艾司摩爾 (ASML) 2009 Q1 法說會逐字稿

Good afternoon and good morning, ladies and gentlemen.

This is Craig DeYoung, Vice President, Investor Relations and Corporate Communications at ASML.

I'd like to welcome you to our investor call and webcast.

As the operator mentioned, the subject of today's call is ASML's 2009 first quarter results.

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

At this time, I'd like to draw your attention to our Safe Harbor statement contained in today's press release and fourth quarter results presentation, both of which you can find on our webcast at www.asml.com.

This statement will cover today's call, as well as today's ASML publications.

The length of the call will be 60 minutes.

And now, I'd like to turn the call over to Mr.

Meurice for a brief introduction.

Thank you, Craig.

Good afternoon and good morning.

Thank you all for attending our Q1 2009 results conference call.

Peter and I as usual would like to provide you and review some commentary on the quarter before we open up for questions.

Peter will start with a review of our performance in Q1 with added comments as to the short-term outlook.

And I will conclude -- complete the introduction with some further details on our near-term strategy.

So, following this introduction we will then open the call to questions.

So Peter, please.

Thank you, Eric.

And welcome to everyone.

First of all, I would like to review some of the events of the last quarter, as well as some details on our first quarter results.

The collapse of the semiconductor equipment demand continued in the first quarter due to the reduced end demand for semiconductor devices and the associated industry response of utilization reductions, capacity adjustments and inventory corrections.

In spite of these exceptional economic circumstances, we were able to maintain our business focus in generating cash, while continuing our high-level of R&D commitment by creating and delivering all intended new products.

Our first quarter sales of EUR184 million were within our guided range.

We shipped a total of 11 systems, 7 of which were new and 4 used.

Amongst the new systems there was only one immersion tool causing a moderate new system ASP of EUR13.8 million, with the ASP of all systems being EUR9.2 million.

Limited purchases of performance upgrade options for systems installed in the field and reduced tool utilization impacted our service revenues this quarter as our total net service and field options revenues came in at around EUR83 million.

Unit orders in Q1 remained low at 8 systems, but provided the book-to-bill in value terms of about 2, with a net bookings total of EUR207 million.

The net average sales price of orders booked was EUR25.8 million, including 7 immersion systems.

This leaves our order backlog as of March 31st at EUR853 million, with a total of 38 systems, 25 of which are immersion.

The Company's first quarter gross margin was close to 7%, which was the direct result of the extremely low level of sales.

We maintained our focus on R&D with a spend of EUR118 million, which is a 7% efficiency reduction from the fourth quarter of 2008, with SG&A expenses coming in at EUR41 million.

That's a 12% reduction from the fourth quarter last year, and a 30% reduction as compared to the run rate in the middle of last year.

Net cash from operations was EUR82 million.

Cash flows were positively impacted by management of our working capital and the cost structure, which was offset somewhat by a lengthening in receivable collection periods and continued capital expenditure for the completion of the new manufacturing facility.

This facility is needed for future generations of lithography, most notably EUV.

We ended the quarter with EUR1.15 billion in cash, an increase as expected over the fourth quarter of last year.

To support the financing of our activities in EUV development and the production ramp, ASML has signed a EUR200 million loan facility with the European Investment Bank.

This floating rate facility can be drawn on in tranches within the next 18 months and is repayable in annual installments after 4 years with the final payment 7 years after drawdown.

As far as for our outlook, although we do not expect to see a full-blown recovery at this time, we are beginning to see the first sign of the return of lithography technology buys.

It is most evident in the area of 45 nanometer technology transitions of our Foundry customers, and the 5X nanometer transition of our DRAM customers.

The fact that some of our customers have been able to access the capital markets may also prove to be helpful.

This cautious returned to some level of technology buys enables the shrink roadmaps as defined by our different customer segments.

The litho spend to support these roadmaps is modeled at the quarterly revenue level of between EUR4 million and EUR5 million, which could potentially be reached somewhere in the second half of this year.

In this respect, our Q2 immersion bookings and the current order [quote] activity gives us some level of comfort.

We expect Q2 2009 net sales to fall in a range of EUR210 million to EUR230 million, with gross margins expected at around 9%; again, reflecting a very low level of sales level.

R&D and SG&A expenses are again expected to be at the EUR118 million and EUR41 million, respectively.

We expect cash from operations and investments to be neutral over the first half of 2009.

And as a closing remark, we would like to inform you that our proposal presented at our 2009 general meeting of shareholders to declare a dividend of EUR0.20 per share, which is approximately EUR86 million.

More than (inaudible) of that that has meanwhile been paid.

And now, I'd like to turn it back over to Eric for more on our strategy for the coming quarters.

Thank you, Peter.

So, indeed, Q1 provided an extremely challenging environment for all semiconductor capital equipment companies, not only ASML.

Our customers have froze new equipment purchases.

They basically literally awaited for market directions as to their own end demand, let their inventory of semiconductors correct to current demand level, optimized their installed base usage, either idling or transferring some of the capacity to a more aggressive set of processing layers, of nodes which, although not very, very efficient was possible in view of the low overall capacity utilization rates.

We have now started, however, to see some signs where overall need for capacity is catching up with the installed base.

There is indeed some [spurt] semiconductor demand you may have heard from China at this point.

There is some inventory catch-up leading to increased utilization.

But most importantly, we see the technology transition activity, not yet orders but activity, is picking up.

Certainly, the fact that the end customer semiconductor demand is starting to stabilize with an ever-growing mix towards new products -- that means transition to new nodes -- is forcing installed base upgrades.

As of last year only the leaders had invested a bit of capacity in 45 nanometer Flash, 55 nanometer DRAM, or 45 nanometer Foundry logic.

The rest of the market is now organizing their conversions during this year, 2009.

And during this year the leaders themselves who had already started these conversions are now involved in even more aggressive conversion, namely a 35 nanometer Flash and 45 nanometer DRAM development.

And these things will materialize also this year.

The founding of TMC in Taiwan, although certainly not resolving the DRAM industry consolidation that some had expected, is in any event clarifying the playing field and is triggering technology investment planning by the different players who have been holding their investment, waiting to see what TMC's influence would be.

We have modeled the market needs for the lithography technology transition, as you know, is our old traditional model.

And as Peter confirmed again today, we believe that ASML revenues of between EUR400 million and EUR500 million per quarter would support these technology transitions that we expect this year.

We believe that we will see this level of lithography equipment revenue reached within the second half of 2009.

In other terms, we confirm our views voiced at the beginning of the global economic crisis that, after a number of months of extraordinary low levels of sales, like we are having in Q1, ASML will stabilize on technology by levels until capacity picks up.

So, in other terms, we saw three phases -- a very low sales phase which we are currently suffering through; a stabilization at a higher level when the industry, even through recession, will still need a minimum numbers of technology transitions, which are the numbers we just mentioned, EUR400 million to EUR500 million per quarter.

And then, only after we get out of recession, the capacity buys picking up and adding up to this basis.

We are certainly not seeing the capacity pick up at this time, but we see the broad technology (inaudible).

We're therefore continuing our investments in new products, targeting introduction of our new cost effective platform called the XT-4, and the new double patterning platform called the NXT this year, as well as the delivery of five EUV tools that we have on order for 2010.

We are also introducing a new suite of lithography aware design and manufacturing tools supported by our Brion subsidiary aimed at making full use of the litho hardware architectures that we have provided.

This quarter we have even proved a first in industry.

We've proved an EUV imaging with a first full field system at image size of 28 nanometer dense lines which we presented at the SPIE Advanced Lithograph Conference in February.

In summary, we've been confronted with a demand freeze in the very short term and we now see the first signs of -- and are preparing for a pickup of technology purchases.

This sales level will enable us to continue our down-term management strategy, which we prepare for a broader recovery -- or while we prepare for a broader recovery of the semiconductor industry in general.

During this period we indeed to not burn cash, maintain our technology investment leadership and work on our cost structure efficiency for the future.

So with this, Peter and I will be pleased to take your questions.

Thank you.

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 yourself to one question with one short follow-up if necessary.

This will allow us to get in as many callers as possible in the time allotted.

Now operator, could we have your instructions and then the first question, please.

Of course.

Thank you, sir.

Ladies and gentlemen, at this time we will begin the question and answer session.

If you have a question, please press 1 and 4; 14.

And for US participants, star, 1, on your pushbutton phone.

So, 1 and 4; 14.

For US participants, star, one.

Your questions will be answered in the order that they are received.

If you are using speaker equipment today, please lift the handset before making your selections.

Today's first question is from Mr.

Nicolas Gaudois.

Please state your company name followed by your question.

Yes, hi.

Nicolas Gaudois, UBS.

The first question is for clarification and I've got a follow-up.

Clarification is on the 25 immersion tools in backlog, how much is new and how much is refurbished.

And if you could remember or recall for us what it was for 19 in Q4.

And the follow-up question is when we look at your at least EUR400 million to EUR500 million of revenues quarter run rate at some point (inaudible) orders at hand for immersion plus refurbish business non-immersion plus refurbished revenues basically should secure you about EUR400 million per quarter of revenues in Q3/Q4.

And I guess anything incremental from here into Q3 could be incremental then and effectively give these revenues toward the higher side.

Or reversely, one could say that the low end of at least EUR400 million to EUR500 million assumes that quite conservative and your orders coming through here would be effectively offset by push-outs.

So, if you could comment on that, but first maybe clarify the backlog for immersion.

Thank you.

Very good.

Peter--.

--Yes.

The 25 immersion tools are split between 23 new tools and 2 refurbs.

Great.

And then, I think your question was should we go under EUR400 million or would there be turns in Q2 that we would materialize in Q3.

At this moment, we do not expect at all any push-out.

We understand, of course, every of those key projects for Q3 and Q4, so are pretty solid as to above EUR400 million.

And yes, we are expecting a certain number of turns, but we do not know how many which is why we've guided between EUR400 million and EUR500 million.

Those turns means orders which would be received -- some orders which would be received into Q2 and into Q3 for deliveries in Q3.

And Q4.

And Q4.

Okay.

So, I guess a reasonable vagueness of what you said on revenues, is basically a timing issue more than anything else on these shrinks coming back and will land in Q3 or Q4 or potentially slip in Q1.

Yes.

Again, in the mobilization of life that we have, we see no real possibility for customers to delay those ramps.

You know what I'm talking about when I say leaders are already converted in 55 nanometer DRAM, which means the second players definitely have to be in the business of 55 nanometer this year.

We would not expect a significant slip into Q1 of these things, which is why again--.

But again, we've brushed a guidance between EUR400 million and EUR500 million to have some leeway into what it could be, but we'd be highly surprised if it -- in fact, we do not expect it to be lower than that.

Thank you very much.

The next question is from Simon Schafer.

Please state your company name followed by your question.

Thanks so much.

It's Goldman Sachs.

Just a kind of the same vein of question, really.

In order to get to this EUR450 million or between EUR400 million and EUR500 million in quarterly revenue, are you expecting your Q2 backlog to be up?

Do you need your Q2 backlog to be up sequentially to achieve that?

Yes.

It would be natural, yes.

But we have seen even in the Q2 timeframe we are seeing some customers with requests for turns within three months.

So, you could image a certain number of orders which would be discussed with the customers within Q2 which will not be booking into Q2 because we would we were still negotiating a specification or something.

And we will ship immediately in Q3.

So, you cannot mathematically immediately say that what we will book -- we will book in fact all the orders for Q3 into Q2.

I couldn't expect in the current situation discussions.

But they will be more technical discussion than they are need discussions.

And also -- I'm sorry, but I would like to add to that that, coming out of this period every customer assumes that we're drowning in inventory.

And that also puts a bit of a pressure on us to actually ship quick, which actually drives this turns business, as Eric calls this also.

Now, that's not always the case.

Sometimes the tools that we have in inventory are a different configuration that they want so we need to remodel them.

But that is also one of the reasons why customers have the impression that they don't need to honor our standard lead times.

Understood.

Thanks.

And my follow-up question would be just wondering what the infamous ASML model is saying about supply and demand in DRAM and in NAND for the second half of 2009.

The famous model--.

I may have misspoken there.

I'm sorry.

No, the famous model has an input which is in fact your question, which is what is the rate of growth of DRAM and Flash.

And then, from that rate of growth we input in the model we find out how many machines we need and then we can issue the guidance.

Okay.

If you asked the question differently, if we ship 500 -- say EUR450 million in Q3 and EUR450 million in Q4, how much capacity will we have created in the world of DRAM logic and Flash.

And the answer is basically near zero, near zero gross.

Because these machines will be doing the new critical layers of the new nodes.

So in other terms, the new node will take 10% more layers roughly.

And these machines will suck out of the current installed base machines which will be used for the same node, but they're non-critical layers.

And those machines will be less efficient in their new usage.

So, the total numbers of wafers out will be smaller or in fact say about the same.

So in other terms, EUR450 million twice would not add wafer capacity.

Of course, it will add bit capacity and there is -- and to be honest, I don't know the exact number at this moment.

But we're not concerned about bits ourselves as you know.

We are concerned square meters.

Right.

But maybe I didn't make express my question appropriately.

Just in terms of what is the -- what the installed base is today, do you think the industry is under-supplying compared to what demand may yield in the fourth quarter, which is allowing you to think that capacity orders may indeed return sometime in early 2010, or is that too premature?

Yes.

Not because I know anything about the numbers of units, but because I know the mix towards new nodes that shrinks in fact the capacity available.

So, I know that at this moment, if you project another six months and if you project the transition to tighter nodes there will be not enough capacity in the world.

Thanks so much.

The next question is from Mr.

James Crawshaw.

Please state your company name followed by your question.

Thanks for taking my question.

It's James Crawshaw, S&P Equity Research.

The question was on the impact on gross margins from the shift in mix towards immersion.

I can see that clearly it's a higher ASP product, but interested to know what the sort of variable margin is.

If I look at your guidance for the second quarter for 9% gross margins and look at the revenue that you're guiding to, it's looks like an EUR8 million increase in gross profits on a EUR36 million increase in sales, which is a variable margin of just 22%.

And perhaps you should help explain why we wouldn't see a bigger increase in gross profits given that revenue uptick in the second quarter.

Well, you cannot project with any certainty the gross margin on such a very, very, very, very, very, very exceptionally low level of sales, which we are having in Q1 and Q2.

You can imagine that, if you sell one more used unit or one less, or you have a slight change of mix, and I told you that there was a bit of a discussion at this moment with customers about which specification they really want.

If you take, of course, a machine for which we have inventory versus a machine that we have to rush with new components, all this on a 10 machine business will make your margin go up or down by 5 points or so, without you being able to make the transaction on the trend.

So, I would like to go back to a normalized margin, when we are above EUR500 million, EUR600 million.

And by then, we will get back to a business, as I said all the time, which will be managed beyond 40% gross margin.

But as I say, under this -- at such level of sales, you can't -- you cannot project it.

And on top of that, 45% of that number for Q2 is based on service sales and spare part sales and option sales, which of course is currently in our planning, but that can also change in terms of the mix.

So, the granularity that you want to put into -- let's say trying to explain the gross margin, like I said, at these very low sales level, that is not very useful.

Okay.

Perhaps as a follow-up, then, if we reach your targeted level by the fourth quarter of EUR400 million or EUR450 million sales, what was the gross margin would you expect to be generating on that?

Well, let me -- actually, we had last quarter call, we explained a bit our cost base.

We said we have a cost base of about EUR280 million -- as a matter of fact, it's a bit lower today.

But actually we said then EUR280 million, which was split between EUR120 million of you could say fixed costs, which is people, running cost of the factory, sorry, cost of our service people, EUR120 million which is in cost of goods.

And we have -- that is the remainder, EUR160 million, is R&D and SG&A.

Now, you can see for R&D and SG&A we're a bit lower than that EUR160 million, but--.

So, when we are then at EUR400 million or EUR500 million levels, we are targeting what we call a direct material margin of anywhere -- let's say about 55% to 60%.

Now, if you then take the material margin off that sales number and you subtract the EUR120 million of let's say fixed costs, you can calculate the area of where we will be in our gross margin target.

Which at the end, translates to about breakeven at EUR450 million.

Yes.

At the operating--.

--At the operating level.

That's great.

Okay.

Thanks very much.

Bye.

The next question is from Mr.

Sandeep Deshpande.

Please state your company name followed by your question.

Yes.

JP Morgan.

Eric, with respect to the orders, I mean, would you now say that in terms of the technology buys at least, that the order intake in technology buys has bottomed out and you expect now for the rest of the year the technology buys to be improving?

Yes.

I think it's so bad today that I can answer with a big, wholehearted yes.

We expect to pickup from there.

And in terms of the order intake, do you see any -- I mean, is it across the board within the DRAM and NAND companies, or is it mainly the DRAM companies because they haven't really bought tools as yet?

And within the DRAM companies itself, do you see them across the board making shifts towards the next node, or is it still just touching the feet into the new waters really?

Yes.

I think it's mainly DRAM.

Although it is true that, as you may know, some Korean companies make it a bit difficult for us to know if those machine goes at the last moment to DRAM or Flash.

But from what we know, and in particular because potentially the ones I'm talking about early on are not Korean, I would say the immersion will be driven by DRAM 55 nanometer nodes.

But clearly, the leaders, as I say, who have already invested in 55, are starting to develop the new nodes, which is 45-ish nanometer DRAM and a 35 nanometer Flash, and those ones will probably trigger the second batch of orders.

And then to follow-up, in terms of the second batch of orders, you expect them to come in the next couple of quarters; in this current quarter and the next quarter.

That is exactly where the uncertainty of life is now, where we would not be surprised by about 450/450.

But we could be surprise with 500/400.

We could be surprise with 400/500, of this nature.

And all this depend on these different timings we were just talking about.

Thank you very much.

The next question is from Mr.

Timothy Arcuri.

Please state your company name followed by your question.

Citi.

Hi.

A couple of things.

First of all, if you look at your backlog, and if you look at it relative to your current business level, and certainly your business level is depressed below typical downturns, but you have a much greater backlog relative to your current business level than you have during virtually every other prior cycle.

So, I'm wondering, does that make you worry that customers will pull from backlog, at least kind of out of the gates?

So, when you're kind of getting to that EUR400 million to EUR500 million level in Q3 and Q4, that they are pulling from backlog up front and that your booking don't in fact lead the industry, that they might lag a little bit?

Well, this is a bit what I was telling you about, the difficulty of reading the backlog -- sorry, the booking number.

Not so much because the customer will take from backlog.

At this moment, I would expect the backlog to be remaining fairly consistent around this EUR800-ish million or even growing.

But I expect turns.

So, I expect the opposite -- completely the opposite of what you just said, that is the customers for which we have backlog, we know where they are.

They are spread.

In fact, they are more spread than normal on the next three quarters.

And you're going to have in addition to that a lot of turns.

So, that's how it's going to work, which is not that normal in a recession of that nature when, as Peter said, most of the customers say, "Hey, you guys have inventory and you have capacity.

So, we're going to take the last moment before we shoot you some orders." So, that's probably scenarios of the next six months.

Okay.

So, I guess kind of that comes down a bit to the fairly big slug right now that's in backlog from the Taiwan DRAM companies, because that probably doesn't ship in the back half of the year.

So, if you strip that out, then there have to be some turns on the kind of other stuff to kind of get you to that level.

If you are trying to hint to me that in the backlog we had anything from Taiwan, the answer is you may be wrong.

Okay.

And then I guess my next question is can you update us on breakeven and on any further plans maybe to take it lower?

Peter?

Yes.

We have -- we are targeting a breakeven level at around EUR450 million.

That's for the second half of the year.

We are currently in a process of reviewing all activities in pretty granular detail.

All activities in the Company, the outcome of that process, still needs to be internally discussed.

So, that's something which I'm not going to comment on today.

But that's clearly an activity that is ongoing as we speak.

Okay.

And then just one more.

Can you give just a little bit of clarity in terms of the 4D bookings, what were there?

Were they ArF?

They were dry systems.

Dry systems.

Okay.

Thanks.

The next question is from Mr.

Odon de Laporte.

Please state your company name followed by your question.

Yes.

Good afternoon.

I was wondering when you are going to effect (inaudible), bookings of EUV tools.

Because I understand you plan to ship some in 2010, but that's not yet in the backlog.

That is correct.

I think we are conservative in our bookings.

In a normal situation, the rule is such we would not take bookings longer than the 12-months lead time for security purposes.

So, it is true that we are having to get into the 12-months lead time for EUV.

I will probably have a discussion with Peter here.

It's the first time the question is asked.

I think we're going to take a conservative view as to us being certain of shipping on time, because we still have to prove a certain number of concepts with EUV.

And when we are reasonably certain that those machines are meeting the targets they expect, then we probably will recognize that.

Yes.

And by that time they will be in the 12-month window.

Yes.

But just to make sure those -- we have orders for five systems.

So, those orders are already in.

They're not shown in the backlog because they're outside the 12-month window.

But when we get more absolute certainty about shipment time, then we're likely within that 12-month window and then they will pop up in the -- but we will split them out so you will see it.

Okay.

Thank you.

The next question is from Mr.

Mark Power.

Please state your company name followed by your question.

It's Redburn Partners.

Thanks very much.

Two questions.

The first one was just on the backlog yet again.

I just wondered if you could give any additional granularity on the maturity profile of the immersion backlog in terms of age, and particularly on the delivery dates, if indeed that's know to you, I guess, beyond the next two quarters.

Thanks.

Well, yes.

The reason why I think the backlog is certainly more spread than usual -- if I'm not mistaken, 60% of the backlog to be shipped in six months, which is normally we're better than that usually, but it is a bit more spread -- is because we have a large order of immersion machine, which is spread longer than that for Flash.

The rest is pretty natural.

But there's no question of orders lingering in the backlog and customers refusing to take delivery, and you not knowing when you can be in a position to deliver them?

Let me be -- you always have one or two lingering friends.

But I'm looking at the numbers here.

No -- there is no more lingering than normal in this industry.

Okay.

And just a follow-up on NXT.

And could you give us an idea, qualitatively if need be, on your expectations for the ramp-up of demand for NXT and how significant it could be in 2010, please?

Yes.

So, NXT (inaudible) about three months before shipment.

We should ship early into July.

We are starting to have the normal white hair, where we discover the latest and greatest little issues and the nagging problems.

So, therefore, the first shipments we will do in Q3.

It will be within Q3.

And I think it will be not a high volume.

The NXT will prove its overlay, which is supposedly 2 nanometer, which by the way we have already proven, so we are pretty comfortable with that.

And this 2 nanometer will make it the only tool in the world capable of this by a factor probably two to three multiplier.

That should get it a 100% market share in all serious double patterning businesses.

So, that would be 22 nano Logic, 35 Flash, 40 nanometer DRAM.

So therefore, then the volume ramp will depend on when those three nodes are really ramping, and that at this moment we don't really know.

Fair enough.

But it will be in 2010.

Oh, yes.

Yes.

Okay.

Thanks, Eric.

Thanks, Peter.

The next question is from [Neil Sessort].

Please state your company name followed by your question.

Good afternoon.

Neil Sessort for (inaudible).

My question would just be one slide of clarification.

The EUR400 million to EUR500 million revenues you're hinting at for the second half of this year on a quarterly basis, they do include your expected shipments of the NXT-1900i -- 1950i?

Yes, it does.

It does.

Okay.

Thank you.

The next question is from Mr.

Didier Scemama.

Please state your company name followed by your question.

Yes.

It's Didier from RBS.

Thanks for taking my questions.

I'd just like to have a clarification.

On the cash flow I can see you've taken a charge for inventory (inaudible), I believe of about EUR23 million or EUR24 million.

Did you book that in the cost of sales?

And therefore, did that sort of depress your gross margins?

And will that basically flatter perhaps your gross margins at least to a certain degree when this equipment is shipped in maybe second half or maybe '10?

That is my first question.

Yes.

That was a self-explanatory question in a sense.

Yes, it is -- your assumption is indeed correct.

What kind of equipment is that?

That's basically the equipment that we're not selling much at these moment in time.

So, it's largely on dry equipment.

So that's Krf, dry ArF and that type of equipment.

Can you say how many units?

No, it's just -- it's been patch modules.

So, those are not tools, but there are parts of the tools, modules that we use to assemble the tools.

Great.

And a follow-up maybe.

I mean that's the hundred million dollar question that everybody is looking for an answer.

So, I'd like to have of your opinion.

You've lowered your cost base, you've done some restructuring, but the chip equipment industry peak-to-peak was flat 2000 to 2007.

And if you address for currencies, (inaudible) was no different.

Obviously, you made some market share gain from your position.

So, my question would be, everything else being equal, do you think that your next peak EPS will be higher or lower or the same as 2007?

It's a billion dollar question.

But the answer is--.

--Actually is a billion dollar question.

You have easy questions.

The answer is yes, we expect the EPS to be higher, because we expect this crisis to lead us to be more effective on the cost structure.

I would prefer not to answer any quantitative question at this moment.

And we expect the euro to remain at this current level.

If you remember our history for five years, the euro has appreciated versus the yen by 60% or something and we had to eat this 60% in efficiency.

So, on a stable euro we would expect that we would gain.

So, first of all, our cost structure will be better.

Secondly, the euro should be stabilish.

And third, we are having new products, in particular the products coming from Brion, which allow us to think that we sell more value per tool.

So, these two -- these three things should converge in bringing us a better EPS.

And on top of that, I would add that when do our infamous or famous modeling on the technology node transition on the increased number of layers, and on the need for let's say NXT double patterning technology and from 2012 onwards EUV, we are still highly confident that we can reach our EUR5 billion sales mark, which of course is higher than our previous peak.

So, that adds to that significantly, also.

And EUR5 billion, how much market share is that and what's the size, the time that your looking then?

Its 70% market share.

We don't think that we would go further than that.

I think a stability of 70/30-ish.

So we don't -- we're not more hungry than that at this moment, and therefore the market would be about EUR7 billion or a bit more.

Okay, great.

Thanks very much.

The next question is from Mr.

Satya Kumar.

Please state your company name followed by your question.

Yes.

Credit Suisse.

More of a longer term question.

I was wondering if you could give an update on what do you think is the impact for lithography from self-aligned double patterning?

Does this have any impact on how to think about the lithography opportunity as we shrink the 32 nanometer for NAND and 55 for DRAM?

Okay.

Yes.

As you have heard, a lot of activities by our customers who try to find ways around putting more bits onto a piece of silicon without using the most expensive lithography tool.

So, some of them have used the self-aligning, double patterning, which we also call a spacer, which is a way to do simple structures, one-dimensional structures, by using lower cost lithography, but more of them.

So, when you are having a lot of installed base and you do not have utilization, this is the best thing you can do on earth.

Because you use more of the old stuff which is fully amortized so it's zero cost, and you self-align so you shrink, so everybody is happy.

So, we see some of that.

And some of our customers are using these techniques to improve use, in fact to solve the problem of utilization, which is why also potentially we've seen here some customers able to delay.

However, self-alignment has two problems.

One, it is still having a lot of processing steps, so it is costly.

And secondly, it is using a lot of capacity.

So, when the business comes back or when you want to shrink further, you can even do self-alignment with the newest lithography tool, and then you're even better.

So, we -- in other terms, we see a bit of a negative impact, if you will, when there is no utilization.

When there is utilization, then self-aligning double patterning or normal double patterning or single patterning, etc., is about the same business for us.

Okay.

Just as a follow-up to that, most of the time DRAM and NAND factories run at 100% utilization rates.

Yes.

So, is this comment more applicable for Logic?

I mean, from what I hear, this technology is more applicable for NAND Flash.

What are the NAND companies having 100% utilization and leverage?

For the first time in history, in the December timeframe and a bit in Q1, NAND and DRAM did not run at 100% capacity.

The first time in history.

So, it's -- and therefore, you have heard the noise about customers saying "Well, let's use this opportunity to do a bit of shrink using the available capacity." But at the moment demand comes back, they get in trouble because they loose market share.

So, you may have heard one or two of those players starting to complain that, during the slight pickup, they are loosing market share.

Of course it's good in the sense that the price goes up, but there are at this moment some "activity" to rebuilding it.

And the reason why of course they actually idled, tools didn't run the fabs at 100% utilization, because the sales price for their devices was lower than the cash cost.

So then, lastly, do you guys see any activity on lithography repurchases in the used market, given that there's at least two or three DRAM factories that are going to come offline from the market?

Yes.

So, on 200 millimeter this has already started.

But the wave of variable machinery is so large, the supply is much, much higher than the demand.

So, we believe that this would be a good market for us to participate in, too, because we are a refurbishing company.

As you know, we refurbish about 5 to 10 machines per quarter.

So, the market at this moment is more like in the 5-ish range.

There is going to be a lot of used machines available.

And when they find homes, we will be there to refurbish them.

But again, at this moment the demand is weak.

On the 300 millimeter, you are probably referring only to one company at this moment who is under protection.

And they have, I think, two 300 millimeter fab.

And I guess that they will try our sell their equipment.

We also have a (inaudible) in Taiwan selling equipment.

Yes, but pretty old thing if I--.

--Yes.

It's not 300 millimeters.

Yes.

I think the major 300 millimeter facilities that are up for sale is from a company that's currently in receivership.

Got it.

Alright.

Thanks very much.

Very helpful.

The next question is from Mr.

Mehdi Hosseini.

Please state your company name followed by your question.

Yes.

Thank you.

Mehdi Hosseini, FBR Capital Markets.

In your booking for Q1, it seems to me that the ASPs went up significantly.

And I'm just wondering, did you have any EUV tools that were booked in Q1?

No.

Those were immersion tools.

Immersion tools.

Yes.

So, units are pretty much similar to Q4, so it's just higher ASP immersion that drove the 200 and some?

Correct.

Like we said, also during this call and in the press release, we've seen a significant -- yes, if you would look at the total bookings, it's definitely significant.

The demand for immersion tools is driven by the need for the technology transitions that we've talked about.

That is really not nanometer Logic.

That's 55 nanometer DRAM conversions.

Sure.

And even a sub-40 nanometer Flash.

And that needs immersion.

So, that's why the relative part of the immersion bookings in the bookings of Q1 was that high and they simply carry high value of prices.

Sure.

So, as a follow-up to that, in your comment you said that Taiwan wasn't presence.

So, it seems to me that maybe it's all driven by the one X company in Korea and maybe one company in Japan.

So, is it fair to assume that that number of immersion tools booked in Q1 was just primarily from two companies?

No.

The companies that you suggest were not in there.

Okay.

It's really one [see] to this.

You can't really write any significant trend with what we've seen.

Sure.

Sure.

So, it's one at a time.

Most of the companies are having significant activities, not bookings.

When any of the big names that you mentioned comes they will be coming with a bit bigger numbers.

Yes.

Okay.

And then, when would we expect to see the bookings for these 10 EUV tools that I think you said it will be revenue in 2010?

Five--.

--Five--.

--Five EUV tools.

Alright.

I'm sorry.

And as I said, we are going to take a conservative approach when we are sure that they need spec.

So, it can be in Q4 or it can be in Q1, even if we have to ship in Q2, Q3.

I want to take my time with--.

Anyway, we will be fully visible.

The tool price is not the final price.

These are five preproduction tools.

They don't have the market price yet, but you will see what we've agreed as a prototype price, etc., etc.

So, all this we'll be publicized in due time.

Yes.

And then we have to also, for revenue recognition purposes, we have to take account for the [SEB-101], which means you could argue this is new technology that needs to be proven first at the customer site.

So, that means that there's a later moment of revenue recognition with new technology.

That's something we will still need to look at.

And also, based on the maturity level of the tools whilst they ship.

So, it could be like, as I said, we could be shipping the tools in 2010 and recognize revenue only in the first quarter of 2011.

Okay.

And just one quick follow-up, actually more to do with the cash flow in Q2.

Would you expect to be cash neutral in Q2 or burning cash?

We would say we will be -- our expectation is to be cash neutral for the first half.

So, it could be that we are -- that we could be burning slightly in Q2.

But clearly, our focus would be on not burning cash.

Okay.

Gotcha.

Thank you.

And remember that when we burn cash, sometimes it's for the good reason, because we have six to nine month lead times.

So, if we were to burn more cash than necessary, you may get happy.

Sure.

Sure.

Thank you.

The next question is from Mr.

Weston Twigg.

Please state your company name followed by your question.

Hi.

Wes Twigg, Pacific Crest.

Just wanted to follow up on something I believe I heard earlier.

I think you said in your backlog you have a large order of immersion tools for a Flash customer.

Just wondering what's your level of confidence there, that those go out over the next two months or two quarters?

And which model would it be to meet the resolution requirements down at this 3x nanometer node?

So, we are fairly comfortable with the shipment of the orders we have, obviously.

And then they are staged like clockwork.

At this moment, in view of the DRAM business and the price and the end product which improves, we feel pretty okay that the schedules will be set.

In addition, those products are compatible with a 3x transition that is being planned.

So, the idea at this moment is that this installed base, which I'll remind you has an NA of 1.35.

We never -- we don't even talk about this for a year and a half or something this.

But we are also unique in the industry with a very large lens.

And that large lens makes this installed base compatible to the 3x Flash.

I didn't say the customers we will use this as a base, because they are hesitating between this machine called the XT and the NXT.

But the XT could definitively we be doing some of the layers of 3x, and the whole question will be cost effectiveness.

And in fact, we are in the middle of the discussion.

Okay.

So, it sounds like some of those tools may convert to NXT orders.

Remember, if you were completely focused on one node, it would make sense for you buy NXT for, say, four layers and XT for the other six.

But customers would say that's fine for day one and then, in day two, I prefer 10 NXTs.

But these type of things you -- we don't really control.

Okay.

And then just a quick follow-up.

You mentioned a customer in Singapore.

Just wondering what technology node that's for and if they're ordering any immersion tools yet?

They are doing dry and immersion.

Okay.

Thank you.

Every customer.

The next question is from Mr.

Kai Korschelt.

Please state your company name followed by your question.

Yes.

It's Deutsche Bank.

My first question is on TMC.

I mean, given the kind of course of events of the last few weeks, what is your impression of the timing and potential size of any order mentioned there?

And then my second question, just to follow-up on the cash flow question, obviously you pay your dividend in the second quarter.

And in order to make the first half cash neutral, are you actually expecting to generate positive operating cash flow or is that really just referring to the combined H1 level?

Thank you.

To answer the last question, it's referring to the combined H1 level.

Yes.

So, that includes indeed the -- let's say EUR86 million of dividend payment that we have done recently.

To refer to TMC, as you know the business model I think of TMC is still being discussed by TMC.

And at this moment these alignments at TMC appear in terms of serving certain numbers of technology processes together; Micromania aligning as a competitor to TMC and requesting equal treatment by the Taiwanese government.

So, the issue is not so much what TMC is, the issue is that they have now triggered a clear set of decision that has to taken by Micromania on one hand, and by Elpida on the other.

So, we are now discussing with those two companies (inaudible).

And this is what is being done at this moment, and not at all a direct TMC purchase.

Okay.

Could I ask just one quick follow-up, please, on the cancellations that you've seen both in Q4 and Q1.

Were those mainly non-immersion?

Correct

Okay.

Thank you.

The next question is from Mrs.

Jane Coull.

Pelase state your company name followed by your question.

Hello.

I'm Jane Coull, Martin Currie.

In terms of the TMC, or certainly the Taiwanese DRAM situation, can you maybe quantify the potential orders upside from this source and maybe give us an idea as to the timing that you anticipate in terms of when we'll see fresh orders in the backlog from this source?

I would prefer not.

I think -- how can I answer you constructively?

Because again, remember those two customers are working on competitive ramps and any statement, it would be awkward for me.

But I would guess that an order of a new player into a new fab, putting one line, would go for say at least four tools in the first batch.

So, how can I answer that better?

So, four would be a minimum, then how many batches or how many lines you want.

Okay.

And (inaudible) the average selling price that you've been discussing.

Yes.

Yes.

It would be immersion.

Yes.

It will be an immersion tool.

So, you could multiply all this by between, say, EUR25 million and EUR30 million.

So, quite substantial.

Yes.

Oh, yes.

Well, these are very cheap machines in view of the value that they have.

I (inaudible).

Thank you.

That's very cute.

The next question is from Mr.

Gunnar Plagge.

Please state your company name followed by your question.

Yes, hello.

Nomura.

Good afternoon.

I wanted to ask a question about R&D.

I understand here that you have a flexible business model that -- and through efficiency you can reduce R&D without touching strategic programs.

But -- and the last part of the overall R&D is contributed by the supply chain.

So, do you have a feeling what the aggregated R&D budget looks this year compared to last year?

And could you describe how the supply chain is coping with this difficult situation this year?

Yes.

This is a good question.

So, we were on a run rate last year, I would say, of about EUR125-ish million per quarter.

We're trying to go now EUR115 million, EUR118 million, so it's about a EUR10 million savings.

It is not a full impact on what you call the supply chains, that is the contractors.

In a sense that we do about EUR5 million of the savings just by our own self, using less wafers, being more efficient at the numbers of prototypes that we're building, which costs a lot of money.

The other EUR5-ish million is an impact on our contractors, who are in fact at this moment, to be honest, half of it, EUR2.5 million per quarter, would be contractors which are temporary workers, basically.

So, they're not really contractors in a sense of adding value.

They are contractors in helping us source engineers.

And then the other -- the rest, EUR2.5 million, would be from those very large institutions.

So, in other terms, our EUR10 million saving per quarter has been spread and it should not have any strategic impact on them.

Just to clarify, I mean, when we talk about flexibility in R&D, it is not that we source the R&D from our supplier base that also provides modules for manufacturing.

So, it is R&D flex, but it is from let's say temporary agencies.

Like you have engineers that are in a kind of a super manpower kind of organization that we source.

So, that is not that this is R&D that we pay through the regular supply chain.

There's only one instance where it is really significant and that is with our supplier Carl Zeiss.

They do do R&D, but their R&D is basically in the cost of the lens.

Okay.

And just coming back on services, could you give us a little bit more granularity on whether it's more the upgrade revenues or the time and materials side which is (inaudible) the timing?

Well, the time and material is the biggest part of sales.

It's about 75% of total service revenue.

That's more stable.

The spare parts and the field upgrades, that is much more dependent on where the customer needs are, and also more subject to cost reduction projects that are run by our customers.

Okay.

Thank you.

Ladies and gentlemen, I think we've used up our allotted time.

If you were unable to get through on the call and still have a question, please feel free to contact the Investor Relations Department.

On behalf of Eric and Peter, I'd like to thank you for joining the call and we look forward to talking to you next quarter.

Operator, if you could formally close the call out for us, we would appreciate it.

Of course, sir.

Thank you.

Ladies and gentlemen, this concludes the ASML 2009 first quarter conference call.

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