艾司摩爾 (ASML) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the ASML 2009 third quarter results conference call on October 14, 2009.

Throughout today's introduction, all participants will be in listen-only mode.

After ASML's introduction, there will be an opportunity to ask questions.

(Operator instructions).

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

Craig DeYoung.

Please go ahead, sir.

Thank you, operator, and good afternoon and good morning, ladies and gentlemen.

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

Welcome to our investor call and webcast.

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

Co-hosting today's call from our headquarters here in Veldhoven, the Netherlands are Mr.

Eric Meurice, ASML's CEO; and Mr.

Peter Wennink, ASML's CFO.

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

This Safe Harbor statement will apply to this call and all associated presentation materials.

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 and good morning.

Thank you for attending our Q3 2009 results conference call.

As usual, Peter and I would like to provide an overview and some commentary on the quarter.

Peter will start with a review of our Q3 financial performance with the comments on the short-term outlook, and I will complete the introduction with some further details on our current position as we head towards 2010.

Following the introduction, we will open up the call for questions, as usual.

So Peter, if you will?

Thank you, Eric, and welcome, everyone.

As usual, I would first like to take a moment to review some of the events of the last quarter as well as some details on our third quarter results.

Our third quarter sales were EUR555 million, and that doubled from Q2.

This was in line, by the way, with our adjusted guidance of September 10 of sales above EUR500 million.

We shipped a total of 24 systems, 17 of which were new.

Our new system ASP of EUR23.4 million reflected the substantial blend of immersion and non-immersion tools, 11 and six, respectively.

The ASP of new and used systems combined was EUR19.1 million, which was helped by the high ASP of used systems, which included two used immersion tools.

Our service and field option revenue remained stable at EUR96 million.

The Company's third-quarter gross margin was 34.4% versus 12.5% in the second quarter, and this reflects an improved coverage of our fixed manufacturing costs due to the increase in business volume from the lower second-quarter level.

We maintained our focus on R&D with a spend of EUR115 million in the third quarter, which is slightly lower than Q2, and SG&A came in at EUR38 million, which is slightly below our guidance.

As a result of the aforementioned, operating income improved from a negative 45% in Q2 to a positive 7% in Q3.

In Q3 cash used in operations was EUR65 million.

This was largely due to the increased accounts receivable resulting from the higher sales in the quarter.

With that, we were still able to maintain our gross cash balance above our target of EUR1 billion.

We suggested in last quarter's call that our cash balance might dip slightly below our target due to a working capital requirement for additional product starts.

Although cash flows were impacted by this requirement, stringent cost controls along with products sold from inventory and fast collection of accounts receivable basically allowed us to maintain gross cash above our [targets].

As for our outlook, Q3 net bookings were strong at 35 systems valued at EUR777 million, which is nearly twice the level booked in the second quarter.

Net immersion bookings were 18 systems, 17 new and one used and they demonstrated a continued focus on technology investments, especially in the DRAM and the foundry market segment.

In addition, we saw eight new KrF bookings, indicating a certain need for more mature manufacturing technologies in support of the leading edge ramp up.

Third-quarter bookings pushed our backlog between EUR1.3 billion and EUR1.4 billion, which is the highest level in seven quarters.

The backlog now contains a total of 54 systems, and worth highlighting is the fact that there are 37 immersion systems in our backlog, of which two are used.

And 13 of this total, 13 are for our newest immersion product, the NXT:1950.

We expect the fourth quarter 2009 sales to be around EUR550 million with a gross margin of about 37%.

Expenses are expected to remain at EUR115 million for R&D and EUR37 million for SG&A.

As previously indicated, we managed the Company towards a breakeven level at a sales level of around EUR450 million, which we should be reaching by the end of this year.

We are currently increasing factory production capacity in order to meet the demand, as indicated by our Q3 bookings.

And furthermore, we expect orders in the fourth quarter to be at least at the third-quarter level, supporting a strong sales level for the first half of next year.

And, finally, we expect our cash balance in Q4 to be close to that at the end of Q3, even as we prepare to ramp the NXT shipments in the first half of 2010 and to build EUV systems planned for delivery in the second half of next year.

I would now like to turn it back over to you, Eric, for more view on what will happen in the next coming quarters.

Thank you, Peter.

We are indeed currently recovering to quarterly sales level in Q3 2009 and Q4 2009 which are indicative of standard technology buys.

And we are starting to see bookings which are not so much indicative of a full economic recovery in terms of volume but indicative of what we call a corrective and accelerated set of technology buys.

By corrective, we mean then, first, the foundry segment is now building up the necessary structural capacity for 40-nanometer nodes, driven by end customer new products.

And, two, the second-tier DRAM players are now placing orders for 50-nanometer node products, mainly DDR3.

By accelerated, we mean that the first-tier DRAM are accelerating their transition from basically 50-nanometer to 40-nanometer products.

This pickup of order, due to these two trends, is likely to last at least through Q4 2009, as Peter suggested.

And this will translate into strong Q1 and Q2 2010 revenues.

Our demand simulation model shows, however, that this scanner demand pickup as just described will not add wafer capacity above the fairly low to reasonable IC unit expected growth in 2010, thus creating no surplus of capacity.

We believe that the similar high level of bookings -- a similar high level of bookings leading to sustained revenue in the second half of 2010 could also occur, but if the world economy grows sufficiently.

Current forecasts from industry analysts suggest 2010 semiconductor unit growth level of approximately 8.5%.

Our simulation indicates a unit growth of approximately 9.5% would be necessary to sustain the current strong H1 revenue level well into 2010.

We will have to await further signs, however, of the economy before we are able to guide beyond the first six months of 2010.

Regarding technology, we are aggressively ramping in volume our new, enhanced XT architecture -- we call it internally the XT 4 -- which has better throughput, better overlay and better CD capability as our original machine.

We are qualifying and ramping also in parallel the first next-generation advanced product, called the NXT, with six planned to ship this year, 2009, and preparing also our shipment of EUV preproduction tools for H2 2010.

We confirm leadership with the new architecture, the NXT, which has demonstrated this quarter overlay below 2-nanometer and, thanks to a unique 1.35 NA lens, a new lens, capability for 30-nanometer single exposure critical dimension uniformity across a field of only 0.6-nanometer.

Similarly, the progress of EUV has enabled us to start a discussion on the purchase order for a 6-EUV preproduction tool.

So, in summary, the market is currently driven by product introduction, not by volume, by product introduction, mainly DDR3 DRAMs on 50-nanometer and on 40-nanometer technologies, and also driven by logic products on 40-nanometer technologies.

And the industry is, however, still waiting to see how the economic recovery will fuel further growth, in particular by triggering the NAND segment, which is currently very much underrepresented in order placement activities by our customers.

We believe that this growth through product and technology transition at this moment will favor ASML's best lithography products, extendable over multiple technologies.

Even through this optimism that you probably guessed through this discussion, we will still remain appropriately cautious on our cost structure, continuing, of course, our sustained R&D effort and investment but not building significant additional structural cost at this time.

So with this, Peter and I would like to take your questions.

Ladies and gentlemen, the operator will instruct you momentarily on the protocol for the Q&A session.

But beforehand, I would like to ask kindly that you limit yourself to one question with one short follow-up, if necessary.

This will allow us to get to as many callers as possible.

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

(Operator instructions) Gareth Jenkins.

It's Gareth Jenkins from UBS.

Thanks for taking the question.

I just have a quick question around OpEx into 2010.

I just wondered what level -- you gave some very detailed color last quarter in terms of OpEx expectations, when revenues hit EUR800 million.

As we progress past that point, I just wondered if you could give us a sense of what your OpEx targets for 2010 are.

Yes; we said last quarter that we would go back to about EUR800 million on sales.

Total quarterly costs for the Company would go back to around between EUR290 million and EUR295 million per quarter, of which EUR115 million will be, approximately, R&D; and about EUR40 million will be SG&A.

And the rest will be costs which you will find back in the cost of goods section.

Could I have a follow up on that, just in regards to the -- as you move, I guess, through EUV pre-production and you start generating significant amounts of cash, over and above the EUR1 billion, what the intention is to use that cash for.

Will it be reinvested, or will it be given back to shareholders?

It's probably a bit of both.

We will reinvest where we need to grow the business; that's number one.

And we've always said that it has been the policy of the Company to return cash to shareholders, which is when we exceed our target, in the terms of share buybacks and dividend.

Simon Schafer, Goldman Sachs.

It's Simon Schafer with Goldman.

I had a question about the order environment.

You clearly said foundry and DRAM really driving the momentum here as far as the initial order uptick is concerned, recently.

But clearly, the NAND market is still being very small and almost dormant for now.

But, given how much higher NAND pricing is moving, is there an argument to be made that that can be tight of supply in Q4?

And if that's the case, would you expect orders to be picking up substantially in the fourth quarter already?

Or, what sort of timing or indications are you getting from your customers?

Okay, this is a very good question.

Yes, we indeed think that NAND is an upside for the future.

As usual, it's very difficult for us to forecast.

We simulate the future more than forecasting it.

What we've done is confirmed that, if there is no significant recovery, just, I would say, the correction back to numbers of 2008 or so, the capacity installed in NAND is sufficient to cover up to about mid-Q2 2010, in which case we would expect NAND orders to start coming in, into Q1 2010 for Q2, Q3, Q4 type deliveries.

So that is, again, a simulated number in case the economy were to be just tagging along, according to the analysts' expectations.

Of course, if -- and there are two or three signs in the market that the NAND business can even do better than that.

Therefore, we would be getting some shorter order to, therefore, deliver it a bit earlier than that.

But at this moment it's too early to say there is not enough activity in the market to confirm that trend is coming.

I see.

But maybe the way to interpret that is you are basically saying, if NAND was to come through a little bit earlier, your orders would be up directionally in Q4, rather than just flat, which is what you indicated?

No.

Oh, yes; in fact, yes.

This is a good point.

What I just guided, that the amount of orders in Q4 is similar to the orders which we have received in Q3 -- this is based on NAND not restarting.

Understood, thanks very much.

My second question would be, I was interested in your remark about -- that you needed roughly -- the way I understood it, I think, is that you need roughly 9.5% unit growth on your simulation at next year, for the industry, to allow second-half revenues to be similar to the first half.

But let's assume that that trend line or that number is slightly better.

Given lead times for your equipment, what is the shipment capacity in unit terms that ASML can get delivered in 2010, if unit growth in the industry is quite a bit better than the 9.5% that you are suggesting?

We know the answer in units because the mix makes it more complicated than the -- and the Euro output is more significant.

For instance, I could give a simple example.

We can build three KrF machines in the time we can build one immersion machine.

But if you said three KrF is equal, about, to the price of immersion, the capacity is basically a better measure if you try to measure it in euros.

So the answer to your question in euros is, the capacity of the Company at this moment, without making further CapEx nor investing significantly in OpEx would be at this moment between EUR1 billion and EUR1.1 billion of sales per quarter.

This is short-term capacity.

Jonathan Crossfield.

It's B of A, Merrill Lynch.

I guess my first question is, how do you assess the number of potential new fab projects that are out there, if your customers do decide to move towards capacity purchases in the next 12 to 18 months?

How much empty capacity is there, there, that you could sell into, do you think, if the demand environment warrants it?

We have all these data.

By memory, I am going to say your question is irrelevant in the sense that there is enough open space in current, existing buildings which would warrant a significant sales involved with the EUR1.1 billion per quarter.

I mentioned, all the major accounts at this moment -- foundry, DRAM and Flash -- do have, I would call it, free space for additional what they call lines, which is another way of saying sub-fab into a building.

In order to get new buildings, as you know, it takes about a year.

And we already know of certain numbers of projects which have been planned for 2011 build-up of internal capacity.

But as I repeat, the buildings are not a limiter for 2010.

Okay.

And then just as a follow-up, what is the news coming from logic and microprocessor IDM's, where your competitor has pretty strong share at the moment?

As they move beyond 32-nanometer, when would you expect them to make decisions about their litho suppliers?

Yes, indeed, we have lost a bit of market share in the microprocessor arena two years ago, and this is now due time for a decision for the next nodes.

This decision time is within Q4 or Q1 of next year, so potential good news would trigger sales in the Q3-Q4 2010.

Sandeep Deshpande.

Sandeep Deshpande, JP Morgan.

Peter, I had a first question for you on the margin.

(technical difficulty) can you comment on how you see going forward with your revenue levels that seem to be shaping up in the first half of next year, the flow through to the bottom line from the EUR450 million breakeven point that you've talked about in the past will be?

Yes.

I think, when we think about the first half of next year and you look at the order intake levels in Q3 and what we expect for Q4, and also referring to, let's say, our cost model that we used in the past, where we say we can support a ramp up to EUR800 million; at that EUR800 million level, which is not an unrealistic level if you look at the current order intake levels, that that would mean that we would be looking at gross margins that, at that EUR800 million level, would be in excess of gross margins we had shown, on those same levels, in previous cycles.

So the gross margin would be up cycle to cycle on those sales levels.

Now, how much will it be up?

That's not something I'm willing at this moment to give more detail on.

But for the OpEx cost structure, like I said, EUR115 million per quarter and around EUR40 million of SG&A, max, that is what you should think of.

And, Eric, one last question on NAND.

Can you comment on what your customers -- are your customers already talking to you on these potential orders on NAND?

Or is it that you expect to do these negotiations at some point next year?

No; I think this is normal pre-planning sessions where we are having already a discussion about the timings of the Q2-Q3 deliveries.

But there is no acceleration at this moment of these discussions which lead me to believe that we will receive orders in the beginning of Q1.

But does this mean that you are going back to what you used to do in 2008, which was that you built tools even before -- or you started, at least, the process of building the lens before you got the order, and you might have got the order only two months before the actual shipment of the tool?

Absolutely.

Although I must say we are trying to prevent that, clearly.

But it is also clear that with some of those customers -- like we also said at that time we have very lengthy and deep discussions, and it's not always very -- it's always possible to exactly time the day on which you will get the signed order.

So that is a long process, so that's why it might look like the sales order lead time is sometimes significantly smaller than the six months that we are always quoting.

Tim Arcuri.

Citigroup, two things.

First of all, I think you guys are implying quarterly revenue levels in the EUR800 million-plus kind of on average for the first half of next year.

If that's the case, my first question is, does that require -- or, rather, it would seem that that requires a bookings number somewhere in the EUR950 million range, maybe as high as EUR1 billion, to support that EUR800 million-plus revenue run rate during the first half of 2010?

First of all, is that correct?

Well, Tim, you basically have to also circle back a bit to the question of Sandeep, that although we have six months order lead time, it doesn't always mean that we get those orders.

For instance, people have also done the calculation of, we have 70% of our order backlog right now is for shipments for the next six quarters -- for the next six months, for the next two quarters.

If you take our guidance for Q4 off, then you say, well, then you have about EUR500 million in your backlog for shipment in Q1, which means that anything that we will receive as orders today will be within order lead time, which is the case.

You know, we are getting orders within order lead time in Q4, for shipment in Q1.

So, just like we will receive orders in Q4 which are for shipment in Q3.

So it is not that easy to say, if you want a certain sales level in a particular quarter, you need to book a certain level this quarter.

That's pretty [fluent] because some customers have -- they adhere to our sales order lead times, and others don't, and we have a bit more discussion, I think.

But just to substantiate what you just inferred, with the current bookings levels and the, at least, order intake that we see for Q4, those numbers of around EUR800 million that we have said we will be able to ramp up to, with the current structure in the short-term, do not seem unrealistic.

And remember that when we declare bookings, like EUR777 million, we do not show service and parts.

So you will have to add, to make it an equivalent number to a billings number, you would have to add EUR60 million to EUR100 million.

So the run rate, basically EUR777 million, really means EUR850 million to EUR870 million.

Of course, okay.

So I guess just, typically, you book -- because of the lead times, typically you book more than what you would ship in any given quarter, especially when you are ramping.

So that was the genesis of the question.

And I guess my second question is, if indeed you are going to book -- let's say it's EUR800 million, EUR900 million, something higher than what you just booked -- if you sort of back into what the overall industry CapEx has to be to support that, it's something like $40 billion to $45 billion next year, which is another $20 billion year over year versus what got spent this year.

And so my question is, who is going to spend that money?

Intel is down.

Samsung will be up a couple billion, but where is the extra $20 billion going to actually come from, to keep your bookings at that particular level?

We cannot comment on the rest of the CapEx of the industry.

In particular, when you are talking about technologies, to be honest, we do not know if, when you go from 40-nanometer to 30-nanometer if you have to change your etchers or not.

And these things are complicated.

So we barely understand our own business.

So that's point number one.

Point number two -- we are absolutely convinced that in our business, the fact that the customers have not built up capacity for these new nodes, put them into a situation of correction because of the new products.

So when you are in the DDR3 business, no matter what, you'd better have the capacity for it.

And the capacities are new lithography machines, so you have to find the money.

Now, the good news is, they find the money because, as you know, most of these segments are becoming profitable again.

And even for some of the customers who are not profitable, they are getting near profitability.

And because of some segments like DRAM, those customers have reached a level of near consolidation, if you know what I mean, or improved consolidation.

All of them have an ambition for market share on those DDR3 products and things, and therefore, again, they are forced in building ahead the appropriate market share, corresponding to their ambition, on those new products.

So if we calculate all this, yes, we definitely will justify easily the numbers we just talked about of, as you said, EUR800 million-plus per quarter for Q1 and Q2 2010.

We even calculate that in terms of wafers out, it's not a big deal because these new technologies are big users of lithography.

So in other terms, we don't create a lot of additional wafers with those machines.

We are just enabling new products.

So if you add to that that the business either -- when nobody gets out of recession, the business is not very, very good in volume, we still will need this EUR800 million for those new products.

And if the volume comes back because we get out of recession, then we have another EUR1 billion or EUR2 billion coming out there, just due to volume.

So, first, I think the industry has to do it because of the reasons I invoked.

And secondly, I believe there is enough profitability now in the business to justify this.

Mehdi Hosseini.

Mehdi Hosseini, FBR Capital Markets.

Actually, as a follow-up to Tim's question, Eric, I want to understand how your industry views are.

When I go back to 2007; we had about $22 billion to $23 billion of DRAM-related CapEx, $7 billion to $8 billion of NAND-related CapEx.

We are far from it.

I expect 50%-60% growth next year.

We are still going to -- it's going to take some time to hit those levels.

So, when we talk about DRAM customers are spending, can you help me understand when do you see in the future the industry going back to the 22 billion or above 20 billion level?

And also the same thing with NAND?

When are we going to hit those $7 billion to $8 billion CapEx?

Well, your question is very, very difficult because you have an industrial answer to this, and you have a financial answer to this.

The industrial answer is based on product needs.

So I don't have the number in front of me for 2007.

But 2008, the industry [US] built 154 billion ICs.

So in 2009, the industry will build 135 billion.

And if you take the current expectation from the analysts, the industry will go back to 2010 at 145 billion.

So I repeat; 155 billion two years ago, 133 billion now -- sorry, 135 billion now; and 145 billion 2010.

So again, without thinking, if you put those numbers into the new products, you create this need for this famous EUR800 million-plus of lithography for Q1-Q2.

That's it.

If you add 1% to this, you add another need for 800-plus, for the next quarters of the year.

So this is like the industrial response.

Whatever happens, if you have those product transition and those units, that's what you have to do, that's [math].

Now your question, which is more complicated, is, well, can they afford the CapEx that is behind this?

Or are they getting profitable enough to justify this?

And there are two answers to this.

The first is, do they have the product to attract the consumer?

And here you can start feeling a bit of optimism on 2010.

You have people talking about DDR3, which is a green product; is less power, etc., so it's a [good] product.

You are talking about Windows 7, which is going to make PCs looking like a -- having to have an average of 3 gig per PC, and everybody is starting to line up for that.

You've got the new -- this Windows 7 has better drivers for hard disk drives, which are -- a solid-state drive, which is going to create an application for NAND, etc.

So these things mean the consumer is ready to pay for these nice features.

So that's kind of the good part and the good news.

So the answer is money to be made into those products.

So your real question is, yes, but if we go back into the game of chicken, by which the customers are dumping the final product to keep the market share high, so, in other terms, if they over-invest in capacity and they fight another game of attrition, then your point is very correct.

There may not be enough capital to pay what is necessary.

My personal opinion, which is only me, is I would guess that the consolidation in NAND, in a sense that at this moment you have a bit less aggressiveness by one or two players.

And the consolidation, which is obvious in DRAM, by which the weak players have aligned to the big player, will probably give us 2010 before your problem can recur and become an aggressive game of chicken.

So I would be surprised if the access to capital would be a problem in 2010 or so.

But Peter has something to add.

Yes; if you look at the year 2007, we saw in the year 2007 a very significant wafer capacity buildup in the DRAM space, which was around 20%.

And when we look at the DRAM demand today for next year, what our customers have ordered or are ordering or tell us that they need for the remainder of the year, we will actually be flat next year in terms of wafer capacity.

So where we get more units out is through the shrink; is basically litho.

And that's why we don't see the risk momentarily with the business that our customers are telling us for next year, part of which we are booking today, that we will create over-capacity and go back to that situation.

Like Eric said, we would need a very significant end-user demand growth before we are back in that situation.

But that's not something for the foreseeable future.

A quick follow-up -- regarding the EUV buildup, when are you actually going to start building the required inventory for -- and correct me if I'm wrong -- for possible shipment in late 2010?

So in mid-2010 to late 2010, we are going to ship -- or at least, at this moment we plan to ship five of those.

And then, as I said, we are very happy that a sixth customer is interested, but we will be shipping [these six products] in mid-2011.

So for these six products, the buildup of inventory has already started, and it is in the numbers that you have seen already.

There is another about EUR50 million or so that needs to be coming to be able to execute those six units.

Didier Scemama, RBS.

Good afternoon, it's Didier Scemama from RBS.

I'd just like to ask your opinion on the impact of this new player in the foundry space in terms of CapEx and manufacturing process.

How do you see that playing for you as a lithography equipment vendor?

That's my first question.

And I have a follow-up.

Okay, good.

Yes; the entrance of a new player partnering with AMD, as you know, has a strategic impact which is not yet visible into the bookings.

Clearly, at this moment, they are building their business model.

They are gathering interest in the market, discussing with certain numbers of players.

I think all this is public.

They have made a move, as you have heard, on Chartered, so they have strengthened, I would say, one of the existing players of the foundry business.

So all this is highly strategic.

But they are not yet part of the current what I'll call foundry buildup.

If you wanted to push my nose and my optimism at this moment because, as you can see from our body language or, in fact, as you can hear from our body language, we don't feel bad about 2010.

Indeed, the second tier or the second players in foundries have not yet been present, and they do represent a significant upside to the current wave of foundry orders that we have received.

So in other terms, at this moment the buildup of 40-nanometer capacity is limited in foundry to very small amount of -- number of players.

And those newcomers will have to do the significant investment also.

And that, at this moment, again, is not in the short term plan.

Great.

And I would like to have a follow-up on that.

It looks like -- there had been discussion earlier in the call about your, let's say, lower market share in microprocessors.

Do you think that perhaps this market share issue could be addressed via foundries, i.e., perhaps more outsourcing of PC processes to foundries, obviously via IMD, is an obvious one, but maybe another one?

And, related to that, how can that perhaps drive demand, not just for the second-hand immersion tools but also for maybe a 1900?

Well, no; I think we lost a bit of market share in the microprocessor about two years ago, and I think we explained exactly what the problem was, which, at the end of the day, was driven by the fact that our technology at the time was not required, basically.

At this moment we think that the microprocessor world, wherever it is, makes much more usage of the latest technologies.

You have heard in my little opening speech that we show a lot of pride about a machine called the NXT, which has less than 2-nanometer overlay and 0.6-nanometer CD uniformity on field.

These numbers are not made to impress financial analysts; that's the role of Peter.

It is made to impress certain numbers of customers in the different segments, including microprocessors, who have enough difficulties, at this moment, to understand how to shrink all this.

And this type of performance is starting to be very attractive.

So we believe very much that our chances are much higher to build up market share in the normal way, which is by technology leadership.

The other ways around, which is to participate to these activities outside of the Intel architecture with all these discussions that you have from the foundry players getting some architectures which can be used into the consumer arena but which are based on microprocessor cores and etc.

All these obviously play in our strengths because these segments, which are, I would say, parallel to PC, are very, very cost aggressive.

And we are proud of bringing machines, again, which allow throughput and performance at the same time.

So yes; you are correct also.

We are not unhappy to have a part of the logic segment which gets highly exciting volume and technology.

Kai Korschelt.

Yes; it's Deutsche Bank.

The first question was, on the Tier 2 DRAM and Tier 2 foundries, and I wasn't quite sure what you said, whether the Q3 bookings and the expected Q3 bookings already included orders from those vendors or whether it didn't.

If you could clarify that, please?

The wave that we are currently precisely guiding, which is the bookings number in Q3 and at least the same number of bookings for Q4 only include first-tier foundry, 40-nano; first-tier DRAM, 40-nano; second-tier DRAM, 50-nano.

That's it.

In other terms, second-tier foundry; second-tier DRAM, 40-nano; any activities in NAND are not included.

But I repeat.

When I say any increase, any means between 0% and 10%.

Yes, that's very clear, thank you very much.

My other question was, on the IFRS/US GAAP issue, which I think we touched on, on previous conference calls.

The sort of [EBIT] difference still seems to be about 40 million-50 million per quarter.

Do you have any specific plans to actually adopt IFRS in the short-term, and hence, switch your reporting?

Or is that not the case?

As our prime reporting standard, we do not anticipate that, for the simple reason that all our peers are US GAAP-based.

And, like you said, it's quite a significant difference in the calculation of the expenses and the cost, which is basically timing.

But that makes the comparison between us and our peers quite difficult, which I think is not a good thing.

So we will adopt IFRS when the convergence project, which is currently high on the agenda of the SEC and the accounting bodies here in Europe, will come to an end, which I think is planned for 2014.

But in the meantime, we will keep reporting under US GAAP, and we will give you the IFRS statements.

But it's more because we want to stay comparable with our peers.

That's very clear.

Thank you very much.

Andrew Gardiner.

It's Andrew Gardiner from Barclays Capital.

I just had a follow-up around the prior question regarding the bookings for fourth quarter and the type of customers you are seeing in it.

Just thinking back to how we have seen DRAM play out through this year, you had already highlighted that, clearly, the industry health improved; that has helped to drive orders back.

But also, there has been a competitive side of the ordering with the Tier 1 guys accelerating the move to the 4x node and really putting additional pressure on the Tier 2 guys.

Thinking, then, towards NAND and what you said in terms of, it's really being driven by demand and the economy and all of that, I was wondering whether there isn't an element that you are also seeing in terms of the competitiveness of the players there and whether there are signs that one of them may accelerate their buying to try and competitively move ahead, and whether that's something we might expect in the fourth quarter as well.

There is a lot of activities in the NAND environment to differentiate themselves with designs.

And I do not see -- but that may be my mistake -- at this moment the design differentiation to be leading to more capital expenditure or, at least, lithography, in the short-term.

So I think, to your question, do I see the driver to be designs in NAND?

No.

Do I see volume?

Yes.

Okay, all right.

But then, you have to be waiting a bit for the economy to be positive or rosy before the move, I think.

Okay, that's clear.

And just one quick follow-up on the performance numbers that you've put in the slide deck about the NXT tool.

Clearly, those are all moving in the right direction, although based on some of the specs that are sort of bandied about about the customer demands, we are not quite there yet.

How confident are you that you can continue to push towards those targets?

Well, as usual, when you introduce a product, it takes a period of time for, call it full qualification.

In fact, there are two qualifications.

One is an internal qualification of the machine itself; and one, there is a -- what you can call an applications qualification, which is a customer [adequation] to the process to our machine.

I would say the final qualification of the NXT machine is due at the end of the year, internally, while we would have shipped six of them, anyway.

So that during our own qualification, the customer can make their own qualification, which is probably going to take another three months for them, which would then lead them to production ramps on qualified processes in Q2 time frame.

So that's about the plan.

So far we are doing good because conceptually we are better than the spec.

The spec of those machines is, for instance, 3-nanometer; and we are doing 2-nanometer.

We haven't reached exactly, yet, the full speed.

But it's in process.

So all this is in action.

The good news is that our XT4 machine is acceptable to the current world, anyway.

The NXT (technical difficulty) machine, which has more extendibility, so some customers are basically telling us that they hesitate between the two, mainly for extendibility reasons, not yet fully because they have no choice because, to make usage of 2-nanometer, you would really have to do some design work, which will be (technical difficulty) necessary for 2011 rather than 2010.

Weston Twigg.

West Twigg, Pacific Crest.

I actually wanted to ask about the NXT:1950, as well -- very good performance data in the presentation.

I'm just wondering if you have any indication yet on how your competitor's tool is performing.

Well, as you say, as you know, our competitor -- and as you know, there is only one now in the immersion world -- is a powerful competitor with a high-quality product.

So they have announced a machine which, on paper, is not very far from ours.

This is the typical activities we've had for the history of ASML, or at least the past five years have been in there, where we are fighting on the same target specification with, hopefully, ASML also showing the same leadership in terms of timing and in terms of really achieving the paper target.

So at this moment we have seen that this competitor has shipped probably about two machines and are, in their own ways, starting their own qualification.

I do not have, I would say, much more data that I can share with you at this moment.

But I guess, for us, it's a usual competition, usual fight.

We feel comfortable because we have a concept-based machine called TWINSCAN with a very large lens on 1.35 NA.

And our competitor, at this moment, do not have a TWINSCAN concept and do not have a 1.35 NA lens.

So, based on these basic architecture traits, we think that the gap that we have today is going to be projected in the next architecture for -- on both of us.

Okay, good.

And along the lines of NXT again, I'm just wondering if you expect to see a substantial shift in demand from the 1900 platform to the NXT:1950 over the next two or three quarters, or do you think you will continue to see demand for the 1900 along side the NXT?

If I could answer your questions, I would be richer.

It's complicated questions.

At this moment we believe it's going to be kind of 50-50 on the long-term because an NXT is more expensive because it has more performance, and some customers will not need the full performance of it.

But, on the other hand, an NXT is a low-risk machine for the next five to 10 years.

So customers will say, even if I don't need the spec, I could benefit of it.

It is extendible.

In fact, we have already discussions with two large customers who said we prefer to delay a bit shipment because we really like the NXT, even if we do not use it fully.

So it's a $1 million question.

It makes our supply chain a bit of difficulty at this moment because we are not 100% sure where we are going to end up.

But at the end of the day, the two machines are very, very competitive.

They are above competition.

It's -- I'll call it a different segment or different philosophy decisions, and we are offering that choice to the customer, which I think strengthens our competitive advantage.

Okay, and I'm just wondering how the ramp of the NXT might impact gross margin over the next couple of quarters.

It is true that new machines are always costing us more than more stable machines because you have a lot of -- more repairs and there's customer service activities, which are part of the margin.

We also have not reached the target cost level with our suppliers.

So your question is very relevant.

And NXT, in terms of margin, is not as good as NXT-4.

But, because we have a magician as a CFO, we all believe that we should improve our gross margin from the last cycle to this cycle.

So, in other terms, we see that above the EUR800 million per quarter sales, we should be able to be above our usual 40% gross margin target.

Gus Richard.

Yes, Piper Jaffray.

Could you talk a little bit about the foundry's transition to 32-nanometers?

The 40-nanometer is the one that goes into high-volume, and the 40-nanometer had a history where it went sampling for two to three years before we get to this point now where people are struggling to get machines from us.

So the 30-nanometer ramp in foundry at this moment is in the mode of sampling, and with, again for me, a bit difficult visibility to know exactly when the thing will be acquiring, I would say, capacity.

So it's really an R&D project, not so much yet a production project.

So you wouldn't expect the ramp until 2011?

I'm sorry; I must say I'm missing the data at this moment, so I'm not going to try to induce you in any errors.

So I'm sure that Franki or Craig will be able to give you more inputs.

I really don't want to say much at this moment; I don't have it with me.

And then, just as a follow-up, it seems some of the older KrF and 193 dry systems are getting some demand.

Could you talk a little bit about the end markets that are requiring those tools?

No; it's really the -- as you know, to make a chip, even a 40-nano chip or 30-nano NAND, you have certain layers which are called critical, which uses new machines, like immersion.

And you have a lot of other layers which are noncritical, which use KrF.

So, to give you an example, a 40-nanometer DRAM would have, what, 45 layers.

And nine max, 10 sometimes would be critical, and the rest would be either KrF or i-Line.

So in reality, you've got a lot of KrF and i-Line layers.

Normally, customers would buy only the machines for the 10 critical layers and then would use old KrF to do the rest of the layers, except when they still have sustained demand on the old products and they, therefore, need new capacity for those noncritical layers.

So, for instance, a customer like a foundry, who still has 60-nanometer things in production, and the volume of 60-nanometer doesn't go down; they still have to use their KrF to do that.

And then, for 50-nano or 40-nanometer, they will have to renew KrF.

So that's what we have today.

So the KrF demand is also largely in the logic and in the foundry area.

That is exactly what Eric says, because there the buildout of leading-edge capacity needs to be accompanied by the buildout of KrF capacity.

Got it.

Thanks so much.

Operator, I think we have time for one last question.

For those of you that are on the line and were unable to get through, the IR department here in the Netherlands is available to take some calls from you.

We'd invite you to do that and give us a call.

And operator, so if we can have the last question, please, we'd appreciate it.

Ben Pang.

Caris & Company, two quick questions.

One, what is the per-fab opportunity for litho on a 3x NAND versus a 4x NAND?

Woo-hoo.

Again, I prefer to push it to Craig and Franki because the customers at this moment use different technologies.

You will have heard the spacer/non-spacer, double patterning, etc.

And I don't want to, again, give you any failures.

And it's a bit technical, so we'll have to come back to you on that.

Well, that comes to my follow-up is that, I think on an earlier question you commented that you are not tracking what action a lot of these other technologies are doing.

Aren't you guys concerned that that will take some of the capital requirement that litho usually takes for 3x NAND?

It's a different way.

We are tracking what technology is used by the customers.

So some customers using spacers, for instance, would require a certain set of tools, some etch, some i-Line, some immersion.

And if you use the -- not spacer but four times spacers, then you use another type.

And if you use double patterning, then you use another type.

And if you use double illumination, then you use another type.

So that, of course, we follow.

And every customer has its own ways.

What we don't understand is that on the part which is not litho-driven, which type of etch tools are used.

Do they use installed based etch, or do they have to buy new versions of this?

And therefore, does that maybe put pressure or not on CapEx versus on the installed base?

That, to be honest, we cannot really easily follow.

This is, well, first of all, customer secrets.

And secondly, I don't think it's very relevant because, as I say, if they need litho they are going to find the money for it.

If they don't need litho, they are not going to find the money.

Okay, and one quick follow-up.

In your NAND discussion, if the market progresses to be a higher level of demand, do you expect that 3x will be a larger opportunity than 4x for you in 2010, for NAND?

Yes.

If I remember correctly -- and again, this will have to be proven -- there is more critical layers on 3x than there is on 4x.

So, if I were to say this usually favor us, this means it's good news.

Thank you very much.

All right, we've used our allotted time.

So on behalf of ASML's Board of Management I'd like to thank you for joining our call today.

And operator, if you could formally conclude the call, we would appreciate that.

Thank you.

Ladies and gentlemen, this concludes the ASML 2009 third-quarter results conference call.

Thank you for participating.

You may now disconnect.