one quarter's time, and approximately 10% of the SG&A costs are variable.

Cash flow also remains well above our operational needs with net cash from operations in Q3 at EUR169m.

Also, in an ongoing commitment to return excess cash to shareholders, we returned EUR1b in cash to our shareholders on October 4.

This is part of the capital restructuring which we announced on May 31.

The cumulative amount returned to shareholders since June 2006 stands currently at EUR1.9b.

In addition, we limited the diluted impact of the 86% conversion of our 2010 Bond that took place in Q3 by using approximately 7m ASML Treasury shares.

Furthermore, and consistent with the terms of the Convertible Bond, we decided to call the remaining 14% of the Bond that had not yet been converted.

We will also start a new share buyback program for a maximum of 14m shares to cover for outstanding equity stock options, to be funded out of our cash flow, and our ample liquidity buffer.

The purchasing of those shares will take place at any time during the nine-month period ending July 17, 2008.

We ended Q3 with EUR2.4b in cash, and we maintain a cash reserve target of between EUR1b and EUR1.5b.

As guided at the end of last quarter, we expected an increase in net bookings from the 30 systems booked in Q2.

We've clearly seen a rebound in our net bookings number [to] the quarter to a level of 40 units.

More importantly, the third quarter bookings confirmed a shift in demand towards our leading edge Immersion products.

We booked 22 1900i Immersion systems, and driving the total net value of our order intake to EUR863m.

That's more than 200% increase as compared to the Q2 order intake value.

We ended the quarter with an increase in the backlog to a level of EUR1.77b, out of 61% of which reflects the value of our Immersion products.

Both the backlog average selling prices and the booking systems average selling prices are at record levels this quarter.

This shift towards Immersion is significant, and will be sustained as our NAND and DRAM customers are transitioning to new process nodes.

As we predicted, net capacity at the large manufacturers became tighter in Q3.

This, and the forecast of an improved NAND supply demand balance for the remainder of the year, has resulted in 55nm node capacity orders in the segment.

In addition, prompted by a tough pricing environment, major NAND players are aggressively pursuing device [shrinks] to 45nm.

With respect to DRAM, the continued price pressure pushes memory makers to more cost-effective systems -- Immersion systems, geared at 5Xnm nodes, for more affordable and more competitive 1 and 2 gigabit DRAM devices.

Our Foundry customers continue to see improvements in their factory utilization.

Although at levels that could trigger significant millimeter capacity orders, they are holding off ordering until they can better read the 2008 application needs of their end customers.

But all in all, Q3 saw the return of NAND orders, with DRAM technology transition orders and Foundry capacity orders expected to follow within the next few quarters.

That is confirming our secular growth trend.

And as usual, it remains difficult to call the exact timing and level of bookings.

However, we do believe that the trends that I just described will translate into another incremental increase in unit orders in Q4.

This positive view is supported by our internal global utilization model, combined with the forecast for market independent research analysts for 2008 semiconductor growth.

Our model predicts growth for our Lithography business in the first three quarters of 2008, on an assumption of a growth of 51% for NAND units, less than 10% for Logic units and 18% for DRAM units.

In particular for DRAM, technology transitions to Immersion will compensate for the anticipated reduction of the unit capacity growth rate, as compared to 2007.

Now, this ends my part of the introduction, and I will turn back to you, Eric.

Thank you, Peter.

So, basically, Peter confirmed that ASML is proving successful in managing through the cycle, because we are sustained by a long-term growth trajectory which, in fact, dampens this cycle.

At this time, in fact the dampened part, or the reason of the growth is, in fact, the fact that we are sustained by a significant acceleration of technology transition in Flash and DRAM to Immersion lithography.

This transition required by the current very aggressive memory price competitive drive and compensating, therefore, the lower planned chip unit growth.

This trend is very important and plays very much to our strengths as a technology leader.

And to further develop this technology leadership, we are increasing our R&D spend further to EUR125m per quarter from EUR120m this quarter.

The focuses of our R&D funds are the development of next generation platforms for dry and Immersion applications, allowing a continuous increase of the two throughputs across ArF, KrF and i-Line products, as well as enabling double patterning, 2D, 3D designs, as well also as EUV.

Regarding Immersion, our products are becoming the industry standard, so with 60 tools shipped to date and the latest XT:1900i unit backlog currently exceeding our advance dry XT:1400 unit backlog, which is a significant event, as you can see.

We expected to ship about 35 Immersion tools in 2007, with approximate 20 XT:1900i systems in the first six months after its introduction.

We are encouraged by the fact that the XT:1900i is the only Immersion tool in the market capable of exposing sub-40nm node, and that we have now processed more than 3.5m wafers on our Immersion platforms, thus, creating a significant experience base for the customers transitioning to production.

We have now 20 customers with active Immersion manufacturing or process development programs in place.

On the lower scale of our product range, our latest XT:400 and 450 i-Line systems enable the fastest and most cost effective solutions for processing non-critical layers.

As you know, we have announced record performance output of over 3,500 wafers in a single day and 1m wafers processed per year on a single machine.

Not surprisingly with these statistics, we've been able to grow our i-Line business by approximately 250% in the past two years.

In the mid-range side of the business, our TWINSCAN XT:1000, the new IMA KrF machine to be introduced in H2 2008, will be capable of imaging 80nm features at an unparalleled 165 300mm wafer per hour.

With this tool, our customers will save 30% costs or more versus today.

We are currently also closing our fourth order for an EUV pilot production tool, with the first of the series to be delivered late in 2009.

This is a clear indication of the strong acceptance of EUV as the most technically capable and cost-effective solution for imaging 32nm and below.

This acceptance is reinforced by the passing of an important development milestone on our Alpha tool by imaging the first ever 40nm dense lines using a tin source.

Operationally, we continue to drive down our cycle times and costs.

In 2007, we have reduced our average cycle times by another 15% to 30%, depending on the product line, and increased our value of ownership through a combination of costs and performance rendered or delivered to the customer by, depending again on the product, by 10% or 15%.

Our factory expansion, needed for further improvements of these numbers, but as well as for capacity increases, is on target to deliver product by mid 2008.

So in summary, we confirm our customer value generation proposition through leadership in technology, in value of ownership and in operational efficiency.

In view of our progress on these, we feel confident in our ability to continue to grow our market share, while delivering financial results through the cycles and, as we always say, [doings] of which are shallower and shorter than ever before.

So now on this summary of our messages, Peter and I will be available to -- for your questions.

Ladies and gentlemen, the operator will instruct you momentarily on the protocol for the Q&A session, but beforehand, I'd like to ask that you kindly limit your questions to one, with one follow up -- short follow up if necessary and this will allow us to get as many callers in as possible.

Operator, can we have your instructions, and then the first question, please?

Yes, thank you, sir.

(OPERATOR INSTRUCTIONS).

Today's first question is from Mr.

Simon Schafer.

Please state your company name followed by your question, sir.

Yes, hello, thanks very much.

It's with Goldman Sachs.

I was wondering on the Immersion print on the order intake, 22 units, in your opinion, does that represent a pull-in, or do you think in the book to bill for the Immersion systems, to be above 1 again in the fourth quarter?

Yes, it is a pull-in, in the sense that the NAND orders have come a bit earlier than we expected, because in fact of this drive towards this new technology and cost.

Whether we can project the same performance in Q4, I would say we've messaged very clearly today that the technology transitions are accelerating in NAND, and this is now proven, but in DRAM, and this is in progress.

And therefore these -- this acceleration will definitely regenerate growth in the first three quarters of 2008.

However, we will remain very cautious as to calling exactly when the bookings are coming.

We are not cautious on [when] we are able to call [the] billings.

This is when the customer absolutely requires the capacity to achieve the different transitions they want to do, but we are still cautious as to the timing of the orders.

Maybe I can try and get there another way.

In terms of order projection, are you thinking number of units is up sequentially, or how should we think about mix on an order [basis]?

Yes, you could -- we have, yes, left it a bit uncertain by saying in Q4 we'll see a better unit number than Q3.

Obviously, Q3 has been exceptional in ASP.

The average ASP, I think is --

EUR22m.

-- EUR22m, so we do expect this average ASP not to be sustainable, and therefore we left it a bit to uncertainty as what the average ASP will be in Q4.

So unit-wise, yes, we clearly see and confirm that the bookings -- unit will be higher in Q4 than in Q3.

Whether the ASP will be strong enough to match the dollar -- sorry, the euro bookings of Q3, at this moment, we would not know.

Thanks, that's very helpful.

And then my final question would be, when I look at the segment of your order intake, obviously, the Foundry element is extremely low, the Logic portion effectively being characterized by some -- by some scrubbing of the backlog.

Would you expect orders in the Foundry segment to rebound materially in Q4, or is this really a first half of '08 return of order growth?

Yes, this is a very important question.

We are mentioning now for the past, whatever, three years, that there are multiple cycles in this business.

And in fact, we are fortunate that at this moment the cycle seems to be, let's say, compensating each other.

So we have seen now the Flash cycle back on.

We are now sniffing the DRAM cycle, not in units, but in ASP, in technology transitions, to showing its nose very much so because we have already some bookings and it's starting.

We do not see the Foundry business to rebound in Q4 at this moment.

It may happen because, as we say, there is no inefficiency in capacity utilization.

That is, utilization is at a good number.

In fact, it was -- it is at a good number since now about three -- three to six months.

You can even argue this.

What is happening, however, is the Foundry customers are not fully comfortable to the volume outlook of 2008, so they are waiting.

If and when the Christmas season proves to be favorable, then there will be immediate bookings.

Understood.

Thanks so much.

Great, fantastic quarter, thanks.

Thank you.

The next question is from Mr.

Nicolas Gaudois.

Please state your company name, followed by your question.

Yes, hello there, it's Nicolas Gaudois from UBS.

I'll just with a question looking at next year, so you qualified that you will see the first nine months of the year up year over year for your addressable market.

Could you maybe try to quantify a bit the delta of the addressable market for ASML could be vis a vis (inaudible) to capital spending, begin to account for shrinks, trends you portrayed.

And also if you could give some color by segments where you see, whether NAND, DRAM from (inaudible) will be up or down for its first nine months?

Thank you.

I think it will be Peter that adds to it, but I think it's going to be difficult for us to say what lithography does versus others.

I don't think we can color that.

We don't know.

It's not in our expertise.

Regarding, however -- litho, obviously, you've seen this fundamental message we gave today, which in fact translates into this -- this is a very positive call, is we are moving in terms of the technology content, so ASP increase.

So that's what is happening, and we see this happening for the next six to nine months, through Flash and through DRAM.

So that is what creates obvious growth.

But as we usually say, we base our estimates on, basically, assumptions from the semiconductor analyst as to the numbers of semiconductor units which sustain this.

And the current numbers that you see, more or less, in the market, calls for a Flash unit growth of about 50%, 51% as Peter said, and DRAM at about 18%.

18% is much lower than what happened last year -- in 2007, sorry, is going to be about 50%, and so 18% is much lower.

So even on an 18% lower unit growth, ASP is so big -- large, that it will compensate this and, therefore, we call for growth in the first six to nine months of the year 2008.

Okay, so just to clarify, you're saying that for DRAM, for instance, the ASP increase, or the number of tools required for a given unit output by the number of players, maybe offsets the decline in effective capacity investment?

Is that what you're saying?

We believe that that will offset.

We believe that that will offset, yes.

Yes.

We believe, in fact, that because you transition from basically 55 -- or say, 65 to 55 and 45 in DRAM -- sorry, in Flash, and the transfer, say 70 each, or 7X to 6X in DRAM that it will create, obviously, less tools at the beginning, but much more expensive.

But in addition, there are going to be more critical layers as it is an area where there will be probably 10% to 15% more critical layers, so these numbers of players again will push for a much richer mix.

So you've got two reasons of our mix richness for this -- during this transition.

Okay, understood, and just on the --

Nick, we're going to have to move on.

Sorry about that.

I'm sure we'll have more discussion later.

Sure.

Thanks.

The next question is from Mr.

Jim Fontanelli.

Please state your company name followed by your question.

It's Arete Research.

I was just wondering how you see the '09 Immersion market and whether you think that the DRAM opportunity for Immersion in '09 will be greater than that for NAND in '09.

Guiding '09 is an art.

Yes, technically, DRAMs are going to ramp slower in Immersion than NAND, because of the complexity of the production challenges.

Everybody who manufactures DRAM will tell you how difficult it is to achieve the yield necessary.

And, therefore, we expect that the customers in DRAM will, of course, converge into Immersion but will have a slower ramp if you compare unit to unit to Flash.

But DRAM is much bigger than that.

DRAM is double the size, so we therefore expect this DRAM cycle to have a, how do you call this, a dampening effect on the crazy Flash cycle.

So in other terms, we expect Flash to continue growing by major than CapEx purchase, six months, every 12 months.

Then we expect this to dampen a bit because the unit growth will not be as good.

But that will be compensated by the larger and more stable DRAM business and, as I say, it's larger and more stable because it is more difficult to achieve (inaudible).

So in other terms, compensation in 2009 with more DRAM and less Flash is probably going to happen.

Okay, thank you.

The next question is from Mr.

Mehdi Hosseini.

Please state your company name followed by your question.

Yes, Friedman Billings Ramsey.

I have -- my first question has to do with your commentary regarding NAND and the pull-in.

Can you help me understand of the three to five NAND manufacturers out there, to what extent you have been able to gain market share on Immersion.

And maybe you could offer a qualitative way of helping us understand how many of those NAND producers have moved on in adopting Immersion?

And the second or follow-up -- a short follow-up question is, help us understand the Immersion opportunities between DRAM, NAND, Logic and Foundry?

How does this -- how do the market changes?

Are they in terms of dollars of revenue opportunity or units, among these various device-type markets?

Okay, lots of good questions, difficult ones, of course.

Our market share in Immersion is good, thank you!

We -- of course, we've shipped a lot of units, and we have created this, I would say, experience of 3.5m wafers.

That's a lot of wafers going through those machines, so we think that our market share in most of our customers, in fact, our traditional, obviously, in the usual 100% of the critical layers, and on the new customers that you know who they are, the ramp is faster than any ramp we've ever had.

So that's obvious that in Immersion our market share is above our average market share, which is today in the 60-ish percent range, so we probably are in the 80-ish percent range or more in this environment.

So if they -- if you have 80% market share and if they have pulled in, my concern is, then you can have a large void in overall Immersion bookings in Q4/Q1 if Foundry doesn't come back, because NAND is already behind us?

Oh no, no, the current bookings for NAND are not at all [the lead] for 2008.

I would not tell you voluntarily at this moment how much we've booked from the NAND business, but this is why we have told you that we expect growth in 2008 in the first nine months compared to 2007, so 2007 was a really big year for us, so 2008 is going to be even bigger.

So no, we've not booked with --

We've not booked everything that our NAND customers need for next year, certainly not.

In fact, I could not tell you of these two very large accounts, which are not yet booked.

The -- so you ask about the Immersion adoptions by customer in NAND and I think, and I'm trying to avoid telling you the wrong thing, but I guess 100% NAND customers are in Immersion at, of course, different level of production.

Yes, I was just trying to understand market opportunities between DRAM, NAND and Logic.

So in DRAM, I think it's about the same question, I guess, that Jim asked is, we expect DRAM to be slower but, because they are bigger, they will catch up on NAND Immersion in the 2009 environment.

So this is of course -- this is directional information, so I would say, obviously Flash was -- NAND Flash was Immersion -- most of the Immersion business in 2007.

In 2008, they will be towards the, say, 75-ish percent, 60, 75-ish percent.

And in 2009, they -- you could make a case that DRAM could be equal to NAND in terms of Flash lead.

But you are asking me.

This is very early simulation activities which I will probably have to come back to you at some point.

Now, Logic in general will be much later than that.

Logic Immersion will be a fairly small part of the business of Immersion for the next two years.

I would -- again, you force me to guess.

I would say in the directional fashion, in the 10%-ish of the business or less would be Logic Immersion in the next year and a half or so.

Just to add, you really need in the Immersion technology when you go down lower than 60nm feature size, so -- which is currently the case for the NAND product.

NAND will move from 55 to 45 next year.

DRAM will go from 70, which is above 60, to lower than 60 next year, so that creates a new market opportunity.

And you will see when Logic feature sizes will meet 45nm, which is not foreseen next year, like Eric said.

It's probably two years out.

That's where they will meet, the Immersion solution.

So it's a gradual increase in the market opportunity, driven by NAND, followed by DRAM, followed by, I would say, Logic.

But you could say, in the first instance, DRAM being a year behind NAND, for first introduction, and then followed a year to year and a half by Logic.

Great.

Thank you for your detailed answer.

Thanks.

Thank you.

Your next question is from Jay Deahna.

Please state your company name, followed by your question.

Thanks, can you hear me?

Yes.

Okay, very good.

Good afternoon.

Yes, in the past you've had three, four, five quarters --

[Jamie] --

Can you hear me okay?

Yes.

Yes?

Okay.

In the past, you've had three, four or five quarter order cycles.

Your unit order declined from the third quarter of last year to the second quarter of this year, 66%; a pretty high amplitude cyclical decline.

Do you believe that with up orders in 3Q and expectations for up unit orders at least in 4Q, that you're in the midst of one of these three to five quarter upswings and, if so, why?

And as a follow on to that, do you expect total -- the total lithography market to be up, down or flat for units in 2008, and what does that mean for our wafer fab equipment spending?

Okay.

Why an upswing of three, four quarters?

Because the memory business in general is basically taking now a dominant position in the CapEx of this industry, and memory -- there are economics into buying in one big shot early in the new technology.

So you would try to have all those customers who compete on the one given technology to try and buy everything on the same day, which translates in nine months.

So they are trying basically to swing this way and, therefore, you have the two quarters where they basically digest and then the rest they basically build up.

So you have two digesting quarters, three quarters of build-up, and that type of thing.

And this is, how we say, typical from aggressive CapEx technology leads which are necessary in the memory business.

So we would, at this moment, see the same thing happen for the foreseeable future.

Regarding calling the full of 2008, so we will not do so.

We have only guided on nine months, and this is the first time we do so, by the way, because we feel very comfortable about the mechanics behind the cycle within the next nine months.

We can't really call Q4 '08 at this moment.

But if you therefore only focus on this nine months that we called, I would say we would expect less units and a much higher ASP, which is why it will compensate.

And therefore the spend will be higher, by a factor, and the units will be lower.

Yes, and so just so I'm clear, are you saying that you do believe that you're in one of these standard cycles that we've seen over the last half decade or whatever?

And also in terms of the fact that your orders in the third quarter were so heavily skewed towards Immersion, would we expect to see the mid-critical and the non-critical tools that plug into that capacity ordered over the next one or two quarters, which would probably be more units, but a lower mix of ASP?

Yes, this is a very good point.

So first of all, yes, we would expect this 2008 to be about similar to 2007 in terms of cycles.

Yes, we are a bit more positive and optimistic about this one, because we see multiple nodes at the same time in different segments, so this is good news for us, because we are the technology leadership [edgeways] with a high market share on this level so the more new nodes and transitions the better.

So, obviously, we are in a much better position in 2008 than we were even in 2007.

So obviously we -- ASML is privileged in this current set of transitions.

Yes, you could be bullish and, in fact, we hint of this as a possibility that the capacity orders will come back in the Logic arena.

We didn't call it.

We said that they have to come, theoretically, at some point.

And Foundry and the rest of the Logic, including the microprocessor business, may come up during the period of time I talked about and, yes, that will create much more KrF business and the dry ArF, and this would be outside, in particular if you were talking about this to happen in the next nine months.

But we did not even call that.

Okay, thank you.

The next question is Satya Kumar.

Please state your company name followed by your question.

(Inaudible), Mr.

Kumar.

Hello.

You may state your question.

The next call, please.

The next question is from Jonathan Crossfield.

Please state your company name followed by your question.

Yes, hi, it's Merrill Lynch.

Eric, you mentioned that the NAND players all want to order the new equipment on the same day and receive it on the same day.

Do you think the same is still true with the DRAM companies, or are you seeing a polarization between the first tier vendors and the second tier vendors at the moment?

That is correct.

In fact, I hinted at the fact that DRAM is more complicated and, therefore, there is much more differentiation in the DRAM business as to how fast each of them can really ramp the difficult new technologies.

So, yes, you would be able to probably position all the players on a timescale of, say, one year to even 18 months time difference when they succeed to introduce the technology at the appropriate [year].

Okay.

And then just as a follow up; inventory has increased to about the 168 days.

Is that a level that you expect to maintain, or could we see it increase further, or would you like to bring that down as you ship the Immersion tools that you've just had ordered.

Yes, when you talk about the inventory levels at ASML which are driven by the success of our Immersion product, the 1900i when we first introduced that has cycle times which are, of course, longer than the average cycle times of our mature products.

And given the increase, 61% of the value in the backlog is the Immersion, which are still under longer cycle times than the average, means that they do have an impact on inventory.

But, like Eric said in his introduction, we are currently executing programs that are focused on reducing cycle times from between 15% and 30%.

That will also apply to the Immersion products.

So in six to nine months from now the Immersion products are scheduled to be at the average of what we see for our current mature products and that will bring the investment in inventory down.

So it's really a function of the fact that we are heavily loaded towards our leading edge products with a long cycle time.

Okay.

Does that answer your question, sir?

Yes, that's very helpful, thanks.

The next question is from Francois Meunier.

Please state your company name followed by your question.

Hello, it's Francois at Cazenove.

Just wanted to know what your [base] case assumptions for inventory situation at the end of Q4 which is now driving your guidance for this quarter?

We know the inventory levels today and at this moment the statistics that we reviewed, which are industry statistics, says that we are in fact a bit lower-ish as last year in the same situation, but basically call it normal.

But nobody knows how Q4 looks like in terms of end product sales and this is the big question about the season, and everybody has its own bet.

I just mentioned that the Foundry sector is conservative and is not calling anything until they see exactly what's happening.

And you are starting to see Intel, who are starting to call that they are doing a bit better than they expected and, therefore, they probably would see their inventory going down a bit faster than expected.

But we are not calling these things; we are just reading the analysts' estimates.

And based on that, we make the case which then becomes our guidance which is what we tell you.

So, we are basing everything on the Gartner Dataquest etc., analysts' core consensus but not at all our own statistics.

We do not have the capability to do so.

Which, by the way, is corroborated by the fact that we talk to our customers.

Our customers place orders and we clearly have pipeline of orders that we think we can book over the -- in the foreseeable future and those things we need to match.

And in our view that they do so that's why we are confident about the first three quarters of 2008.

Okay.

In terms of gross margins it's been a few quarters that you are above your guidance.

Is it because you're a bit cautious, or is it because you're doing extremely well in terms of execution?

We have a great CFO; you know it's one of those things.

Well, both, I think we are doing good in execution but we don't want to preempt that also so we are a bit cautious, yes.

Okay.

Thank you.

Your next question is from Sandeep Deshpande.

Please state your company name followed by your question.

Hello, JPMorgan.

Congratulations.

Just a couple of questions, firstly, on this Immersion order intake.

If you look at the Immersion order intake in the first three quarters of this year, it's already higher than it was last year.

Do you have any idea from your customer base how the timing of the Immersion orders into 2008 is going to be?

And based on that, do you think your Immersion orders in '08 are going to higher than they are in '07?

The second question is easy.

Yes, it will be higher in 2008 than 2007.

The first question, the timing, is we don't know.

The only thing we can say is that when we look back three months ago or a quarter ago and say when we look at when customers are now asking for Immersion orders to be shipped, if anything it's sooner and more; that's what we're seeing.

Okay.

And regarding the Immersion orders you took in in the third quarter, does this already include DRAM-related Immersion orders?

And based on that, when do you think the early movers in DRAM will start moving to the 5X node?

Yes, there is a significant part of our Q3 orders which are for DRAM.

To be honest, I would not say if it's 5X or whatever node.

I don't want to tell you because then you would know which customer it is.

So -- and the -- I would say the two customers who we have received orders, yes, are planning to run production of new generation nodes, I would say, in the Q1-ish timeframe.

Sorry, I didn't hear that.

Q1.

Q1, okay.

Thank you.

Your next question is from Mr.

Robert Maire.

Please state your company name followed by your question.

Yes, the company is Needham & Company.

Congratulations on the nice report, by the way.

Two questions.

Number one; we've had a significant move of the dollar versus the euro, if you could just update us as to its impact on ASML and pricing and that and such.

And given that we're coming off of the bottom here in terms of business and we're looking at an up-tick going forward.

Historically, one of your limiting factors has been lenses and I would assume that you may have, perhaps, a few more lenses in inventory or maybe the ability to ramp a little bit faster coming off of the bottom here.

Is there a possibility that you would be willing to increase shipments at a faster rate, or is it your view that you would prefer to keep it at a moderated rate and maintain backlog at a more steady state basis?

[To] answer the last question, I think we'll ship when a customer needs it.

And so, it is not for us to manage the backlog just when a customer needs, we will ship the tools.

Now, you are right that you want to be able to move when an unexpected customer demand comes up.

So, yes, we are keeping a certain -- a number of lenses in, what we call, buffer, but also buffers which are not in our balance sheet, which are at the supplier's balance sheet.

And that's where we have a good agreement on what we think is reasonable under the circumstances.

So yes, we have that ability for [terms] business.

On the dollar/euro impact, it has two elements to it.

I think from a competitive point of view, we're more concerned about euro/yen clearly, because our two competitors are not in dollar denominated areas.

For our prices, clearly, the industry is calculating in U.S.

dollars so that has an impact.

If there are two prices in dollars, they go up, so it's more the relative movement of the euro against the yen.

That is, from a competitive point of view, something that we look at.

From an operational point of view, we do source in U.S.

dollars.

We source lasers in U.S.

dollars, we source on mechanical modules from U.S.

to our Wilton operation and it actually has a positive effect on the cost of goods.

Okay, so overall, the impact would be positive?

Yes.

Okay, thank you.

Congrats again.

Thank you.

Your next question is from Harlan Sur.

Please state your company name followed by your question.

Hello, Morgan Stanley and congratulations on a well executed quarter.

On the product side and in keeping with your competitive leadership on the technology front, maybe can you just provide us with an update on the development status on your high throughput, high accuracy over the Immersion system for double patterning?

Yes, but I'm going to [re-make] a bit an [editorial] comment.

I don't know if it is helpful for everybody.

In the roadmap of semiconductor [to make more slow], it is now obvious that there will be multiple ways of doing it.

You can do a double patterning, which is a way of passing twice a piece of lithography to get to the next node.

You can do, what we call, 3D geometric design where you succeed to pack, basically, the bits on top of the other and, therefore, you don't need to shrink it as bad, or you can do EUV.

The position that we now are thinking is highly clear in the industry is the three technologies will be needed.

There is no issues about that.

It all depends about who comes -- who needs it when.

And as we've said, in fact, for the DRAM people, for instance, there is a difference of 12 months to 18 months between the leader and the follower.

There is going to be multiple opportunities to use any of those technologies.

So it was important, or it is important for ASML to use its muscle in R&D, basically, to put differentiated machine, superior machine on the three segments.

And therefore, we've put a significant effort in building-up machines for EUV, as you know.

We are putting machines also in action for the double patterning.

And in order to do double patterning you need to have extreme precision of, what we call, overlay.

From today an overlay of 6nm to 7nm to an overlay of, say, 3 -- 2 or 3.

And then, because you are going to pass twice in order to make this technology economical, it will be a good thing if you succeed to pass a lot of wafers per hour so that you reduce the cost of the system so, therefore, we need to go north of 165 wafers per hour.

So, yes, we are in progress of building up these machines and at this moment we have also added the possibility to upgrade some of the machines that we had in the field to double patterning and high speed.

So that is new news which is due to the fact that we've put a bit of R&D on the subject and this is extremely powerful, as you can see, selling a possibility to sell it to the customer.

You buy a machine capable of one technology but, within two years or so, we will be able to upgrade it to the next one.

This is highly powerful.

So, yes, we are doing this for the current machinery, upgrade fast, and we are also developing, I would say, revolutionary concepts which will replace [the] type of machine, in due time, with another leap of technology.

Great, thank you for that answer.

And then as a follow up, on the Immersion orders in Q3, can you just let us know roughly what percent of the Immersion order mix was DRAM?

Do we have that easy?

About 50/50.

I might say a bit less because -- I would say 40%/60%, because we have, what we call still, the hybrid guys.

It's a bit difficult for us to know what they are going to use DRAM for.

So it's 60 NAND if you would say, and 40% DRAM.

Okay.

But, nevertheless, it was fairly significant which is a good start, I guess, for the DRAM suppliers.

Correct.

Thank you very much.

Next question is from Timothy Arcuri.

Please state your company name followed by your question.

Citi.

Hello, a couple of things.

First, do you guys have any estimate as to what Lithography is in '07 as a percentage of overall CapEx?

And also moving into '08 it looks like Litho's getting a much, much bigger share of the overall CapEx budget, so I'm wondering whether you had any estimates there?

No, again, we're not expert in understanding the rest of the business.

We know that we have, on one hand, growth opportunities because, as you heard from the market, if they go towards double patterning there is significant opportunities for LAN research, for applied etc.

for KLA.

So there is a growth opportunity.

I do not know if their growth opportunity is as big as ours; ours is fundamental as you know in the sense that if you do double patterning you multiply Lithography by two.

So, these are big things but I can't really comment on the other guys.

Okay.

I guess --

[On] average, Tim, it's around 20% of CapEx spend, but it could be 21%, it could be 19% and that is probably for you too big of a difference, so, of the equipment, not of the total CapEx, of the equipment CapEx.

And also CapEx for us, the CapEx numbers that customers give out for us we take it as a data point, but we don't really focus on it.

We focus on what our customers tell us that they need for their shrink roadmaps.

And we also know that, and history has actually shown that very, very clearly, that CapEx number is almost as fluid as the water we use in our tools.

It goes up when customers need it and it goes down when they really don't need it.

But what they do need, and that's what we know, is the shrink capability and that is very clear.

The roadmaps for that are very clear for our NAND customers, DRAM customers and also for the Logic customers following late next year.

And that will happen.

Indeed, indeed.

I guess my point is that you could grow 15% next year but that doesn't necessarily mean that CapEx will be up.

You could grow 15% even if CapEx is down 10%, because a disproportionate piece of the CapEx is actually going now toward Litho.

So that was my point.

I guess the follow up would be how much of your orders -- or do you have any sense of how much of your orders for NAND are going to replace old capacity?

That's a very good question and it is not a NAND question, I guess; it's a DRAM 200nm question.

I think we passed it on the silence and there is also another engine of growth in 2008, is the DRAM people cannot continue doing business on 200nm at these price points.

So now what will they do?

Do they stop the factories?

Is the price going to go up or are they going to buy ASML tools?

So there is a transition in DRAM from 200 to 300 which is economically required.

In the Flash environment, no, I think there is going to be zero capacity replacement.

No, they will be used on multiple layers or layers which were critical become less critical.

Next question.

Next question is from Peter Testa.

Please state your company name followed by your question.

Yes, it's Peter Testa from One Investments.

Sorry, there's some construction just as you put me on, so excuse me for that noise.

I had two questions, please.

First one was if you look at the orders for execution over the next few quarters and if they compare them as a percentage of sales, or an absolute there seems to be somewhat less on the growth for the next few quarters than you have had, say, for Q3/Q4 when you spoke last time.

And also you make a comment on 2008 that the first three quarters that you expect an increase.

Peter, does that imply that you would expect an up and down phasing, or whether you're not entirely sure when the capacity expansion orders will come, which is somewhat [often seen] as the order intake at the moment?

You can look at the data we put also on the presentation on the website, you can see that 69% of our order backlog is now currently for shipment the next six months, which is low as compared to what we have seen over the last two years.

But it has also been driven by the fact that the content of our leading edge Immersion tools is very high.

And when you're customer and you want to know that you want to have those Immersion tools, which are absolutely vital for your next -- for your product roadmap, you want to secure those.

So that actually means that, and I think one of the questions -- I think Jay Deahna asked that question.

We would expect that some of the units that are KrF and they are mid-critical layers that today would be ordered going forward this quarter or the quarter to come.

So, yes, this is particular to the situation that customers want to secure the supply of their leading edge tools and it is my expectation that when unit orders go up, as we have guided for this quarter, that you will see -- that you could see -- that you probably will see a different mix in the order intake because sustaining an over EUR22m ASP in order intake, that is not very likely.

Okay.

And then the other follow-up was just on the [KrF1000] machine being launch, if you could give some comments on your perception of the market opportunities for that tool, please.

Yes, it is a tool, in fact, that allows people to go and do in KrF some layers which used to be done in ArF.

So you can say it's a bit of a cannibalization of the ArF business, or you can say it is a way for ASML to take much more market share on KrF business which belong to others.

And we think that we have a chance on the other one.

Right, okay.

Thank you.

Next question is from Robert Sanders.

Please state your company name followed by your question.

Yes, hello, it's Dresdner Kleinwort.

Just a follow-up quick question on EUV, actually.

I see that you've recently dropped Phillips and moved to Cymer as a light [source] supplier.

Just really a longer-term question; how do you see your technology lead in months maybe today against Nikon and Canon, just from chatting to your customers?

So in terms of source, no, we always welcome multi-sources and at this moment I understand there are three or four players and they have different sense of urgency and target and spec and timeframe, etc.

So my understanding is it is still of Philips' interest to get into the business.

But it is true that Cymer is coming up with a new technology called Laser Induced Plasma, which shows a higher potential power, faster.

But, again, at this moment it is a good thing that multiple players are trying different technology to achieve cost and performance.

Regarding our own performance, well, it is not bad to have two tools at different places on which people work on.

You may know that those two tools are extremely difficult to make work and there is a lot of problems with them, but this is exactly why they are called alpha tools.

And there is a lot of learning and, remember, in this business this is a business of learning, so the more learning you have and experience you build you create, in fact, an advance on your own platform and architecture.

So whenever customers are going to invest in like years, one or two year or three years finally onto an ASML platform, it will be extremely difficult for them then to transfer this [origin] onto something else.

And now, obviously, something else looks like another ASML platform because we, I think, are the only one who first have committed, end of '09, for the shipment of the pre-production tools.

And we have already four orders and at this moment I don't think we will be finished with the numbers of orders that we will announce.

So, that's not a bad leadership position to be in.

And we do expect our competition to come at some point but, as I say, it is difficult to come late in the game of experienced building.

Okay, just a follow up, just on the lengthening of backlog you had at the end of September.

What led your customers to place so many orders for delivery in Q2 and Q3 next year?

Is it really just a question of securing capacity?

If is it, is there a limit that you might be getting close to exceeding in terms of your capacity that you can support next year?

Is 70 the number you can support theoretically in 2008?

No.

When we say the timing of orders, timing of orders is difficult to science.

We said there are multiple reasons to have orders early, or late, or whatever.

And the reason why we had a bit of an early start on things is because the decisions made by the customers are strategic.

When you do a technology transition you do a technology transition; you don't do a short-term technology transition.

You don't think of this like tomorrow.

When you are a foundry and you wait for Christmas season, you are going to wait for the Christmas season and then you want the order because you are going to have orders for your chip.

But when you are a guy who's says I am going to go and do a 54 -- 5or 45nm and I have decided that's my only way to gain, or to get profitability into DRAM, you're doing it and in this moment you put the order.

So when we just discovered ourselves too, of course, we expected something to happen, but not as big.

Is a way that the world has decided that the only way to make money on DRAM and Flash is to accelerate the moves.

And guess what?

This is helping ASML.

It helps Litho, and it is solid because it is not a cycle question; it is a question of building up the infrastructure that is necessary.

And that's also not an overspend in a sense of building too much capacity because, again, it's a transition based thing; it is not a capacity thing.

So it's a sound decision and, therefore, there could be longer -- I mean be done with such an [impact].

Sorry, could you just update us then on capacity for next year in terms of the amount of tools -- Immersion tools you could potentially ship?

Yes.

We have a new factory who will be online on Q2 with delivery in Q3 and this factory is giving us plenty of opportunity for growth.

Thanks a lot.

Ladies and gentlemen, we're going to take one more call.

If you didn't get through and you'd like to ask, call the Investor Relations Department in The Netherlands we'll be glad to receive your call and the number can be found on our website or on top of the Press Release.

So, operator, if we could have one more call please, one more question.

Yes.

The last question is from Mr.

Peter Knox.

Please state your company name followed by your question.

Yes, Peter Knox from Pali International.

Just in terms of the Q4 delivery schedule, I saw on Bloomberg it was noted that you were expecting to ship more than 10, or more than 9 1900's in the Q4 period.

Does that mean to say you're looking at a potential adverse movement in the sales figs, if you exclude the 1900i in Q4 over Q3?

If you would want a clear answer on that question, you would have to exclude all technology shipments from all previous quarters also.

Because clearly, the 1900i is the leading edge product today, but a few quarters ago it was the 1700i, and six quarters ago it was the 1400i.

That is a part of our business so you cannot exclude, let's say, a certain number of shipments and then say the remainder is high or the remainder is indeed low.

It is part of where we are and where we are in the cycle is that our customers are in need of the shrink, the shrink from 55 to 45 in NAND and from 70 to 55 in DRAM; that's where the industry is.

So, it is very difficult to answer that question because you don't want to eliminate the technology, the leading edge technology tools from our shipment base because that's what we're all about; we are the technology leader.

Okay, thank you.

Okay, thank you.

Operator, if you'd close the call for us, we'd appreciate it.

Yes, of course.

Ladies and gentlemen, this concludes the ASML 2007 third quarter results conference call.

Thank you for participating and you may disconnect your line now.