艾司摩爾 (ASML) 2010 Q2 法說會逐字稿

Thank you for standing by.

Welcome to the ASML 2010 second-quarter results conference call on July 14, 2010.

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 like now to turn the conference over to Mr.

Franki D'Hoore.

Please go ahead, sir.

Thank you, operator.

Good afternoon and good morning, ladies and gentlemen.

This is Franki D'Hoore from Investor Relations at ASML.

Welcome to our investor call and webcast.

As the operator mentioned, the subject of today's call is ASML's 2010 second-quarter results.

Joining from San Francisco, California and cohosting today's call is Eric Meurice, ASML's CEO, along with Peter Wennink, ASML's CFO, who is with me today in our headquarters in Veldhoven, the Netherlands.

At this time I would like to draw your attention to the Safe Harbor statement contained in today's press release and in our first-quarter results presentation, both of which you can find on our website at 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 would like to turn the call over to Eric Meurice for a brief introduction.

Eric, please.

Thank you, Franki.

So, good afternoon, good morning.

Thank you for attending our second-quarter 2010 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 the financial performance and will add comment on the short-term outlook.

I will complete the introduction with some further details as to the current position and as we close the second quarter and how we will balance -- or the balance of 2010 will evolve.

Following this introduction, we will open up for questions.

So, Peter, if you will?

Thank you, Eric, and welcome to everyone.

As Eric mentioned, I would like to take a moment to share observations of some of the events of last quarter as well as some details on our second-quarter results.

Our second-quarter sales were EUR1.069 billion versus EUR742 million in the first quarter, which was just about the range of our guidance.

We shipped a total of 43 systems, 35 of which were new.

Our new system ASP remains strong at EUR25.6 million and it reflects the continued demand for leading-edge lithography.

Our net service and field option sales came in at EUR146 million, driven by an increased demand for our holistic lithography and service products.

The Company's second-quarter gross margin was 43% versus just over 40% in Q1.

The gross margin improved due to volume-driven coverage of our fixed manufacturing cost reductions and a better mix of higher margin products.

We continued our immersion EUV product development with an R&D spend off EUR125 million in the second quarter.

SG&A came in at EUR42 million, both slightly higher than Q1 but as guided.

[All higher] sales and improved gross margin in Q2 where operating income significantly improved to 27.4%, up from 18.5% in the first quarter and the second quarter is a new high for the Company.

In the second quarter, we generated EUR193 million in operating cash flow and after deducting the CapEx spend and the dividend payment, we added EUR100 million to our cash line, ending just under EUR1.2 billion at the end of the quarter.

Second-quarter net bookings came in at 59 systems valued at close to EUR1.2 billion.

Net immersion bookings of 25 systems demonstrated again a continued focus on technology investments, but in addition we also saw -- KrF bookings [saw] 27 systems, indicating an increased need for more noncritical systems in support of the leading edge production ramps, which mainly happened in the non-memory applications.

Second quarter bookings move to our backlog to just over 100 systems in total valued at EUR2.4 billion.

We continued to be encouraged by success of immersion products demonstrated by a fact that our 58 immersion systems in backlog, 38 of which are newest immersion product TWINSCAN NXT 1950i.

As for our outlook, we continue to ramp factory production capacity in order to meet the growing demand, as indicated by our increasing backlog, and our near-term outlook indicates bookings in Q3 to be at around EUR1.3 billion.

With this level of bookings and ramp up of our production capability, we now see our 2000 sales exceeding our previous peak of EUR3.8 billion by about 10% to 15%.

For the third quarter 2010, we expect net sales to be about EUR1.1 billion, gross margin for the second -- for the third quarter is expected to be approximately 43%, with R&D expenses rising EUR137 million, which is basically to enhance the support of the EUV infrastructure.

And SG&A rising to EUR50 million, supporting the growing level of sales anticipated through the balance of this and next year.

However, we have made sure that the increase of our cost structure remains flexible and have therefore managed 80% variability in our OpEx and manpower increase.

With that commentary, I would like to turn it back over to Eric for more on our view of the coming few quarters.

Eric?

Thank you, Peter.

So, as you said, Q2 sales came a bit higher than planned and Q2 bookings rose to nearly EUR1.2 billion, a good number.

We expect our bookings levels to be higher in Q3 also at about EUR1.3 billion.

With this, it is appropriate to ask ourselves a question if the current positive trend will continue or if we are seeing the first signs of a macroeconomic slowdown of some sort.

At this point, we are confronted with requests for capacity at a very brisk rate and we are discussing with customers a capacity increase plan which extend well into 2011.

We therefore certainly see no weakening at all of the overall demand for lithography tools.

This could be the result of an industry myopia, too much optimism, or could create a potential for buildup of excess capacity, although we do not think so in view of the drivers which are very strong behind the demand.

The first driver is 2010 IC unit demand growth expected to be at about 15% versus 2009, putting the industry back on its historical growth curve.

There is nothing extraordinary with this 15% level achieved thanks to a healthy Chinese market and a somewhat average US and European economic environment.

The other growth drivers are structural.

The first driver is a standard technology transition drivers which fueled this industry, which have been fueling this industry and which is currently indeed in place.

With an exceptional convergence of the ramp in the DRAM industry at 40 nanometer and the flash industry at 30 nanometer and also in the logic industry at 40 nanometer.

The 40-nanometer logic volume ramp is now transitioning from market prototyping or an early adopter phase to a higher share of the total logic business.

At the same time, the more mature 65 nanometer is continuing its I would say normal growth curve.

That is the first structural driver.

The second one is that the demand for new tools in the foundry and IDM segment is further increased due to several years of relative underinvestment and retirement of obsolete capacity by the IDM.

The third structural driver has to do with technology transitions, which combined are resulting in an average doubling of the numbers of immersion layer exposures between 2009 and 2010.

And this immersion layer exposure increase will continue well into 2011, as indicated in one of the slides that we have on our website, slide 21.

In view of these three structural drivers and the way of the potential macroeconomic uncertainty, however, we believe still that our 2010 revenues could exceed our previous EUR3.8 billion peak annual revenue by 10% to 15% with no excess capacity being built, and we expect this trend to continue into 2011.

On the technology front, as immersion processes are extended by the use of complex double pattern and techniques, customers are accelerating their adoption of our holistic lithography suite of products in order to widen manufacturing process windows and allowing faster startup of production of chips.

This capability further increases our market leadership by making our systems even more efficient.

In addition, our EUV program focus continues.

As we speak, we are in the process of final integration testing of the first EUV pilot production tool, six of which will ship within the next 12 months.

Orders are being taken in this quarter, by the way, for the delivery of production systems or EUV production systems in 2012.

In summary, we expect lithography system demand to be sustained by, one, the multiplicity of technology transition in those sectors; two, significant wafer capacity additions in logic to make up for the low level of past investment and retired obsolete capacity; and three, the immersion demand caused by increased critical layer processing associated with the current technology transitions.

Although we remain cautious as to the overall state of the world's economy and its impact on the overall semiconductor unit growth, we remain fairly optimistic about lithography opportunities throughout this year and the next.

So with this summary, I think Peter and I will be ready to take your questions.

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

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

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

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

(Operator Instructions) Gunnar Plagge.

Nomura.

I wanted to ask a question with regard to the service revenues.

Previously you have talked about a normal level of about EUR110 million.

Now about EUR150 million.

So to what extent is the increase in service revenues sustainable?

And to what extent is that -- it's probably at the moment mainly related to one particular product in Brion, probably FlexRay.

So how much opportunity is there with holistic products to sell further into the installed base?

Peter, would you like to take that question?

Yes, the service revenue, yes, there is a trend upwards on the service revenue.

That is because the service installed base grows, but also the suite of our service products, which include the holistic products, that can be added on later to the tool is also growing.

The FlexRay you referred to will be sold as part of the tool and is not part of the service products.

It's an integrated part of the tool.

So it will increase the sales price of the tool.

But we are seeing holistic litho products that can be retrofitted, and those will lead to somewhat higher sales.

So there is going to be a trend; we always have between EUR100 million in EUR125 million.

I think it is safe to say that over the next two years, that could go from EUR125 million to EUR140 million, EUR150 million.

Okay, thanks.

Maybe as a follow-up, you've talked before that you ramped the immersion capacity by the year-end to about 30 to 35 tools overall.

So with regard to the NXT capacity, clearly at the moment you are focusing on reducing the cycle time, but are you also actually expanding the capacity in the NXT fab itself?

Because I think there's probably another factor that needs to be enhanced to get above 20 probably per quarter?

Yes, what we are doing here is we are retrofitting the old XT factory to build what we so-called cabins and XT cabins.

So yes, we are in the process of retrofitting, there by increasing the NXT capacity for next year.

Okay, thank you.

Jerome Ramel.

Good afternoon.

If I look at your backlog, [it is increasing] significantly in the US and in the logic.

Should we draw any conclusion with one of your major customers doing microprocessors there?

Eric, do you want to take that one?

Yes, we have a good set of customers in the US, in processor business, in memory and in logic in general so it is difficult to focus this improvement only to one customer, but indeed we think we make progress with every of our customers in terms of volume and sometimes market share.

Okay, and just a follow-up concerning EUV, are you increasing R&D because of the EUV?

And are you confident you can deliver the tool for production in 2012?

My last question is if you don't achieve in 2012, what would happen for the industry?

Yes, so clearly we have seen an opportunity to increase a bit our R&D budget, as you see, and there is of course not in there only EUV investment.

We can discuss that later, but yes, EUV is part of our increase.

And the reason for this increase is that we have seen, in fact, a sort of acceleration of the interest by customers, which translates into the need to potentially prepare for, say, one EUV machine per month in 2012.

So in this environment, we have to prepare a part of R&D budget.

We have also to create this new infrastructure to prepare for this type of run rate.

As I have said last time, we hope to, in fact, close most of these orders for one to two per month or so as early as this quarter, and potentially we will announce at the next conference that we have those orders sold.

So now a question is is there a business impact if we were to delay the deliveries of those?

For ASML, there will be no impact per se because if we are late with new technology called the EUV, there is still a requirement for capacity to do the appropriate technology -- nodes which will be done by a complicated double patterning solutions, which in fact would allow us probably to claim a bit more revenue than if we were early with EUV.

However, we consider that we have to be on time because it has industry impact.

EUV is a good technology that enables lower costs at our customers and more possibilities.

So it should be definitively negative if we were not to ship on time.

So we will focus our attention in doing so.

But I repeat if we are not able to do this in Europe, the complexity of this project, then there would be no financial impact on ASML.

Okay, thank you.

Janardan Menon.

Liberum Capital.

Peter, when you were on the conference call -- you know, Q1 results you had said that the pattern in terms of your order intake for Q2 in terms of where the orders will come from will be roughly similar to what you saw in Q1.

Or that was what your estimate was at that point in time.

But the order sources changed quite a bit with the IDM percentage going up very sharply and the memory percentage coming down quite a bit.

So just wondering was there any specific factor which made -- was that a surprise to you?

What were the factors behind that in terms of the IDM mortars coming in in this kind of volume?

And what do you see happening in Q3, the EUR1.3 billion?

Will that be a similar pattern to Q2 or will there be much change in that?

A follow-up if I might is on ASP as you go forward, so far you've been very heavily on technology and going forward, we are seeing quite a few new fabs coming up and presumably those will ramp over the next 12 to 18 months.

So will there be a structural decline in ASP because of that -- the sort of low 20s level from the sort of mid-20s for new tool ASP that we've been seeing so far?

Okay, to answer your first question, your order pattern of Q1, it is not a surprise to the people who follow ASML that the number of large customers is going down.

That means that the timing at which we get the orders from those big customers becomes pretty important in a particular quarter.

That has also happened.

I mean, we are looking at the IDM orders basically coming in in Q3.

They're coming in Q2 and some of the DRAM orders that we thought came in in Q2 will come in in Q3.

So that's the simple answer.

On the order pattern, clearly we will see memory staying strong.

We will see some foundry activity in Q3 but NAND will be stronger than it was in Q2, which when you look at the Q2 order intake is not a big surprise.

So if you see changes, it would be in foundry.

It would be in NAND.

On the ASP going forward, yes, you are right.

When we look at -- this is also in one of the slides in the presentation -- the number of officially announced new fabs in 2011 is eight.

There's currently also a couple under -- more than a couple, it's about five are under discussion or six are under discussion, which means that if you have to fill up those fabs, you have to have the whole suite of lithography products there which includes dry products.

And that is why you see an increase in our KrF systems, which is the 248 nanometer tool technology ramping up in our order book and also will be noticeable in the next quarters to come.

That means that the ASP will go down.

I wouldn't call this a structural decline in ASP because the structural trend in ASP will go up and not down.

But it is clearly a reflection of where we are and customers adding extra capacity means that they have a more broader mix of products order.

Thanks a lot.

[Brendon Haken].

Actually, this is Satya Kumar from Credit Suisse.

A question on your 2011 outlook, if I look at your Q4 guidance implied by your 2010 revenue guidance, it's a little over $1.3 billion.

Your 2011 outlook --

Euros, euros you mean.

EUR1.3 billion.

Sorry to interrupt you, but it's euros.

Sorry, euros.

I'm sorry, euros.

By 2011, you are talking about a little more than EUR1 billion.

I just wanted to understand is this a degree of conservatism in your 2011 projection?

You are not (multiple speakers)

Sorry, was somebody in the --?

I didn't get the last part of your question.

Somebody was interfering.

I guess my question is your implied Q4 revenue guidance is over EUR1.2 billion and your 2011 -- you are saying it's a little over EUR1 billion.

So why that sort of decline in 2011?

Is that just conservatism?

We said on 2011, we see similar levels of sales are expected to continue into 2011.

So going into 2011, we see similar levels of sales as going out of 2010.

That's what we are saying.

Right, I guess my question is on a quarterly basis if I look at Q4, you should be over EUR5 billion and if that level is sustained in 2011.

So this was trying to understand if we just --

You mean if you annualized Q4, that's what you are saying?

That run rate?

Yes, that is what it would imply in 2011.

Not for the full year, because we don't have that visibility.

It is going into 2011.

We see that same trend as going out of 2010, and that is driven by the three structural drivers that Eric talked about in the introduction of this call.

It is too early to guide precisely in 2011.

However, we are very comfortable that the same drivers will exist and therefore there is a significant opportunity or chance that 2011 will be sustained or higher than in 2010.

But again, we do not want yet to be guiding a total year.

It is in this industry, as you know, very difficult.

Understood, understood.

On book to bill ratios, your guidance for Q4 revenues is more or less in line with what you are thinking about for bookings in Q3.

Maybe it's a little bit more than your bookings in Q3.

As you start ramping your capacity for immersion shipments, do you start seeing book to bill ratios start approaching parity from the Q4 quarter onwards?

And as a follow-up to that, what is the current lead time for NXT?

So, no, we didn't say that the book to bill will stabilize at 1.

In fact, I think the same comment which was confusing maybe for some last quarter is holding that if these drivers continues to come in, then we see nicely increasing booking trends, so quarter-to-quarter, it may be that one quarter we see a book to bill a bit at 1 or below and some quarters you will see it above 1.

So at this moment, we are more in a situation thinking that the business grows into 2011 than a situation of stability.

Regarding our capability to address this possibility of growth in 2011, we need to have two things happen.

One, we need more capacity, which is I think what Peter was referring to, so we are building up more capacity, more capability per quarter.

This has been done by hiring of [capable] workers and updating certain numbers of our CapEx so that the new machine can get in.

And then second is we have to get our cycle times to be as fast as possible.

And yes, in 2011, Q1 2011, we will have cycle times, I repeat, production cycle time in our factory which are fairly I would say standard, typical for the last three months or so.

Thank you.

Sandeep Deshpande.

JPMorgan.

Eric, sorry, just to ask a follow-up to your three points in terms of your drivers.

Over the past few quarters you have been talking about these flattish trends in orders and clearly it seems to have changed at this point in that the orders have accelerated to some extent.

I mean is this -- the acceleration which you are guiding to is mainly NAND flash fab new fab related or is it that you always expected this acceleration?

And also if you could talk about your -- historically you have not guided up, given numbers in terms of orders into the following quarters.

Has your visibility changed substantially?

Yes, so on the DRAM segment, we are not surprised.

It's very similar to what we always expected.

I can translate it as we expect to ship as many units necessary for about 50% bit growth.

And this has not changed.

Everybody I think is now converging to -- there will be 50% bit growth in this business in 2010, probably also in 2011.

So based on that, we had already planned a lithography business, which is nice, going forward.

We had this since about six months.

In flash, we have always said that flash was disappointing, but that was in the progression mood because they were starting to move more flash into dedicated applications.

So call it dedication application-specific type flash.

So this is happening also.

At this moment, the industry would expect to deliver about 70% bit growth in flash.

As you know, it's much easier to do bits in the flash area than DRAM.

And at this moment we are booked or booking at a level a bit under the 70%.

So there could be as we go into Q3, Q4, Q1 2011, additional bookings due to the fact that we are a bit south of I would say the expected demand.

And what surprised us or what you can call is an acceleration, is the logic arena.

There are in fact two engines I mentioned briefly.

One is 65 nanometer, which is a standard workhorse is getting in fact good, nice growth because of countries like China and things and this node is continuing its I would say mix improvement.

And you add to that the 40 nanometer which becomes now more mature, which would probably grow from a mix of 10% total business to potentially 20%, and this as I said, would multiply the numbers of layers because you go from 10% of the business at 16 layers to 20% of the business at 16 layers, that's a doubling of layers.

And so this is happening in the stronger fashion than we expect in particular in view of the fact that all the customers in the areas of foundry or IDM find themselves a bit with their pants down.

The demand is happening and it is happening I would say in a normal way.

But these guys have not invested enough in any capacity immersion or KrF and there is a bit of aggressiveness on that curve at this moment to try to meet their own customer needs.

Thank you, Eric.

Jagadish Iyer.

Eric, my first question is that on the (technical difficulty) capital intensity, how do you see the capital intensity into 2012, 2011 versus 22010?

And I have a follow-up for Eric.

How should we think about your OpEx going forward given this increase in the third quarter?

How should we think about it going into 2011?

Thank you.

These are very good questions, so on the CapEx intensity, I usually discount these questions because the CapEx intensity that you can calculate at the macroeconomic level, which is basically how much we saw -- is being brought to divided by -- is really (multiple speakers)

I just wanted your view on 2011 in terms of how you are thinking in terms of the [totals] of your semi-revenues, the ratio you usually measure, you usually mention.

So I usually don't like that question in a sense that it's very driven by the ASP of the industry, so when you see that ratio popping up very high, it is really when the semiconductor industry has an ASP problem.

This happened when the DRAM business tanked with an ASP of 70% down.

At this moment, the intensity went up and then the intensity went back down in 2009, as you know, a very, very low number.

And in 2010, 2011, we may go back to some normalized number based on history.

So what would be my expectation?

In 2010, I would think the intensity litho divided by total semiconductor sales would be in the 18-ish% range and I would guess that 2011 would be probably in the 20-ish% range.

But again as I say, you are asking me to look at the crystal ball about the ASP of our own customers.

That's a bit complicated.

But I don't see this as in any way as problematic at this moment.

The second question is OpEx going forward, so we're clearly, clearly managing this Company on scenarios, not on forecasts.

We are not religious as to whether the industry has to go up or has to go down.

We have to know that in the industry there will be cycles and therefore we have to have OpEx on a very, very flexible nature.

So you will see I think from published numbers that we have always had a very large amount of flexible workers and we leverage our business with a lot of external contractors.

So today we have moved our OpEx to a certain level to sustain this business of -- as you will have noticed -- EUR1.2 billion, EUR1.3 billion or more per quarter and being profitable on it.

If these numbers were to go down, we can reduce our OpEx again significantly.

We of course have had to build up some structural OpEx in particular the new factory that we are just starting on EUV, which will cost us an amount of millions of -- I would say which are not flexible, yes, but this is still very measured.

Like I said in the introduction comments, the increase, the cost increase from Q4 last year to Q3 this year, 80% of that increase in OpEx is flexible, variable.

Thank you.

Andrew Gardiner.

Barclays Capital.

I was just interested in a bit more detail around the structural drivers you've highlighted for next year.

Clearly you have sort of outlined it from a top down point of view.

I am just wondering if you can give us any insight from a bottoms up point of view from the customers' standpoint as to your pipeline that perhaps hasn't materialized into firm orders yet or discussions you are having, visibility, etc.

that can give us a sense as to whether orders can indeed increase above the guided levels for third quarter.

Then just a quick follow-up after that.

On the gross margin structure, given where you have guided revenue to for the fourth quarter around EUR1.2 billion, EUR1.3 billion heading towards EUR1.4 billion, where do you see your gross margins at that point?

Thank you.

I will leave the gross margin discussion with Peter.

Regarding giving you a bit more color on the driver, what can I say?

Clearly things which I haven't mentioned about which are part of the top down comment is that most of this industry's now segments are getting into very, very complicated technologies.

And this complicated technologies have two significant impact at this moment for our customers.

They have more difficulty to stabilize their yield, so you could estimate that the utilization of the machine and the yield of those dies will be lower in other terms that this technology transition requires even more lithography to cover for this complexity.

Also I have been told that the logic arena is developing 40 nanometer products which have on average a bigger die size than the 65-nanometer business.

So that's also not a driver that we say in addition to the normal layers you also need more machine to build the same profitability, to build the same amount of chips because they are for bigger size.

So that you say you can see this happen also.

Another color, when you do things in foundry business or in logic in general, you are more doing this by project rather than one at the time machines.

So when you are in the DRAM business or flash business, you can do a one at a time machine.

You build -- you buy some this quarter, you build some chips, business is good, you buy more, etc., so very flexible type environment.

And we see this in a way where the customers would react with very short-term orders and things.

When you are in the IDM business, the foundry business, you can't do this in our big projects, which have about a year to two years before they have real market impact.

So what you see today which is why we are highly optimistic is not withstanding an economy downturn.

The customers have to stick by their strategic moves.

And you know in the [press] the numbers of newcomers in the foundry business who are committed to building up factories and lines which are strategically going to be there no matter what the volume is, so these ones are the ones we see now which will cover 2010, 2011 at a minimum and has to happen.

So I hope I gave you enough color on your question and I leave the other question on the gross margin at EUR1.4 billion for Peter.

Peter likes a simple question.

It was just a simple question, so I'll give a simple answer.

And the answer is clearly we don't guide for Q4.

Otherwise it would have been in the press release.

But I can only refer to what we said earlier is at EUR5 billion run rate, we want to be at a 45% gross margin level, so that's our target.

That's the only thing I can say and we are working hard to reach those targets.

Thanks very much, guys.

Adrien Bommelaer.

Piper Jaffray.

Assuming the macro holds up and assuming you manage to ship EUV tools on time for 2012, essentially for the NAND segments, could you give us some color as to what 2012 would look like in terms of revenues?

The reason why I say that is if you take the last peak at [2007], 2008 saw revenues down about 20%.

Now is there any reason to believe you'd do better or worse this time around?

This is a very complicated question.

We don't know at this moment if everything was planned on 2010, 2011, so imagine that -- and things happen as they currently look, which is a good 2010 and a better 2011, your question is is 2012 going to be a recovery year or no -- a down year in the sense of some [digestion]?

It's very difficult to know because we are getting now into businesses where most of the mix will be of high-end level where each of the layers of lithography are very, very expensive.

So we are at this moment simulating in fact a fairly long cycle opportunity for us.

Now if you add to this that 2012 may be a year of 12 EUV tools at above EUR65 million per machine, which will be serving the role of on the R&D and will not really spit any wafers for production, so you have an overlay of R&D to a normal business.

So if that normal business is anywhere near sustained, 2012 could be again for us a growth year.

But again, these are scenarios of opportunities, of possibilities, and I cannot at this moment declare that they will not be a negative on somewhere where the volume goes down, etc.

of the ICs and therefore there is a [soft] guidance of two to three months delay into what I just said.

Okay.

I just have a quick follow-up.

The semi-cycle seems to be a bit stronger than some had anticipated and I was wondering if you knew or had a view -- could this be due to a trending up we are seeing in technology spending, i.e.

smart phones at the expense of low-end phones?

Or is this just a play do you think on unit growth being very strong?

No, no, it is really -- this is a smart phone issue.

It is a mix-driven activities at this moment.

The volume part is mainly due to China.

I refer you to [Maurice Chong's] article I think about a month ago where he mentioned that -- actually about 10% of his growth was due to China, which has volume type driven activity.

But for the rest, smartphone, the SSDs are really moving up now.

All these new PCs, I don't know how you call from, the table thing and etc., PCs type animals are growing like by 20% versus 10% before.

So you've got all those new phone factors, create so much more demand.

So we are in a very good situation of the volume is okay but it's not anything exciting, but the mix is rich enough to sustain these technology buys.

Great, thank you very much.

Philip Scholte.

Rabobank.

In your presentation, I again see the same ASML model, the simulation model which actually does extend into 2011.

Would you be willing to share with us what kind of sales simulation would come out of that model?

And the second --

We should sell results of the simulation model.

What do you think?

So to that question, no, I think it's too early.

We have -- it's a fair question in fact for the community, the analyst community.

We are looking at the possibility of inviting you sometime in the fourth quarter.

But to answer those questions because this is a fair question, what is a structural set of opportunities in front of us and we need to tell you what would be the negative, what would be the positive type scenarios.

So it's a bit too early, but your question is valid and we have taken it at heart and we have got to address it at some point.

Right, maybe a short follow-up for Peter.

Can you give a bit more guidance on taxes and CapEx?

Yes, CapEx for the first half was EUR25 million, which was -- it's a bit of an underspend to the budget at several courses.

We will spend between EUR60 million and EUR70 million in the second half of the year.

And that has to do also with the fact that we will start breaking ground of an extension to the EUV factory, which we had finalized last year, like Eric said, really in anticipation of the 2012 ramp of EUV.

So between EUR60 million and EUR70 million in the second half of the year.

On taxes, taxes are currently averaging about 17% to 18% of our profit before tax line.

That could trend down one or two percentage points when our profit goes up.

That has to do with arrangements that we have made with the Dutch governments with respect to the royalty boxes, which is a specific tax law here.

So it's currently 17% to 18%.

Could trend one to two percentage points down when the profit goes up to levels of let's say based on EUR5 billion sales.

All right, thank you very much.

Ben Pang.

Thanks for taking my question.

Two questions.

One, on the lead times, are your lead times for the immersion tools going to change between let's say the end of the third quarter and the end of the first quarter of next year?

Yes, as I say, we are today if you take the NXT, which is now going to become the main immersion tool, we are more towards an 18- to 20-week assembly time and test time, and as I said, we are going to try to make it to a 12- to 13-week during the period you mentioned.

Okay, and the follow-up is on the bit growth for NAND, can you quantify just for immersion lithography what is the correlation of the bit growth to the immersion market in terms of the number of units?

So we are going to take that question off-site just for to not for us to make any mistakes.

So Craig DeYoung will be in contact with you or vice versa.

We have that answer and we can give you some ideas about what those 10% type bit growth means in terms of capacity of lithography.

We have that somewhere, but I would prefer not to try to guess at this moment.

Sure, thank you very much.

Timothy Acuri.

Citigroup.

Two things.

One, I just wanted to sort of go back to the question on the 2011 guidance.

If -- it does seem conservative sort of in light of where the bookings are and I guess would you agree that you could still meet that guidance?

You could still sort of maintain this sort of revenue rate even if bookings were to fall like 50%.

So you are booking about EUR1.3 billion.

So bookings could go down to [$]700 million and you could still revenue sort of n the low EUR4 billions next year.

So I'm just trying to sort of understand that.

Yes, it is true that we have always said that the bookings trend per quarter is a strange animal.

So sometimes there is good reasons why a customer would say that they want to delay the quote unquote decision.

It could be because they just finished the negotiation on price, which by the way should happen now.

We're going to start lots of negotiations in Q3 and probably closing in Q4, so you could have some delays to that.

You can have some delays because some customers would not know where we re going to ship these products (inaudible).

But all this is as you said, irrelevant to the revenue number, which in fact is based on an industrial requirements, not so much of a bookings timing.

So -- but I am not saying that at this moment we expect the bookings run rate to fall as you said to EUR700 million.

This is beyond our understanding at this moment.

So we don't know more than that at this time.

Tim, I would just like to have one clarifying question on your side.

You say that our 2011 guidance is conservative, but we are not guiding on 2011.

The only thing that we are saying is that the sales levels that we are seeing going out of 2010, that will bring the total sales of this year to between EUR4.2 billion or EUR4.4 billion.

That sales level going out of the year we think we will continue into 2011, driven by the three main drivers.

That is what we are trying to say.

We are not guiding on 2011 because we simply don't know what's going to happen in 18 months from now.

And so I would like to understand why you think that was conservative.

Got it, so basically you are implying that sort of Q1 2011 revenue run rate will be similar to what Q4 is.

You are not necessarily saying that that run rate is sustainable through the rest of the year.

Correct, correct.

Okay, got it.

Other question is on capacity and when you think you are going to get to EUR1.5 billion revenue capacity.

It sounds like it is probably more Q1 than Q4.

Yes, Q1 is out.

Q4 is start, if you know what I mean.

But it's Q1 out, yes.

Okay, and what is the sort of compression in lead times?

So if I come right now and I want an NXT, what is the lead time today relative to what it would be if I order the tool later on this year?

If the supply chain is ready, if everything has been put on shelves, then the lead times as what I said, before three months, because it takes three months to assemble from a lens basically.

But if you have not enough lenses, and you have to create lenses from scratch or if the lenses are in the pipeline, then of course you are stuck and you have to wait until you have enough lenses.

But as I said, if we get to a capacity of 1.5 per quarter out in Q1, we should have our eggs in the correct basket with a three-month lead time.

That doesn't mean however the customer will [put] three-month lead time bookings if that's what your question was.

I think the customers will probably put the orders with about six months lead time as usual because they don't want to take the risk of being surprised by a problem in supply chain.

So don't make a model that says because we are getting good at lead times, which is the case, at some point that the customer will take risk with bookings lead time, which would be a bit dangerous.

Doesn't that imply, though, just last point on that, doesn't that imply though whenever you see a compression in lead times that much, doesn't that imply that they are sort of --

Tim, I'm sorry.

You got into your fourth question now, so let's give somebody else a chance.

Got it, thanks.

Didier Scemama.

Thanks for letting me ask a question.

I would just like to talk about 2011 and the role of the smartphone and tablet industry.

I think some of my colleagues have already touched upon that.

But I was just wondering what you thought would be the impact of basically specs for tablets and smartphones, especially for DRAM increasing from 0.5 gig to 1 gigabyte.

I mean, we could have an incremental 150 million units shipping next year with 1 gigabyte of DRAM.

Do you think that the industry is capable of handing that, number one?

And second of all, given the increasing complexity of those type of products particularly when it comes to 3-D graphics as well as more content for data driven by flash.

Again, do you think the industry is capable of handling basically the growth that is expected next year for tablets when it comes to NAND flash capacity?

In fact, this is why we said that 2011 at this moment could look like sustained -- and could look like growth because of the mix, which is rich.

But the industry is in fact I would say ready to address this.

DRAM activity is interesting because on the one hand you still have the meaningful for having the 3 gig or 4 gig per PC on a normal PC, and then in parallel, you are going to create these new markets with 1 gig, etc.

But which still requires low power and forces them -- the suppliers to invest in 14 nano.

But also and you are starting to see some of the leaders going to a conversion to 13 nano.

So all this richness of application drives in fact technology.

Technology is becoming more complicated.

They need more machines but they know that.

They are planning this and this is what we think is the driver of the current year-and-a-half to two-year business.

But is that what is driving your business today or is that potentially an incremental driver for bookings in the first half of 2011?

You can have it both -- you can say this slightly differently, that as we note at this moment planning a significant unit growth in general, we are telling you that we feel comfortable that 2010, 2011 is driven by the mix discussion that you just talked about.

If in addition to that you have the sort of a volume growth situation, which happens sometimes on the historical curve, then we have an upside.

But it's because my bottom-up forecast is already resuming, if you know what I mean.

But what you see in terms of -- I can't be too specific, I guess, but --

Let's move on to the next guy.

Thank you, (inaudible).

Thank you.

Gareth Jenkins.

UBS.

Just a very quick one.

You are just about exploded in terms of cash generation over the next few quarters and I just wondered how your thinking is moving between dividends and cash returns.

And as a follow-up, just what opportunities you see beyond some semis into LEDs or any other opportunities.

Thanks.

Peter, I think you want to take cash.

I can take the LED stuff.

On cash, we just stick to what we said before.

We have a policy to have a gross cash balance between EUR1 billion and EUR1.5 billion.

Like you said if you extrapolate the net profit, it is not difficult to see the cash flow of the Company be very strong over the next 12 months now.

Over the EUR1.5 billion, we will return cash through the shareholders absent any major investment plans.

And that cash will be distributed through a mix of dividends and share buybacks.

Now, how much the dividend will be will be the subject of the general meeting of shareholders next year so I cannot comment on that.

But clearly what is important I think in this context is that about EUR1.5 billion, like I said again absent major investment plans, we will return that money in that mix.

Dividends and share buybacks.

Okay, and regarding the possibility to invest outside of semiconductors, I think we stay with the basic statement of five years ago is we still think that we have potential to grow at EUR5 billion of sales, etc., which as we told you last time, that we will probably get during this current cycle.

But it is important for us to always stay available to something synergistic, which will create another engine of growth.

And yet we are looking into some technologies.

We have put more R&D into these technologies and we have put more people in scouting for alternatives.

But nothing in the very short term and nothing of very large scale that we should be discussing.

Thanks.

Kai Korschelt.

Deutsche Bank.

The first one is on EUV.

Eric, could you just please confirm when you will start booking tools in revenues and the backlog, please, whether that's 2011 or 2012?

And then on the ASP of 65, is that dollars or euros?

And my second question is on the NXT, I think you said the product is starting to mature on sort of the fab floor.

Do you get the sense that it is maturing ahead of your competitors?

And secondly, are you on track to hit that 200 wafer per our target?

Thank you.

Okay, very good.

So in terms of bookings, we will on the press release mention when we book those famous say one a month type activity.

But Peter in a conservative fashion will not recognize them because it is our way of booking only things which are shippable within a year.

So what you see on our published quote unquote backlog is only bookings for the delivery within a year.

We don't record bookings beyond that.

But you will know of these numbers and they will be put on the press release more as an information on technology.

It is obviously EUR65 million, except if the euro goes under one euro to one dollars, in which case I will change my month.

Sorry, we are a euro company, so it's EUR65 million.

And the last question is yes, we are maturing the NXT.

Obviously we are always paranoiac as to our competitors' product.

As you know, they have announced on paper a product which is similar to our NXT.

We are happy to report that we have got accelerating bookings on the NXT, which means that in fact the NXT is recognized probably by our customers as being ahead of it -- of the competitors' product.

And we haven't heard at this moment any data that would confirm that this competitor's product is ramping into production.

We therefore hope to get to 200 wafers per hour.

At this moment, the spec which is agreed with the customer is 175 wafers per hour, so this is what we will achieve by the end of the year.

We are at 150 at this moment, which is a current same value as what we get on the XT, but the machines are upgradable by software to 175.

And the 200 wafers per hour will be introduced in 2011.

Ladies and gentlemen, as we are approaching the end of the call, we have time for one last question.

If you were unable to get through on this call and still have questions, please feel free to contact ASML Investor Relations department with your question.

Now, operator, may we have the last caller, please?

Niels de Zwart.

ABN AMRO.

My question would be going back to your guidance or your statements and your view about 2011 in relation to the EUR5 billion target you've been mentioning.

On the one hand, you are saying that the trend is positive going into 2011 looking for growth here in that respect.

You also mentioned a couple of fabs which are under investigation.

Do you believe that if those fabs would be actually built, would that generate the demand enough for you to generate this EUR5 billion revenues already in 2011?

Again, we do not guide on 2011, but we give a certain numbers of possible scenarios, which would be justified by macroeconomics environment.

So if the macroeconomic environment is there, which is the historical semiconductor unit growth continues and if the fabs which have just been announced do happen with the appropriate timing as announced, then the possibility of EUR5 billion within 2011 is there.

But please, do not mention this as my guidance.

It is much too early to check all the parameters that would justify that.

No, it was just to get some feel for the things that should happen in order to get you to that level.

So that's very clear.

Thank you very much.

All right now, on behalf of ASML's board of management, I would like to thank you all for joining us today.

Operator, if you could formally conclude the call for us please.

Thank you very much.

Ladies and gentlemen, this concludes the ASML 2010 second-quarter results conference call.

Thank you for participating.

You may now disconnect.