艾司摩爾 (ASML) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the ASML 2013 second-quarter conference call on July 17, 2013.

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

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

If any participant has difficulty hearing the conference, (Operator Instructions).

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

Please go ahead, sir.

Thank you, Kirsten.

And good afternoon and good morning, ladies and gentlemen.

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

Joining me today from ASML's headquarters in Veldhoven, the Netherlands, is Peter Wennink, ASML's new CEO; and for the final time, Eric Meurice, ASML's outgoing CEO.

I'd like to take a brief moment to publicly state to Eric that, on behalf of the ASML IR team, it's been our extreme pleasure to have worked with and for you over the last 9.5 years.

And we wish you and your family the best in the years to come.

Thank you.

The subject of today's call is ASML's second-quarter 2013 results.

This call is also being broadcast live over the Internet at asml.com, and a replay of the call will be available on our website for approximately 90 days.

Before we begin, I would like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of the federal securities laws.

These forward-looking statements involve material risks and uncertainties.

For a discussion of risk factors, I encourage you to review the Safe Harbor statement contained in today's press release and presentation, both found on our website at asml.com, and in ASML's Annual Report on Form 20-F, and other documents as filed with the Securities and Exchange Commission.

The length of the call will be 60 minutes.

Now I would like to turn the call over to Peter Wennink for a brief introduction.

Thank you, Craig, and welcome to everyone.

I would like to start by providing an overview and some commentary on the second-quarter results and our view going forward.

At the end of my introduction, Eric would like to use this opportunity to review a few key issues that he considers important in what will be his last contribution to the results conference calls of ASML.

Our second-quarter results came in very much as planned.

We saw this quarter that foundry system sales equaled memory system sales, with each representing about 45% of total system sales.

The quarter shipments were highly skewed to emergent systems driving the ASP, all systems recognized in the second quarter to EUR24.1 million versus EUR23.3 million in the first quarter.

Service and field option sales saw an uptick to [EUR271 million].

However, that included one month of Cymer service sales.

Second quarter net bookings came in at EUR1.065 billion, which accounted for 38 systems, excluding UV, with booked average selling prices of EUR28 million, impacted, again, by a high percentage of immersion systems, with strength in the logic and the memory sectors.

The next several quarters bookings will reflect this secular ASP trend as well, as we expect increased demand through the second half of the year for the Company's leading-edge systems for logic and memory applications.

Our system order backlog at the end of the second quarter grew to EUR1.4 billion, with total systems remaining at 42, which excludes EUV.

The backlog profile at quarter's end shifted more towards memory, but is still heavily leaning towards logic as a result of the recent booking strength in the sector.

As I mentioned, last quarter, we expect more substantial working capital requirements in support of our [EUV of] 450 millimeter programs over the coming 12 to 18 months.

Longer factory cycle time for these new products, and investments in facilities and prototypes to deal with the anticipated volume ramp will obviously require additional capital.

Short-term, we will also see work in process increases to support our sales ramp in the second half of this year.

Despite the requirements for additional capital, we will keep our promises to return cash to our shareholders.

The Company paid approximately EUR210 million in dividends, EUR0.53 per share in this quarter, or in the second quarter.

And we bought back approximately 1.4 million shares, which was part of the EUR1 billion buyback program as announced last quarter.

Going forward, we will be guiding the combined ASML and Cymer business as one business.

For the third quarter, we expect sales, total sales, to be about EUR1.3 billion with a gross margin of about 40%.

The combined R&D for the quarter will be about EUR245 million; and other income, which, again, consists of contributions from the participants of the customer co-investment program, will amount to [EUR17 million].

The combined SG&A is expected to be EUR91 million, but that includes about EUR10 million of one-time reorganization charges.

As mentioned in our press release, we will incur EUR60 million of nonrecurring, non-cash accounting charges in the second half of the year, resulting from the Cymer purchase price allocation, of which about 75% will relate to the third-quarter earnings.

Without this purchase price adjustment, the third-quarter gross margin guidance would be between 43% and 44%.

As to our business, we continue to see sustained demand from the logic sector, as the first foundry customer begins with initial aggressive deliveries in the second half, for volume ramp of the 20, 16 or 14-nanometer combined nodes.

In addition, and as mentioned last quarter, inquiries for litho system leadtimes have begun to turn to real orders from a broad base of DRAM makers, due to what appears to be strong demand for mobile DRAM.

We are also seeing NAND orders later in the second half for fab capacity additions that have been planned for some time now by a large NAND customer.

We now believe that this incremental combined memory spend will drive 2013 sales, excluding Cymer, to a level of up to EUR5 billion in 2013.

On top of this, we expect Cymer sales to contribute approximately EUR180 million.

We see also growing demand for our holistic lithography YieldStar metrology solutions, with a demand for our in-line and standalone metrology tools that could reach a shipment total of 100 systems this year.

We expect more than EUR350 million in total holistic lithography product sales in 2013, divided over system sales, and service and field option sales.

The buildup of 11 EUV systems continues in the factory.

And we now plan for the shipment of five NXE3300 systems this year versus our prior plan of six, which was affected by a five to six-week delay of one of the system modules.

The first systems are in the process of shipment and installation at customer sites now.

With most systems shipping later this year, and with revenue recognition only possible when both scanner and source have been shipped and installed at the customer site, we expect now to recognize about EUR210 million in revenue for EUV, still allowing us to forecast the 2013 revenues at up to EUR5 billion, which excludes Cymer, but that's due to the underlying strength of our non-EUV business, as mentioned earlier.

And with that, I would like to turn it over to Eric for a review of our immersion and EUV programs, and his last comments.

Thank you, Peter.

I wanted to focus my last comments on the Company trajectory, which both Peter and I supported for all these years, and which is based on a very simple strategy -- executing around a huge, huge R&D investment for technology leadership.

This leadership hinges on four project, basically, at this moment.

The first project is a relentless, continuous improvement of our XT and NXT architectures, to basically, today, immersion.

Now project two is a buildup of an application product suite, enabling and differentiating the NXT products.

Project three is introduction of the next generation game changer technology, basically EUV, which will be required by the industry for the next 15 to 20 years.

And product number four is the capability to insert cost-effectively, when the industry requires it, the next wafer size 450 millimeter, so far planned for production not before 2018.

For our project one and two, as you saw from the press release, we are again proving our leadership case with our new NXT1970, which is to be introduced in H2 of this year.

It is a 250 wafer per hour system, with overlay having been achieved down to 1.9 nanometer, and with a suite of applications, product packages valued this year at [above] EUR350 million of sales and growing further and fast.

With these capabilities, we will be benefiting from the current's microconductor process complexities for 20 nanometer logic and DRAM -- and these processes are more litho-intensive than ever -- and from the added complexity of inserting FinFET transistors at the same pitch, which will be called 14 nanometer or 16 nanometer.

Even the complexity of vertical NAND, which, although on paper, should not require state-of-the-art lithography, in practice, however, requires significant risk-reducing best overlay and focus capability, and require significant numbers of system as NAND chips, the volume grows.

On project three, which is EUV, we have made fundamental steps in the first half of 2013.

We have now enough data to confirm the possibility to ramp system in production in 2015 for semiconductor production in 2015 and '16.

So I know the question has been asked about the progress of power and et cetera during the quarter, but I want to remind the audience that this quarter was a quarter of transition between the platform 3100, which was limited in power to about 55 watt, to the new architecture 3300.

So, this is basically what has happened in the quarter.

And within this quarter, we have been able to accumulate a certain numbers of data -- like that we have now more than 44,000 wafers processed in the field.

We have checked further the source potential concept in the lab.

We have factory experiments on the new source, a concept called mobile pre-pulse.

The new NXE3300 scanner, which I just talked about, have confirmed 10 nanometer logic and 1x nanometer DRAM overlay and focus capability.

More importantly, even, than that, the EUV light sources are now running, I would say, routinely at 55 watts, with production worthy those controls.

So this is an equivalent of the machine capable of 40 wafer per hour in the production environment.

So this performance supports our targeted production throughput for 2014 of 69 wafer per hour, upgradable within two years to 125 wafer per hour.

This is our commitment to the customers since about a year or a year-and-a-half.

So the current EUV data, the current progress is basically triggering now customer decisions.

In logic, one or two layers of EUV for the so-called 10 nanometer node will deliver already a significant die shrinkage compared to any alternative technology, inclusive of double patterning or triple patterning.

This die shrink will improve the cost of the die, obviously, the power consumption capability, and the speed.

This justifies -- this value, the strength factor -- justifies EUV as a growth technology, even if the throughput of EUV machine is lower even than our 2015 commitment.

If, however, the throughput roadmap of 69 wafer per hour upgradable to 125, as we committed, does materialize in time as expected, then more EUV layers and logic, up to seven layers, will deliver process control, yield and cost savings.

So, first, you have shrink, die shrink, which is one or two layers; and, in addition, you would have here process control, yield, and cost saving.

And this capability will also enable the technology of EUV to be used on three layers in DRAM.

So these two facets are fundamental to understand, in fact, that -- what will come later.

The clear technology demand drivers that we just mentioned, if we hit the throughput targeted of 125 wafer per hour, we would expect to ship maximum -- our maximum EUV capacity of 25 to 30 tools in 2015.

Add to the current throughput of only 40 wafer per hour, we could still plan to ship 12 to 15 EUV tools, which will be, in fact, used for these one or two layers of logic, with a compensating immersion tool volume for the layers not handled by EU.

So, to finish, I would like to say that it has been my great pleasure to have met many of you over the last nine years.

I would like to thank you for your support of our business model as measured by your very, very, very detailed interest in lithography.

I wish you all the best, and I certainly hope that our path will cross again.

Thank you, Eric.

And with that, we will be pleased to take your questions.

Thanks.

Well, let me just say before we start here that, ladies and gentlemen, the operator will instruct you momentarily on the protocol for the Q&A.

But beforehand, I would like to ask you, as I always do, to kindly limit your question to one, and with one short follow-up if necessary.

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

So, now, Kirsten, could we have your instructions and then the first question, please?

(Operator Instructions).

Francois Meunier, Morgan Stanley.

Yes, thank you for taking my question.

It sounds from your introduction, Mr. Meurice, that you are more bullish on EUV and less bullish on quadruple patterning.

Is it really proving that difficult to use quadruple patterning for your customers at this junction, and maybe just thinking about using EUV maybe earlier than what they were thinking before?

Let me answer that question, Francois.

The discussions we have had with our customers over the last three months have taken another step in intensity talking about EUV introduction.

Because as you seem to suggest, that the difficulties that customers have when they think about not the 20 nanometer node, but the 10 nanometer node, using multiple patterning strategies, those difficulties are quite significant.

Just to give you an indication, that the multiple patterning strategies, we believe, after consultation with some of our customers, that the shrink factor that can be achieved by using multiple partnering strategies at 10 nanometers is only going to be 1.5 to 1.6, where 2 used to be the Moore's Law rhythm.

Doing only one or two EUV layers -- in effect, one -- brings that 1.5 up to 1.8.

And if you use an additional number of layers where we have a higher throughput, then it comes back to two.

So on top of that, the electrical characteristics by using EUV are also significantly better.

So, yes, I think when you think about the cost advantages, the speed advantages, and the power advantages, using the maximum shrink factor by using EUV, it is not a surprise that we have intensified the discussions with our customers, and customers wanted to intensify the discussion on the introduction of indeed EUV at the 10 nanometer node.

Okay, thank you very much.

Can I ask another question about 3D NAND, actually?

Because can you give us maybe a number of what would be the lithograph intensity of -- for 3D NAND versus normal NAND?

Yes, for 3D NAND, we believe that the litho intensity is about the same.

There is an upside because there are -- and significantly increased number of layers.

That upside is not particularly for litho.

Litho will be about the same level of intensity, but will be for other, let's say, process steps that position etch, for instance.

So from a litho point of view, we don't see a major difference with what we see today.

Also, because those 3D NAND fabs are very, very likely going to be greenfield fabs.

And in those greenfield fabs, when you buy leading-edge litho, you also buy for the extendibility; although you could argue that for the introduction node, you could have a slightly relaxed immersion litho requirement.

It will always be immersion, by the way.

And customers choose for the extendibility of the model leading-edge machine.

So, yes, I would say there is upside for other process equipment (inaudible), but for us, the intensity will be the same.

Okay, thank you very much, Peter.

Gareth Jenkins, UBS.

Yes, a couple of questions around one subject, if I could, on YieldStar.

Thanks for taking my question.

So I just wondered if you would give us a sense of how much revenue you expect from YieldStar specifically?

And given you talked about 100 tools, what that means in terms of capacity you expect for 20 nanometer coming online for the next year?

And then related to that, I just wondered if you'd give us a sense of the margin impact of YieldStar?

Is it in line with your holistic lithography products historically, so high double-digits?

Thank you.

Thank you for asking three questions, Gareth.

(laughter)

Right.

Choose one.

You probably have a follow-up, yes?

The question how much revenue in YieldStar, YieldStar products sell for about $2 million each.

And we plan to ship about, I'd say, 100 of those this year.

But they are part of the total EUR350 million number that we quoted in the introduction.

So it's -- YieldStar's can be purchased as a separate standalone tool, but increasingly, and especially for the 20 nanometer node, we see that the most advanced applications use them as an in-line solution with our other integrated metrology applications.

Gareth, can you mute your side, because we're hearing some feedback?

Okay, thank you.

Thank you.

So that means that it is a part of our EUR350 million target for this year.

And Eric already said in his introductory statements that this holistic litho application group has a suite of products that is particularly usable for the 20 nanometer node and beyond.

So that means that we have a very good expectation on the growth rates of that business.

On the capacity expansion that you asked, yes, we will do about 100 systems this year.

The capacity expansion for YieldStar next year will go to 150.

And that is a reflection of what we think the needs in the industry are for in-line metrology solution.

The impact on the gross margin of the total holistic lithography group is significant because there is a lot of software in there.

So, they have margins, without going into detail, that are better than our corporate average margins.

And, of course, when the total sales of that business unit grows, I think we will have a positive impact on the gross margin.

I think it is evidence if you think about -- I mentioned in my introductory statement that, without these one-time accounting charges on the purchase price allocation of Cymer, we would still do between 43% and 44% gross margin on our EUR1.3 billion sales number.

That is, given the fact that if you have been here lately, you see we have quite a significant infrastructure for EUV.

All that cost is currently also taken up by the fact that we are improving our margin for our base business by driving costs down, but also by increasing value for the products that we ship to our customers, of which the holistic litho product program is a very important part.

All right, thank you.

I'll take the follow-up, to pardon the pun, off-line.

Thank you.

Simon Schafer, Goldman Sachs.

Actually wanted to ask about sort of how you think about the margin accretion as it relates to the Cymer acquisition now that you've closed?

And so you are sort of getting an initial feel of what the expenses are.

I mean, I understand how in the near-term, of course, you've got some of the accounting to take care of, and some of the incremental costs are also rising because you're in the EUV ramp phase.

But more broadly, how are you thinking about the medium-term accretion in terms of Cymer?

I think last time on the call, you said looking for sort of net accretion, I guess, within a couple of years of closure.

Any comment on that would be really helpful.

Yes, I think when you look at the margin accretion for Cymer, you have to split the Cymer business in two parts.

One part -- and it is basically also the way that we run the businesses now.

We have the DPV business, which is a very good, stable, profitable cash flow-rich business, which definitely adds to the overall corporate margin of ASML.

And -- but you can also look at the historical Cymer data of one or two years ago, and you would get a clear indication of what I would mean.

Now, clearly, Cymer has stepped up, over the last year-and-a-half, the expenses for the EUV source development.

Stepping up those expenses was a necessity after, I must admit, a couple of years of underinvestment.

We have made great progress over the last nine months, but it was, of course, due to the fact that we were looking at, let's say, a merger of the two companies.

But not in the last part, it was used -- it was based on the fact that we spent significantly more in research and development.

And you could argue that that has been a catch-up of the underinvestments of the years before.

We do expect the next 12 months -- 12 to 18 months, we will need to keep doing that.

So when you look at the results for the month of June, as we showed in the press release, you see that the operations from Cymer did not contribute yet to the net income of the Company.

And that is because we are using the cash flow and the profitability of the DPV division to fund the EUV source -- the development cost for the next 12 to 18 months.

After that, however, we see that significantly integration possibilities are there on the R&D cost.

That has to do with the fact that we have been developing an EUV source on two sides of the ocean, so to say.

We have close to 1000 people now working in R&D, of which more than half here in Veldhoven, and slightly less than half in San Diego.

Now you can imagine that if you do that as two separate companies, that is not as efficient as if you would do it as one integrated company, and that's what we're working on.

That will take this 12 to 18 months to really sort that out.

Then I do expect a significant efficiency in the R&D costs.

And by that time we're in 2015 and we start ramping our EUV systems, which should then start generating the gross margins to cover for those R&D costs.

So it is a long answer, but, in fact, it actually says we need 12 to 18 months for integration to make sure that we get EUV source to the powers, so that we can deliver 125 wafers to our customers.

And that will be a short-term impact.

And I think that's basically it.

Makes sense.

Great, thanks so much.

My follow-up question, actually, just a quick one is sort of along the same lines in terms of how that shapes your thinking on capital returns.

If I understand correctly, I think in your remarks you basically said, look, as part of this ramp, of course, your capital consumption, specifically working capital, will probably rise a little bit, still.

But what sort of outflow do you have in mind?

And how does that shape your ability to buy back more stock or choose another method of redistribution?

Thank you.

Yes.

Now what we did over the last couple of years, we basically, if you look at the numbers, everything that we added [above] our cash targets, we gave back in terms of dividends and of share buybacks.

Now part of that cash flow for the next 12 to 18 months we will have to use for the investments in the production facilities, and in prototypes, for the EUV ramp at 450 millimeter.

But I can assure you there is money left.

There is money left to do the dividends and to do buybacks.

So we will continue with that.

But if you look at the historical pattern of the last couple of years, where we basically distribute our net income, for the next 12 to 18 months, we will have to use part of that to build infrastructure for our earnings power going forward.

And I think that is an inevitable fact when you start ramping big new product lines like EUV and like [450 millimeter].

But I don't expect it to last longer than the next 12 to 18 months.

Great.

Okay, thanks so much.

Weston Twigg, Pacific Crest Securities.

Thanks for taking my question.

Just one thing I was hoping that maybe you could help us with is, if customers need EUV at 10 nanometer, at least for a couple of critical layers, can you give us a feeling for how a customer can rely on ramping a tool that hasn't yet been proven in HVM?

And how does that qualification process take place when that ramp is really only two years away at the leading logic customer?

That's a very good question.

This is what I started the answer to the first question off with, is the fact that we have taken the level of interaction with our customers to a new level of intensity -- it basically refers to your question.

In order to make sure that we can do that, we have teams on-site that make it very clear and transparent what the tool can do.

And based on the performance of that tool and the ramp of that performance, the customer is going to scale, basically, their activity.

So it's going to be as very close coordination and cooperation between ASML engineers and the customer engineers.

Also, what is important by the time that we ship those tools and the customers will calculate how many tools that they need, there will be a certain level of safety buffer in there, in terms of what those tools can do.

Now what we believe is a realistic assumption that we will get through the throughput and the reliability numbers that we are currently planning, it is just a temporary buffer investment, that has to be shared between the customer and between ASML.

So we're just going to hedge the customer together with us on the making sure that the output capacity of what they are planning on the 10 nanometer ramp is, in any case, secured.

Okay, that's helpful.

And then just as a follow-on, I was wondering if maybe you could also help us understand a little bit about the cost of ownership of an EUV platform beyond just throughput, things like power consumption and consumables, and how that is coming into play in terms of customer decisions?

That's a pretty complicated decision that customers need to make, but I can assure you that customers are focusing on the, let's say, the cost benefits on the product level that makes them to decide for EUV.

Yes, there are certainly infrastructural changes that need to happen in those fabs.

You mentioned things like power consumption; you mentioned things like maintenance.

That is all going to happen, but that is included in the cost calculation that our customers do.

And that means that with those indications that we gave them -- which are many, so I'm not going to go into detail there -- they came to the conclusion that the one layer -- one or two layers for the shrink only is absolutely a necessity.

And for the further layer growth, so let's say seven, it is all driven by the economics.

And then part of the running cost, as you mentioned, and the throughput, are all part of that equation.

So, for the shrink-only step, I would say is -- that is less of an issue than when you want to move to more layers, because then it is really an economical decision.

Very helpful.

Thank you.

Satya Kumar, Credit Suisse.

Thanks for taking my question.

I was wondering if you could comment a little bit about the DRAM upside that you talked about earlier?

Do you now expect to see a higher bit supply growth for DRAM, as a result of the upside in orders that you are seeing?

Or is there something else also happening in the DRAM in terms of lithography intensity?

Because some of their customers are talking about moving to double patterning, and we do know mobile DRAM has a higher die size cost.

So could you talk a little bit about the impact on supply growth and whether these orders are for technology or capacity?

It's a very good question.

If we think about DRAM in terms of -- you're asking the question specifically on DRAM, I suppose -- then, yes, there is definitely a case of higher litho intensity for the next nodes.

There are more layers, and the more immersion-related layers and also double patterning comes into play.

Now if you combine that with the -- with what we have seen over the last 18 to 24 months, in a situation where the DRAM market was in overcapacity and the economics in that industry were not very good, we also saw the tendency to basically do rotations out of DRAM into leading-edge NAND.

So if you combine leading-edge litho out of the DRAM into NAND with the introduction of the new products requiring a higher litho intensity, then it is not a surprise that when you look at the capacity of wafer starts, that even with the additions that we see today, we do not expect that the wafer starts capacity will grow this year.

Actually, as a matter fact, at best, it will stay flat, but it could even decrease a little.

And that is because of the two reasons I just mentioned -- litho intensity for the new nodes, and basically the rotation of leading-edge immersion from DRAM to NAND.

And that is escalated by the fact that, as you mentioned, we believe DRAM mobile chips are a bit bigger, not that much bigger.

It is about 5% bigger.

But as you said, that is where demand is.

If you put it all together, it's not a surprise that we currently see the demand from the DRAM customers being that high.

Got it.

Very helpful.

And then on the foundry side, is the order send that you're expecting to see, and especially if I look at the guidance in play for Q4 sales, it seems like it is significantly higher than Q3, is that concentrated towards one foundry customer?

Or are you seeing activity from multiple foundry customers?

And, broadly speaking, what do you see as the current capability of the foundry part of the industry, in terms of the readiness to ramp FinFET-based designs?

Thanks.

Yes, when you look at Q4, it's also -- there's a couple of questions in there -- if you look at Q4, definitely you can do the math -- our guidance was our guidance for Q3.

Yes, Q4 is going to be -- it's going to be a large quarter.

That means that from a logic point of view, there has not been a lot of change.

I mean, it is largely the memory customers that have upped their demand on us.

And we also said it in the previous call, we have decided to build some buffers at the beginning of the year.

So that's going to help deal with that upside in a relatively short time frame.

But for logic, I said it in my introduction speech, there is one large foundry customer that is currently aggressively ramping the 20 nanometer node.

And clearly, we have discussions with all the customers also.

I think it is inevitable that all the customers will also follow in this respect.

And your last question was on FinFET?

Could you repeat it again, Satya?

Yes, just how do you see readiness of the foundry industry in terms of its ability to ramp FinFET?

Well, we don't have that visibility.

You should ask our foundry customers.

Got it.

Thanks.

Mehdi Hosseini, SIG.

Yes, thanks for taking my question and, Eric, best of luck with your -- at the next endeavor you're pursuing.

As a follow-up to Satya's question, how should we think about sustainability of DRAM spending into next year, especially if the EUV progress were to continue?

And I'm under the assumption that DRAM is going to be the first segment to adopt EUV.

Okay, DRAM is -- it's sort of in the -- sorry, EUV is -- the way that we see it currently in 2016.

So when you talk about the 2014 DRAM ramp, it is not affected by any EUV program, other than some of our customers will take indeed to the first EUV systems -- the 3300 systems -- to start prototyping, and basically preparing for the 2016 DRAM -- sorry -- EUV introduction in DRAM.

For 2014, like I said earlier, the DRAM wafer out capacity still stays flat, even with the latest additions.

And I would say, at best, stays flat.

So that means that I do expect that also in 2014 we will see some confirmation of the pressure on us to supply machines.

Isn't it a material change, because I was expecting that at least one of the Korean customers were to adopt EUV for DRAM sometime in 2014?

We don't think so.

I mean, 2014, they will take tools to start doing the prototyping and to start doing the qualification process.

But it doesn't mean in 2014 they start producing DRAM using EUV.

That's 2016.

Sure.

So in other words, in 2016, we should see DRAM and foundry or logic one or two layers putting EUV into production?

Correct.

And it could be by 2016, that we have mastered the 125 wafers per hour as we think, and that it will be more in logic than 1 to 2 layers.

It will be 5 to 7 layers.

Sure.

And my follow-ups, just quickly, on 60 nanometer, again, one or two foundries are putting risk production.

As you do your own planning for next year, as you think about your own internal capacity, how are you managing the expectation for 16 -- I'm sorry -- for 14 nanometer ramp?

Because this is quite different than the Taiwanese customer that has a good, solid track record.

How do you manage the risk associated with a 14 nanometer ramp?

That could be significant.

From our point of view, there is no risk.

The simple reason that for the 14 nanometer or 16 nanometer FinFET node, we use the same litho machine as for 20.

So it is the same pitch.

So it's not -- for us it's not a problem.

You could even say it extends that node from a litho point of view from our point of view with one year, which means a better learning curve.

So that's okay.

So I think the risk for that introduction is with the customer in the sense that, of course, they need to do it.

We just need to provide the same litho solution as we did for 20 nanometer.

But for internal planning, there could be one customer or three, wouldn't that impact your own internal capacity allocation or just planning?

Yes, I mean, when you talk about our internal capacity, our internal capacity is sufficient to do one point -- on a lesser -- on a standalone basis, [EUR1.6 billion to EUR1.7 billion] of sales.

So we're not there yet.

So let them give us a chance and we'll deal with it.

Thank you.

Amit Harchandani, Citigroup.

Amit Harchandani from Citigroup.

Thanks for taking my questions.

Actually, more clarification from my side, maybe a couple.

Firstly, in terms of the EUV demand, if I heard correctly earlier in the call, you said that at the current level of 40 wafers per hour, probably around 12 to 15 tools in 2015 for EUV.

And if it goes up to 125 then wafers per hour -- and clearly you're looking at 25 to 30.

Just wanted to confirm that was correct.

And, secondly, in terms of the non-EUV tool requirement or tool sale, we are probably looking at somewhere, I guess, probably [EUR3.7 billion to EUR4 billion] for this year in terms of non-EUV sales.

Do you think that level is maintained as we go to towards 2015 and '16?

Or does EUV start kind of [rising the same]?

Thank you.

Okay, good.

On your first question, yes, the point that Eric tried to make it his introduction statement is that, even if we would be -- if we would stay at where we currently are, 40 wafers per hour -- which is, of course, not what our plan is -- but even if it would be the case, then it is still economical for our customers to still buy that tool.

Why?

They can do one layer whereby they can increase their shrink factor from 1.5, 1.6, to 1.8, which is a significant economic benefit, even if at that low throughput.

That's what he was trying to say.

And that would mean that you can then calculate what would the need for the industry be in the logic industry for just this one layer would be 12 to 15 units.

Now we expect not to stay at 40; we will go higher.

So when we are at 125 wafers, or even over 100 wafers, then we will have to use our maximum capacity that we have in Veldhoven, which is between 25 and 30 systems in the year 2015.

If the demand could be higher, but we cannot make more.

So in that sense, if that is your understanding, then it is indeed correct.

On the non-EUV requirement, [EUR3.7 billion to EUR4 billion] in sales.

We expect even with the introduction of significant EUV sales, where they are going to use EUV for the critical layers, there is going to be a significant EUV -- sorry, a non-EUV requirement.

That has to do with the fact that the complexity rises; number of layers goes up.

And what are now critical layers will become non-critical layers, and they will still need the immersion machines, some of them even at a double patterning level.

So, we don't believe there are going to be a significant reduction in the non-EUV requirements for our tools.

Whether it is going to be [EUR3.7 billion to EUR4 billion] is not known, with what I mean significant, it's definitely not going to [have].

It's going to be more than that.

So, it's -- it is too early to give you a direct guidance, but a very significant part of our business will still be immersion.

Thank you very much.

And all the best, Eric, for your future endeavors.

Thank you.

Didier Scemama, Merrill Lynch.

Thanks for taking my questions.

Congratulations, Peter, for your first conference call as the CEO, and greetings to Eric.

(multiple speakers) My question is related to gross margins.

I was just wondering whether you could maybe give us a sense, quantify the headwinds you see on gross margin in the second half, and perhaps persisting into '14, coming from the increasing capacity for EUV, and in fact, perhaps even [450] if that's relevant.

And then second, on the split of immersion tools between 28 nanometer logic and 20, whether you could give us a sense of how much is 20 in the second half?

How much is still 28?

Whether it's still shipping, in fact.

Okay.

To quantify the headwinds, well, like I said, we do have EUV-related costs at this moment because we are building up the capacity, and we are increasing the gross margin on our main products.

So, in any case, that is where we find some level of compensation.

It is obvious, then, where we ship the first EUV tools, the EUV -- well, we have significantly increasing gross margin for our normal EUV business.

Our planning for the EUV gross margins, when we start shipping them, is in the 20s, in the areas of 20s, while we are clearly above 40 for the non-EUV system.

So it's about half.

That means that if we have a significant number of EUV tools shipping the next couple of quarters, that means that it will have an effect on the gross margin of the Company.

And you can actually calculate it, I mean, that we are about half of the gross margin, then it is not that difficult.

So it will have an impact.

It will have an impact of a couple of percentage points.

But that, of course, like we said in previous conference calls, will take some time.

We need volume.

We need volume not so much in our own factory, which is an element, but more importantly, we need volume in the supply chain.

In order to drive cost down in the supply chain, we need a learning curve.

And learning curve goes faster when we have the higher volume.

So, when we follow our volume ramp plan, which actually is using our capacity in 2015, 25 to 30 units, and doubling that in 2016, by that time, we should be back at our corporate average gross margins.

So, it will take some time, but the -- so you will see a gradual improvement as we go, until we have reached the corporate average as we see it today.

But that is driven by largely volume.

And, yes, we have to take into account the next couple of quarters with some gross margin percentage points impacted because of the early EUV shipments.

Can you talk about the mix of 20 nanometer scanners?

Is that all you are shipping right now?

No, the mix this year -- to give you an indication, I think, of the capacity that we ship for logic, which was logical 28 and 40 -- sorry, 28 and 20 -- about 40% of that shipment capacity was on 20 nanometer, about 60% was on 28.

So 28 was largely the first half of the year tailing off in the second half of the year, and 40 -- sorry, 20 nanometer really ramping in the second half of the year, and then accounting for about 40% of our total immersion shipments to the logic industry.

Got it.

And my quick follow-up in one word.

I think last time, or last couple of quarters, you talked to us and you said that you felt like 20 nanometer capacity at foundries would be, I think, in the range of 40,000 to 60,000 wafer starts per month?

Yes.

Can you update on that?

And, second, if you could give us your thoughts on how much wafer capacity we could see at logic customers exiting in 2014, that'd be great, thank you.

For 2013, I can answer that question rather specifically.

I think with the 40% of our shipments, which I mentioned as an answer to your first question, I think we will add 60,000 wafer starts capacity by the end of the year, which, of course, customer will take some time to turn that capacity that we ship into output.

But it is about 60,000, yes?

So that is what we see today.

(multiple speakers) --

Right.

Now, for (multiple speakers) 2014, it's too early, because we haven't finalized yet all the shipment plans with our customers for the next 18 months.

For the next 12 months, we have, but it only covers the first half of 2014, so I cannot answer your question on the end of 2014 yet.

What is it then for May 2014?

I don't have the data immediately here.

Perhaps you can follow up with Craig and with Franki.

I have the 2013 data in my head.

(multiple speakers)

Brilliant.

Thanks very much.

Andrew Gardner, Barclays.

I have a couple more around gross margin dynamics.

Peter, you've highlighted the drag at the moment from the Cymer acquisition, from the pressure that you will see as you ramp EUV from a lower level towards the corporate gross margin.

But sort of looking beyond that, and thinking about what you've described for holistic litho and with YieldStar in that, and I think you guys had said previously that you are aiming for something around EUR800 million of revenue a few years from now.

Also, there's a positive impact, albeit perhaps small, from the Intel customer co-investment program coming through the revenue and gross margin line.

So, ultimately, what's to prevent you guys from reporting gross margins into the high 40% range?

Yes, I think -- it's a very good question.

You just hit on the, I think, one point I think the co-investment program impact is more or less an accounting impact.

But -- so I would like to leave that to one side.

Yes, I think the impact of the non-EUV product portfolio is going to be more significant, because of the fact that the holistic litho product portfolio carries a lot of software.

So that is going to be [and added] to the gross margin.

Now once we are at volume production EUV -- which, by 2016, if we do 60 units, you could argue that we are there -- then we should definitely also see the benefits of the -- of that volume coming through the supply chain.

But on top of that, we have now insourced the EUV source, which actually means that the gross margin that would normally go through a supplier now goes to the bottom line of ASML.

So your high 40s assessment of where we could be is definitely not an unrealistic one.

Thanks very much.

Sandeep Deshpande, JPMorgan.

Sorry, actually, Peter, thanks for letting me on.

Just, again, actually talking about this gross margin, your guidance of 40% gross margin, and you said in your introductory remarks that it would be somewhere 43%, 44%, if it was not for the impacts of the Cymer acquisition.

So would you quantify that how long that impact the Cymer acquisition will impact your gross margin, so that we could take it as one of associated with that?

And then model beyond that, as such.

And then I have a follow-up as well.

(multiple speakers) And there is also, I guess, an impact on the gross margin in the short-term from your investments in EUV, which are not resulting in revenue.

That's correct.

On the latter point, I said -- I say the 43% to 44% is, of course, the rest of EUV cost in there that are being absorbed by the fact that we have good gross margin on our base business.

So that's in there.

And I said that before.

Now on the impact in the second half, has to do with the fact that, in the purchase price -- now I gave you a small lesson in accounting, I can't help it -- but we have to revalue at the moment of a purchase of a company, we have to revalue the assets at fair value -- which, of course, is clear for the intangibles and the earnings power on the DPV business and the installed base business, but also you have to do that on inventory.

Now while the inventory at Cymer is all on order, it means that the fair value of something that is on order, where you have in the order that you cannot cancel, the fair value is then brought up to the sales price.

So, in fact, the first six months that Cymer sales of its inventory, they don't make any money.

Because it is already taken up in, let's say, the opening balance sheet of Cymer.

It has been, you could say, jacked up through the sales price.

And that goes away in six months' time.

So this [EUR60 million], about 75% of that is taken in the third quarter and the remainder in the fourth quarter, and then it's gone.

Okay.

So it's an accounting adjustment that non-cash that has to do with the revaluation of those assets.

Okay.

On the other elements, there is about a [EUR10 million] per quarter amortization of intangibles, which also has to do with this revaluation of those assets, which is basically the earnings power, the discounted cash flow of the earnings power of the business that you have bought.

That will be amortized over a 15-year period, so it is between [EUR8 million and EUR10 million] per quarter that we will book and that will go into the gross margin line.

But I think, looking at the size of the Company, that is going to be relatively negligible.

And as a last element, which is the -- when we acquired Cymer, we had a remeasurement date of these share plans of those Cymer shares that turned into ASML shares.

And that over the next -- until the end of next year -- I think the first quarter of 2015, will create a compensation expense, which we need to book.

And that will show up in several lines -- will be in the R&D line, because it relates to people; will be in SG&A line, because it relates to people; will be in the gross margin line, because it relates to people.

So that will be spread all over.

Those are all accounting adjustments which are non-cash, but it has to -- but it is released.

So I think that is really the major impact.

When you think about gross margins, you have to think about the base business.

Now the ASML base business consists of our immersion business and our holistic application business, which very good gross margins.

We have -- the next two years, we have the ramp-up of EUV, which will have a dilutive effect when we start.

It is inevitable, but the numbers won't be that big.

So that is ASML.

Cymer has very good gross margins, because they have an installed base business, which is very profitable with very healthy gross margins.

And I said earlier you can refer to the Cymer historical financial statements that you can see what that is.

So from an operational point of view, I think the gross margins are healthy.

But they will be impacted by some accounting adjustments, and over the next two years, by the introduction of EUV.

And I think I explained that in the previous answer.

Thanks, Peter.

That was very comprehensive.

Just my follow-up question is regarding those tools you have talked about in previous questions, that potentially, that if you do 40 wafers per hour, you could ship potentially 15 EUV tools in 2015.

I mean, does this indicate, based on what you said, that your intensive contacts with some of your customers -- because when you look at the number of fabs some of your customers have, if you're only going to ship 15 tools, it would mean virtually if it's two customers, you're shipping one tool per fab or something like that.

Is that how we are looking at the initial rollout of EUV?

Or is it not going to be -- is it going to be a couple of tools for fab that are required for, say, one or two layers, if you're going to introduce one or two-layer EUV in 2015?

Yes, I think when we think about 12 to 15 units, you talk basically about the way we are planning it now, in that timeframe of 2015, only two logic customers.

Okay, understood.

Mahesh Sanganeria, RBC Capital Markets.

Peter, there is a lot of discussion on gross margin.

But can you give us an indication of what the OpEx will be for next several quarters?

How should we think about modeling OpEx?

I think when you look at OpEx, it consists of R&D and of SG&A.

Our R&D spend this year was going to zoom in on [EUR800 million] gross.

That was before the contribution of the co-investment program.

We said in the previous call that could grow to around [EUR900 million] next year.

Cymer's R&D is just above EUR100 million.

Now we are now guiding on [EUR245 million] per quarter for the third quarter.

And it is my assessment that we will not go over the [EUR1 billion] if you put the two companies together.

So that is the [EUR900 million] next year, plus about EUR100 million of Cymer, and our current plan is to stay within the [EUR1 billion], so that's [EUR250 million] per quarter.

On SG&A, the run rate is about [EUR65 million] for ASML, about [EUR13 million, EUR14 million] for Cymer, so it is just under [EUR80 million] run rate.

We guided [EUR91 million] but it has [EUR10 million] in there as a result of some reorganization charges that we are taking today.

Okay, so one more follow-up.

You had a pretty big jump in terms of bookings on the IDM and memory and foundries flattish in terms of absolute dollar.

How do you see that trending in the second half?

Is it IDM maybe go down a little bit, memory come up a little bit, and a big jump in foundry in the second half?

Is that how we should be looking at?

Well, if you listen carefully to the call, I think memory has just started.

If you -- I don't think we're at the end of that yet.

So I think memory for the next few quarters will probably stay at a good momentum.

IDM is pretty predictable, but that basically is a result of the shipment plan and our adherence, and their adherence to a six-month order leadtime.

So that is just going according to plan.

And logic, logic will stay strong because we are ramping the 20 nanometer node.

There is only one major logic player, logic foundry, that is currently ramping the 20 nanometer node and the rest has to follow.

So I think it is going to be a mix whereby logic will stay strong, but also we will see the return of our memory customers.

Okay, thank you very much.

That's very helpful.

Ladies and gentlemen, I think we've run out of time.

There was a lot of good questions.

Hopefully, they represented the questions that others that weren't able to get on had in mind.

If not, I know your history shows you know where to find us.

IR is available after this call to manage as many questions and callers as we can.

So, again, I, on behalf of the Board of management, I would like to thank you for joining the call today.

And if, Kirsten, we could have you close the call out formally, we would appreciate it.

Thanks.

Thank you, sir.

Ladies and gentlemen, this concludes the ASML 2013 second-quarter results conference call.

Thank you for participating.

You may now disconnect.