艾司摩爾 (ASML) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the ASML fourth quarter and annual 2013 conference call on January 22, 2014.

(Operator Instructions).

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

Please go ahead sir.

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

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

Joining me today from our headquarters in Veldhoven, the Netherlands is ASML's CEO Peter Wennink, and for his very first time, ASML's new CFO, Wolfgang Nickl.

Welcome Wolfgang.

The subject of today's call is ASML's fourth quarter and annual 2013 results.

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

Before we begin, I'd 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 law.

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 found on our website, ASML.com, and in our Annual Report on Form 20-F and other documents as filed with the Securities and Exchange Commission.

As a reminder, the length of the call will be 60 minutes.

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

Thank you, Craig.

Good afternoon, good morning, ladies and gentlemen, and thank you for attending our fourth quarter 2013 results conference call.

Before we begin the Q&A session, I'd like to introduce and welcome Wolfgang to his first ASML quarterly results conference call.

Wolfgang joined ASML in December of last year from Western Digital, headquartered in Irvine, California, where he spent 18 years in various operations and financial roles, ending his time there as CFO.

And I'll save further introductory remarks for later, as many of you will get to meet Wolfgang in our upcoming post-results roadshows later this week and next.

Now Wolfgang and I would like to provide an overview and some commentary on our fourth quarter results and provide our view of the coming quarters.

Wolfgang will start with the reviewers of our Q4 financial performance with added comments on our short-term outlook.

I will complete introduction with some further comments on our future business outlook and update you on our immersion and EUV product programs.

Wolfgang, if you would.

Thank you, Peter, and welcome everyone.

It is a pleasure for me to be here today and talk to you about our results and our guidance.

Q4 revenue came in very much as guided.

Revenue was driven again by foundry shipments, plus an uptick in IDM shipments which together produced 65% of total quarterly system sales.

Sequentially, memory system sales were up strongly as well, contributing the remaining 35% driven by NAND.

During the quarter, we recognized revenue for our first NXE3300 EUV system.

Overall, last quarter's unit shipments were more balanced between ARF immersion and KRF than the prior quarter, indicating the addition of wafer capacity.

As a result, the AFP of EUR25.7 million for all systems sold in Q4 was lower than Q3 at EUR28.2 million.

Service and field option sales again grew significantly to EUR407 million from EUR359 million in Q3.

This includes time of service sales as well as higher application sales.

Q4 net bookings and booked ASPs remained at Q3 levels of EUR1.45 billion for 52 systems booked with ASPs at EUR28 million.

These bookings exclude EUV.

Memory bookings represented almost 60% of total bookings value.

Our system order backlog at the end of Q4 grew further to almost EUR2 billion excluding EUV.

Clear change in our backlog profile occurred at year-end driven by the increased memory bookings, leaving memory backlog at 55% of total versus 35% in the prior quarter.

For Q1, we expect total sales to be about EUR1.4 billion with a gross margin of around 42%.

[The gross] margin is slightly negatively impacted by the product mix relative to Q4 2013, which is expected to reverse again in the coming quarter.

As discussed last quarter, we expect that Q1 will include revenue recognition for one EUV system which currently is dilutive to overall gross margin.

Excluding EUV, Q1 gross margin would be around 44%.

In 2014, we expect to deliver the remaining eight EUV systems on order.

In Q1, we expect to ship one EUV system.

As with all new technology introductions, revenue recognition of EUV systems is currently taking place after installation and customer acceptance.

This revenue recognition method will continue until we demonstrate predictable installation timing.

Upon tool acceptance, about EUR60 million will be recognized for system with about EUR10 million per system being deferred until each system receives [light sold] upgrades.

We currently expect they recognize revenue for one system in Q1, one system in Q2 and six systems in the second half of the calendar year 2014.

As mentioned, we again saw a meaningful increase in our service and field option sales revenues to EUR407 million in Q4.

This was driven by a significant quarterly increase in performance-enhancing field option sales.

We expect that quarterly service and field option revenues throughout 2014 will average about EUR350 million per quarter.

Combined R&D for the first quarter will be about EUR280 million.

Other income, with contributions from participants of the customer co-investment program, will be about EUR20 million.

Throughout 2014, we will walk quarterly R&D down with a targeted quarterly combined R&D spend of about EUR250 million exiting 2014.

Combined SG&A is expected at about EUR85 million for Q1.

We will again propose to increase our dividends by 15% to EUR0.61 per ordinary share.

During 2013, we bought back 4.6 million shares for a total of $300 million (sic - EUR300 million, see slide 15), representing 30% of the EUR1 billion buyback program announced last year for 2013 and 2014 combined.

ASML has now returned more than EUR4.5 billion in dividends and share buybacks since 2006.

As to our current business status, memory customers have somewhat aggressively moved to the lithography system order front with bookings in Q4 of EUR850 million, a significant increase over Q3, which was higher than Q2, leaving us with a memory backlog of almost EUR1.1 billion.

This backlog appears to be supported by tight mobile VRAM capacity and a steady growth path and stable market outlook in NAND Flash.

[Henri] customers are evaluating 20 nanometer demand and are preparing for 16 and 14 nanometer node capacity additions later this year as the MPU sector continues to add 14 nanometer capacity.

Our current business visibility, along with a high level of business certainty provided by our current backlog and understanding of near-term demand, allows us to reiterate our revenue guidance of around EUR3 billion for the first half of 2014, excluding EUV.

This creates a solid basis for the remainder of the year.

Now with that, I would like to hand it back over to Peter.

Thank you, Wolfgang.

As Wolfgang highlighted, we have seen a significant shift in our backlog in favor of the memory sector, which will help drive our first-half revenues.

This year, we will see the continued node transitions in NAND Flash and DRAM, as well as the addition of NAND Flash capacity, including an initial phase of 3-D NAND manufacturing capacity build.

Based upon customer interactions and research data, we expect the low to mid-40% bit demand growth for NAND and between 20% and 30% demand growth in DRAM, driven largely by the mobile application space.

First half, we'll see the foundry logic sector taking some time to absorb the rapid 20 nanometer capacity build that we witnessed in the second half 2013.

[Before], we expected 16 to 14 nanometer node RAM will start in the second half of this year.

Like Wolfgang said, the 14 nanometer microprocessor manufacturing ramp started late 2013 and will continue throughout 2014.

The industry has entered a very interesting time as the challenges of device design and forms have, in turn, created significant manufacturing and cost challenges in pursuit of continued cost-effective strength.

In past conference calls, we have discussed our Company's strategy to address these issues, which is based upon execution around a very significant R&D investment for technology leadership.

I think it's important to repeat four key areas of our strategy in the context of today's environment.

First of all, it's the continued significant performance improvement of our current dry and immersion scanner architectures which enable the most cost-effective, leading-edge imaging solutions which will help our customers to address imaging capacity involved in multi-pass patterning strategies at the current and the future at those nodes.

Secondly, the buildup of our application products or our holistic litho portfolio, enabling and differentiating further our dry and immersion products in support of SIP 20 nanometer process control challenges, many of them related to the aforementioned multi-pass patterning strategies.

Thirdly, the introduction of EUV, the next generation litho technology, and the delivery of which will enable the continuation of Moore's Law by providing large cost reductions, device power savings, further device performance improvements.

And fourth, the creation of a strong and highly competent R&D infrastructure to react to any relevant request from the industry which has a potential 450 millimeter wafer size insertion.

The execution of this strategy enables us to support any short and long-term lithography need of the industry.

This becomes particularly evident when we look at the challenges of our customers to address the 10 nanometer logic nodes transition.

In order to control risk, customers may decide to initially focus on the use of our most advanced NXT:1970 immersion scanner, enabling execution of their complex multi-patterning strategies, supported by the complete suite of holistic litho products for maximum process optimization, thereby making this technology the current process of record.

As mentioned previously, the progress we have made in the development of leading-edge immersion technology has culminated into our new NXT:1970 immersion system.

This machine combines world-leading performance of 250 wafers per hour, it overlays achievements of less than 2 nanometers, which, when matched with a suite of application products, enables aggressive multi-patterning strategies, which our leading-edge logic device customers can safely choose to plan their sub-20 nanometer designs.

The NXT:1970 has seen widespread and quick adoption in recognition of its value, and we shipped five tools in a three-month period post introduction, and have built a 14-system backlog with a value just over EUR700 million.

The value of this system to our customers is translated into very strong average selling prices, currently at slightly above EUR50 million, while maintaining very healthy margins.

Adoption of our application products, again key to the performance at the 20 nanometer and below, is expected to grow again in 2014, likely to a level between EUR500 million and EUR600 million.

While it's clear that the performance of our newest immersion systems help our logic customers, we also see significant demand for these systems from our memory customers.

The complexity of 3-D NAND also requires best available overlay and focus capability, and will furthermore require a significant number of immersion systems which we are seeing now as 3-D NAND chip manufacturing volumes start to grow.

We are very satisfied with the acceptance of our NXT:1970 as the most advanced lithography solution in the industry and as a viable choice for the 10 nanometer logic nodes.

However, we realize together with our customers that the continuation of further strength and therefore Moore's Law ultimately, and inevitably, depends on the introduction of EUV.

We are therefore working very closely with selected customers on the industrialization of our EUV technology, which they will very likely adopt when their economic targets for initial insertion of these more cost-effective solutions are actually met, thereby optimally addressing the economic and cost challenges of this node.

Regarding EUV, we're happy to report good progress.

First three of 11 NXE3300B scanners have been shipped.

In the last two weeks, a fourth system has been signed off and is in the process of shipping while seven additional systems are in state of integration.

In the fourth quarter, progress has been shown on, first, source control systems enabling the increase of output power by 40%, showing up to 50 wafer per hour capability in our factory.

Second, source uptime and cost of ownership improvements to in situ cleaning technology of the EUV mirror in the source.

Third, defect management to the development and use of pellicles on the photomask.

Despite our continued good progress, we have currently not yet reached a stage of industrialization whereby our customers can confidently assign their critical layers for the most advanced future nodes through EUV.

However, the progress that we see gives us full confidence that we will reach that stage before our customers put these nodes into full volume production.

We therefore remain fully engaged in EUV insertion planning discussions with our customers, some of which at this point have already qualified EUV for imaging as a 10 nanometer foundry logic node.

Going forward, with the benefits of EUV clearly understood, insertion decisions will be based on the economics of EUV driven by productivity, stability, cost of ownership improvements, in turn driving layer by layer insertion when these improvements become available.

With that, we would be happy to take your questions.

Thank you, Peter.

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

But beforehand, I'd like you to kindly limit your questions to one, with one short follow-up if necessary.

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

Now, Starla, if you could give your instructions, and then we'll have the first question please.

Thank you.

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

(Operator Instructions) Sandeep Deshpande, JPMorgan.

Thanks for letting me on.

Peter, if I could ask, there has been some confusion about what DSMC said about EUV insertion at the 10 nanometer node, and the use of and the potential economic gain to you or lack of from immersion at that node.

Could you make a comment on (inaudible)

Yes.

I think DSMC didn't say that much different than what I just said.

It is clear that DSMC has found out with the introduction of our deep UV systems that the safest route for a 10 nanometer node is using the maximum capability of our NXT:1970, with the full suite of the holistic lithography products, which actually gives them a kind of a safe route into 10 nanometer.

Having said that, it is a route with a very high intensity of litho tools, making this not a very cheap node.

This is also why we, at the same time, work very closely with DSMC on the introduction of EUV.

We actually have seen some very encouraging results.

And that -- working on that particular node will lead to a situation where, when we meet economic targets that DSMC has set for the introduction of EUV, they will immediately insert it.

And this is where we are.

And I think this also what DSMC or Mark Lu said at the call.

He said the process of record is deep UV because we know what to do.

But, we need EUV, because it is more cost effective when our economic targets are met, and those are not targets which are at 125 wafers per hour.

Those are significantly lower targets because also DSMC needs to learn.

And that is where we are.

So it's a -- if there is a two-track road whereby deep UV is currently the safe route, not the cheapest route, because the future is with EUV.

And then, Peter, maybe based on what you said today, you haven't really changed what you said after your Q3, that there is this plan B and that there are these two routes to the 10 nanometer node.

Are you giving any roadmap on the EUV itself?

You're saying that you are on schedule.

Is that all that you're saying or is there something more to it that's not really --?

No, you're absolutely correct.

We're not saying that much different than what we said three months ago.

And what we are confirming is that the 70 wafers per hour, that is what we see happening this year, and 125 next year.

But I think that the difference between now and between the third quarter conference call is that we have made good progress on some important elements that drive the reliability and stability of the tool, which has to do with, like I said in the introductory comments, has to do with the cleanliness of the UV mirror and also which has to do with the development of the pellicles for the photomask.

So those are infrastructural issues and are industrialization issues that actually provide another proof of good progress that we have made since the third quarter.

Thanks.

Timothy Arcuri, Cowen and Company.

Hi, thanks.

Peter, I just wanted to zero in a little bit on what your EUV shipment plan is for this year.

Last call, we were thinking that there'd be sort of 12 to 14 tools shipped this year.

Sounds like there's going to be a few less than that, yet you also sound like you're a little more constructive on there being a round of follow-on orders for EUV, so can you help me bridge those two?

Thanks.

Yes.

Let's first focus on the 11 orders that we have on the book and the 3300 systems, because I think that is what we said also in the introductory statements of Wolfgang and myself.

There are 11 tools on the 3300.

The 3300 will be followed by the 3350.

The 3300 are 11 tools, one of which will go through a Research Institute and we will see, not in the sales level, but will be in the R&D line.

So there are 10 systems left.

Three of those systems were shipped in the fourth quarter.

One of them led to revenue recognition, so that leaves us with nine systems.

Now the way that we currently look at the shipment schedule, and as Wolfgang said, installation and customer acceptance happen after the shipment.

We currently see or plan that one of those nine systems will potentially move into the 2015, so that's why we are left with eight systems.

So eight systems we will recognize out of the 3300.

Now, having said that, we also started the integration of the first 3350 systems.

Now based on -- so we are preparing for 3350 shipments without having specific orders because we are confident that we will reach levels of productivity and reliability that will make customers take those systems.

So, depending on the progress that we are making over the next few quarters, it could very well be that we would target a shipment or a few shipments of 3350s also towards the end of the year.

That would not lead to revenue recognition because that probably is going to be in 2015, but we are preparing to, next to the 3300, be able to start shipping 3350s.

And then revenue we will probably see in Q1 of 2015.

Does that explain a bit what are asking (inaudible)?

It does, it does, Peter.

Thank you so much.

And then just a follow on, on R&D; R&D, I didn't think was going to do too much higher than EUR250 million or EUR260 million a quarter, and yet now it's creeping up to EUR280 million.

I know you're trying to bring it down throughout the rest the year.

But is the creep all related to the Cymer acquisition?

Or is there something else happening there?

Thanks.

Wolfgang, do you want to answer?

Yes, I mean it's just accumulation of a lot of investments that were making, not only in the EUV including the Cymer work on the source layer, but also in holistic lithography and immersion, quite frankly.

We're happy to invest that money right now in order to solidify the roadmap and make sure that we deliver the value.

But we also have a clear path to work it again down to the EUR250 million level by the end of the calendar year, which by the way, still means that we are investing about EUR1 billion run rate into this business from an R&D perspective.

It's a very conscious decision.

Got it.

Okay.

Thank you so much.

Francois Meunier, Morgan Stanley.

Yes, thanks a lot for taking my question.

The first one would be about your comments in the press release about the capability to expose up to 50 wafers per hour on the EUV systems.

If you could explain really what it means, capability -- is it because it's still a bit theoretical, this throughput?

That's my first question.

Thank you.

So this is not the theoretical throughput.

It's actually driven by the fact that we have the source power to go up to 50 wafers per hour.

Just as a side comment, we would like to now talk about wafers per hour because our customers are now talking about economic metrics.

And they are driven by productivity and stability.

And just the driver of the productivity is the source power, so 50 wafers per hour equates to roughly 70 watts.

That is what we have shown here for an extended period of time.

That equates to up to 50 wafers per hour.

So this is why we set it, and going forward, we would like to talk about wafers per hour because that's the metric that our customers are using.

Okay, that's very clear, but does that mean there is a laser as in the Cymer premises, and the rest of the equipment is in Veldhoven?

No, no, the laser also here.

It must have been quite a time since you have been here, because then you could have seen that we have here in the EUV base, it's all lasers and scanners.

So it's all connected.

And we do, by the way, R&D on both sides at ocean, on the West Coast and here in Veldhoven, but they're all connected.

Okay.

Now in terms of the learning curve with EUV, given that there is some slight delays again with the progress because your learning curve could take longer, do you agree with the fact that if it's not used very much -- at 10 nanometer -- I'm saying if, if it's only introduced at a later stage at 10 nanometer, then it will take longer to learn how to reach higher margins with EUV.

So basically for potential peak earnings into the [19, 47] nanometer.

I've always said, and it's true, that the cost reduction is a matter of the learning curve, so whether the learning curve starts in year one or in year two, we actually need about 24 months after volume [by way of] introduction.

That has not changed.

I think from a learning curve perspective, there's not much difference.

So we need the first two years after volume introduction to actually get the margins up to the corporate average, which is still the plan.

So I don't see any -- not much difference there.

And the learning curve is not only for cost.

I think a big part of the learning curve is with the customers, you know?

Actually, if we would ship a EUV tool that could do 100 wafers per hour today, where the infrastructure at the customer side is they would probably have to throw away 80% of those wafers because their own infrastructure and their processes are not able to deal with that productivity.

That's why customers can settle for a lower productivity at insertion of a 10 nanometer node.

Too much productivity is not good either, because they need their process development in the factory also.

Okay.

Thank you, Peter.

John Pitzer, Credit Suisse.

Yes, good afternoon guys.

Thanks for letting me ask a question.

Peter, I guess relative to the improvements that you guys are driving on double patterning, can you help quantify from here how much improvement is left?

And is there -- I know you're trying to get away from a wafers per hour, but is there a throughput number on EUV where, independent of double patterning improvements, it still makes sense to move to EUV?

That is a very good question.

In fact, we have said we want 70 wafers per hour this year, which is still our target and we are going forward and also it in 125 in 2015.

Having said that, for the insertion at the 10 nanometer node, the first phase of it, the customers actually settle for a lot less than 70 wafers per hour.

Customers would settle for 30 or 40 wafers at 80% availability much rather than 80 wafers at 40% availability.

So what I said earlier as an answer to the previous question, it's not only us that needs to go through this learning curve.

Too many wafers cycled where -- in a process that is not stable in the customer factory, is not good either.

So customers say 30 to 40 wafers would give me a reasonable stability.

This is what we're focusing on.

So the productivity in the first phase, which would be 6 to 12 months, is not that important.

Now once you start ramping, and don't forget the ramp of 10 nanometer is 2016, 2017, then they need that 70 or actually 100 wafers per hour.

So you need that initial learning period not only for us but also for the customers.

So you will very likely see insertion point where the productivity is not used at 70 wafers.

It is used at a lower level.

But they want the stability.

Is that clear, John?

Peter, as my follow-up -- that's helpful, as my follow-up, if memory serves me correct, this time last year, you actually gave a full year revenue number for the Company or target.

Today, you're sitting here giving us only a first half.

Independent of EUV adoption, is there something different in the CapEx environment this year that's giving you less visibility or less comfort giving us a full year revenue number?

The main difference is there's a new CEO.

It's also because the visibility is what it is.

And I feel, let's say qualitatively, very comfortable about 2014 because of the three core segments of the business, logic, memory, and microprocessors, are all in a very healthy state.

Memory we talked about in the introductory comments.

Microprocessors has now started to ramp the new node at the end of last year and is truly ramping in this year.

And logic is as strong in 2014 as it was in 2013.

So qualitatively, I'm very confident.

And with the quantitative guidance of the EUR3 billion, excluding EUVs, which you include EUV, it's between EUR3.1 billion and EUR3.2 billion, if you combine the two, I feel very confident about the solid 2014.

But think that I cannot see full clearly, although I do have a gut feel, I'm not going to comment on quantitatively.

Perfect.

Thanks, guys.

Helpful.

Stephane Houri, Natixis.

Yes, hello, good afternoon.

I have a question about the lithography intensity because when you will be switching, when the industry will be switching from 20 to 10 nanometer, in the past you used to say that from 28 to 20 nanometer the litho intensity was growing by 1.7 to 1.9.

Do you have the same kind of metric for the 20 to 10 nanometer transition?

It's a bit difficult to answer at this moment in time.

What we are seeing -- because it is a bit different customer per customer.

We're still compiling that information and I don't feel comfortable enough to give you that particular very precise answer.

It might be next quarter, our conference call, I might be able to actually do that.

It will go up.

That's for certain, because the number of layers go up and also -- from the double patterning passes will go to multi-patterning passes.

We know for a fact that for certain, in all layers, quadruple patterning is actually needed.

So to give you a precise number -- we're still working on it and I'd like to give you it, but I'm not going to speculate or to guess.

But it's going to be significant.

So the litho intensity for the 10 nanometer node will definitely go up.

So I will wait for next quarter.

Maybe a follow-up, you talked about the R&D increase.

What can we say about SG&A?

Because they have increased since you acquired Cymer, is there any cost-cutting measure there?

I would assume for now that it's relatively stable for the time being.

Okay, on the EUR90 million level?

EUR85 million is what we said, yes.

Okay.

Thank you.

Srini Sundar, Summit Research.

Hi, thanks for taking my question.

Just to -- could you please give some color on what was involved in the acceptance of the EUV tool in the Q4 quarter?

What was involved in that meeting it's -- basically it's meeting -- (multiple speakers)

Meaning what were the criteria, what were the criteria that the customer felt was sufficient for them to (multiple speakers)

There were technical criteria.

And the most important one was that the customer ran wafers -- what we call OPC wafers with the -- let's say what the target features of the mask being printed on the wafer, giving the imaging results confirming the 10 nanometer device requirements.

And that's what actually happened.

So what you actually asked for is that I want a machine that is an integrated machine with an EUV source and an EUV 3300 scanner with the maximum optical capability that will give us a 10 nanometer feature on the wafer using a 10 nanometer OPC wafer.

And that's what it is.

And then they run a patch of those wafers and that need to be batches where everything was fine, and which was fine and was passed.

That's why we say the qualification also in the introductory comments on the imaging results for 10 nanometer as actually being done.

We are qualified from an imaging point of view on 10.

And that's when the customer says I have a tool with which I can make my 10 nanometer devices.

And then I will insert that tool when the economics, i.e., the stability of the tool, the availability of the tool, are actually met.

And that will, I think, happen over the next foreseeable future because we have worked hard on it.

And we are very close with our customers, we have made good progress, and we know what to do.

So I think the acceptance of that first tool showing those OPC wafer results was a big thing.

Thank you.

And just as a short follow-up -- what percentage of memory orders were based on 3-D NAND -- wafer 3-D NAND?

We don't give that kind of detail -- what is driven on 3-D NAND.

But NAND shipments, as we all know, there's one major outfit out there in the world that is taking tools in Asia.

And that is forward NAND.

So we are not going to be specific on this.

So you can easily deduce how many systems and tools were taken by that particular customer, which I'm not going to do.

So -- (multiple speakers)

Okay, thank you.

Gareth Jenkins, UBS.

Thanks for taking the question, gentlemen.

I guess we've spoken a lot about logic insertion and 10 nanometers.

Can you talk about EUV and DRAM at 18 nanometers, and what the progress there is and what your expectations are, whether it's -- with those one to two layers in that sort of 2015 time frame?

Yes.

On DRAM, we actually -- it's the 19 nanometer node that currently customers are looking at, which probably is going to be done with deep UV and double patterning.

It's a 16 nanometer DRAM node, which is the node where we have to -- where we actually have to use EUVs.

So with our DRAM customers, this is the node that we're talk about -- sorry, about EUV insertion.

And that actually means that we will have to see some level of interaction with our customers on EUV in the course of this year to do the first development steps for a 16 nanometer DRAM node.

Thank you, and as a follow-up, completely unrelated, Peter, or Wolfgang, indeed, the gross margins on the 1970, I just wondered if you could help us quantify.

Obviously, gave us some very helpful color on the ASP and the backlog.

Could you just help us with the gross margins on -- of that tool?

I presume given the throughput, it's at a decent level as well.

The only thing I can say is that those gross margins are higher than the -- currently than the corporate average because of the higher percentage of application products that are in there.

And the application products are software and hardware related.

It's YieldStar combined with the software control products which carry good gross margins.

So the 1970 is not only a tool that has high average selling prices, but very healthy margins.

The only indication I can give you -- and you can understand I'm not going to give in a public call the margin profile on the tool, a specific, which of course, a lot of customers would like and especially the purchasing departments, but it's really -- you have to look at the margin development of the Company.

I think Wolfgang made it clear in the press conference this morning, when you look at the fourth quarter gross margin and you take the EUV impact out and the -- let's say non-cash accounting adjustments for Cymer, then you will see that actually the fourth quarter was above our last peak gross margin profile.

So if you do the math, then Wolfgang can help you or one of the IR guys can help you to go through those numbers.

But that gives you an indication of what it means for the Company.

Thanks very much.

Mehdi Hosseini, SIG.

Yes, thanks for taking my question.

Peter, when you look at what your foundry customers are doing, can you help us understand what's the -- if you were to have the 70 wafers per hour this year and 120 next year, what is the number of layers at 10 nanometer that your foundry customers are going to adopt EUV for, (multiple speakers) based on the 70 wafers per hour this year?

70 wafers per hour this year.

Well, like I said earlier, it it's -- if it's 70 wafers per hour, the question is whether they're going to use 70 wafers per hour.

I think they are going to use the tool as much as they can.

And I think they will be looking at insertion points where the economics are met for the layers that they are targeting at.

Now per customer that is different.

It can vary from two to four; a four maximum.

Two, I think, is the most reasonable assumption.

And we have the 70 wafers per hour capability, but it means that if they do their learning, they will probably start at a lower level because they have to go to their own process learning also.

So what we are really looking at is, I would say two on average, could be three.

Of course they're not all the same.

Maximum four, but that's -- I would say max.

So, if you want to go average, two.

Okay.

And then your foundry customers are also talking about escalating cost, and especially in the absence of EUV.

Would there be a scenario in 2016 where the key customers come back to you and say, look, you got to lower the immersion ASP.

Is there a scenario where you will actually be pressured by immersion ASP as a way to alleviate escalating costs in the absence of EUV?

And again, this is just one scenario of many.

Well, if you say in the absence of EUV, I don't think that for us, that is not a realistic scenario, because in 2016 there will be EUV.

But if you say suppose there's not going to be EUV, then there is -- it's very hard to imagine that there are going to be any other tricks up their sleeves to go from 10 to 7. If they do, it's going to be extremely difficult from a cost point of view to keep using deep UV.

So I think that what you are basically than saying is that Moore's Law will slow down.

Now, so what we're seeing today, I think is more realistic.

Yes it's a EUR50 million plus price, but it does provide the value to do 10 nanometer shrink.

So, obviously, and the customers make those calculations better than we do, that they know what their litho spend is going to be, they know what their production spend is going to be, and they must be convinced that the value that they get out of the shrink to 10 nanometer is significantly higher than that added cost.

Otherwise they would not do it.

So it's obvious that there is a cost increase.

And this is the reason why they are working so closely together with us on EUV, because ultimately you could say the 1970 multi-pass patterning, great bridge solution for the 10 nanometer node -- there is a kind of a process of record.

But once we made the EUV targets, yes, the economic insertion targets, they will go EUV.

Thank you.

Jerome Ramel, Exane BNP Paribas.

Hi, Peter.

Thanks for taking my question.

There was a -- just a few months ago, you had a vision of EUV market in [2016] potentially being at 60 units.

With what you described today with, on average, maybe two layers being tied up to EUV, what is the more realistic scenario for 2016?

And the follow-up will be if, as I assume, EUV market it being, whatever, 30 or 40 tools, in absolute dollar terms, what is the impact on your addressable market?

Yes.

We said 2015, 12 to 15 units, where with some upside, if we would see a faster adoption, if it would meet the economic targets of our customers faster.

We have a capability of doubling that in 2016 and doubling that again in 2017.

And our scenarios, our simulation scenarios that we run based on the customer roadmaps lead us to believe -- also after discussion with customers, that we are going to use that capacity if we meet those economic targets.

So if you have 70 wafers per hour this year and 125 next year and we can meet those economic targets in terms of availability, in terms of the stability of the tool, I think we are going to use our capacity.

Okay.

But realistically, what could be the number of total units you target for UV in 2016?

I said 12 to 15 units in 2015, doubling that in 2016, doubling that in 2017.

I think that's what we said last quarter also, and that is still the case.

Okay.

Thank you.

Mahesh Sanganeria, RBC Capital Markets.

Thank you.

Here's the -- I have a question on your booking composition.

It's a little surprising.

Your memory booking is pretty close to the peak in second half of 2010 and the foundry bookings are much lower.

And I would've expected that it will be, considering that 20 nanometer capital intensity in foundries are so high.

So maybe on both the positive and negative surprise on memory from my perspective, if you have any comment, that will be helpful.

Yes, I think memory in the bookings is indeed high, but I think it is understandable.

If we look at especially the DRAM situation, when we look at the installed capacity in the reduction of that capacity due to -- when I talk about the wafer out capacity in the DRAM industry, it has come down with DRAM prices going up.

And the reason why its total capacity went down is because there were conversions from DRAM into NAND in 2012, early 2013.

And also the complexity of the DRAM chips has gone up with additional ArF immersion layers, which also means that your wafers out go actually down.

No new DRAM fab is built.

DRAM price is going up to very healthy levels.

It's not a surprise that this comes back.

And at the background, NAND being pretty stable, they are all going to the next node.

So when you look at the value, it's a bit deceiving because it's three to four years ago, while if you look at the units that have been booked and the average selling price difference between 2010 and 2013, 2014 is quite different also.

So from a unit point of view, it's not a crazy number.

But that's for memory.

For foundry, foundry was a bit lower in the fourth quarter.

And if you look at the backlog, the end user is only 13%.

So it means foundry still has to come, and this is exactly what is the case.

We've had one foundry investing pretty significantly in 2013, ramping before the others, which the others are now -- will follow.

Simply haven't met -- not translated yet into the paper that is called an order, but those will come.

There's no doubt.

Okay, that's really helpful, and one follow-up question on EUV shipments.

Are you going to ship all four with upgradable to MOPA PrePulse in field?

Or are your -- the later shipments will go with the MOPA PrePulse?

Is there a difference in shipping to different customers for the 3300s?

Yes, there is a difference.

So some take MOPA -- take NOMO, and with an upgrade in the field.

Others want to wait until MOPA PrePulse is actually there, so there's a difference between customers.

And as you can understand, because of the limited number of customers, I'm not going to give you the details, who does what, but yes, there's a difference.

And so that's the driving that you have less revenue recognition in the first half, and there is a -- there is four shipments and there is a gap and then once that MOPA PrePulse has become available then you would ship in more?

Okay.

That's one of the reasons, yes.

Sumant Wahi, Redburn Partners.

Thanks for taking my question.

I actually just wanted to clarify one previous question asked.

Just to be clear, you mentioned your capacity for shipment of EUV tools in 2015, which is next year, to be about 12 to 15 only and 30 and 2016 and doubling of that in 2017.

Is that correct?

You are correct.

What we said -- that the minimum we could do in 2015 is 12 to 15.

Actually -- (multiple speakers)

Minimum?

Yes.

That is what we believe.

The actual capacity in 2015 is indeed a bit higher.

So that is more like 22, 24 units.

But the minimum base of those two layers I think is between 12 to 15 units.

Okay, that's very clear.

And I guess the way the situation is developing at the moment for 2016, 10 nanometer insertion, it's clear that it's either UV for NXT:1970C.

And given the higher price per tool over there, is it fair to assume that on a gross profit level, it's probably the same euros you're talking about, whether a customer chooses to go for an EUV tool for 10 nanometer insertion or a double patterning one?

Actually, that's not the same.

If they go for immersion, their gross margin profile is lot better.

Sorry, profit dollars -- profit euros in absolute euros is higher?

You mean in absolute euros?

Yes.

Interesting question, because we need more immersion tools at the higher margin, although we have a higher sales price for an EUV tool at a lower margin.

I have to look at the mix.

What we're looking at is basically the 10 nanometer nodes with a predominant choice for immersion products will mean that we have a clearly better margin profile than when they predominantly choose EUV.

That is for sure because of the learning curve that we have with EUV.

So, maybe if we ask in terms of -- from a macro perspective, is it fair to assume that for every EUV not sold, there could be 1 to 1.5 -- you see what I mean -- for every two EUVs not sold, three NXT immersions being sold?

Yes, I think at a minimum, because the -- that's a reasonable assumption, could even be a bit higher.

Okay, that would imply, then, equal in profits at the minimum.

One final follow-up -- (multiple speakers)

At absolutes.

Yes, at absolute.

Yes, absolute.

And one final follow-up, could you give us an idea of what your CapEx profile will look like for the next -- for this year and next, please?

Yes, I can touch on this.

It's Wolfgang.

Like Peter just said, we are staging for success.

We're building out the EUV capabilities here in Veldhoven.

We are also investing in San Diego.

So our CapEx will run slightly higher in this current calendar year than what we did last year and that's a very conscious decision as well.

So could you give an absolute number please?

We are not providing that, but it's higher than what you've seen in 2013.

All right, thanks very much for that.

Weston Twigg, Pacific Crest Securities.

I was just wondering if you could comment on the upgrade or reuse activity for immersion tools.

And I'm wondering kind of more specifically if customers can upgrade existing tools to get 1970-like capability?

Yes, that's a good question.

The answer is yes.

Since the customers need more litho capability, that's a more litho throughput capability at multi-pass patterning, they are of course looking at to upgrade their existing installed base of some of their -- in our installed base to 1970 performance, because they will need a lot of those leading-edge tools.

And it would be highly interesting if you can have tools of a previous generation and upgrade it to 1970.

Yes, that can be done.

And it's also in the plan that we have with customers -- almost with every customer, there is a section that deals with upgrades of a number of the existing tools.

Those upgrades are upgrades that generally cost anywhere between EUR10 million and [EUR15 million], because when you go to the NXTC, you need basically a complete new wafer stage.

So there are -- plus we need to make adjustments to the optical system.

It's all quite expensive with good margins.

But that is in every plan with the customer.

Otherwise you could say this is an answer of the customer to make the 10 nanometer deep UV multi-pass patterning strategies somewhat affordable.

And that's where we're looking into this together with our customers.

But yes, that can be done.

Okay, good.

Very helpful.

And then, I guess on a related note on holistic litho, I think last quarter you said that holistic litho sales could reach 10% of sales by the end of this year.

And is that still the case?

And have you indicated a gross margin range on the holistic litho options?

Yes, we talked about it.

This is still true, what we said last quarter.

And gross margin profile, it depends on the composition of what they want.

If they want more hardware than software, then it is of course lower.

But what is more software related, well, you know, it's not a surprise that software products have a very high gross margin in the range of 80%.

So that margin profile is good.

And we actually need that because also the R&D cost, like Wolfgang pointed out for the -- especially for the applications group is also going up.

So, the margin profile is significantly above the corporate average.

Okay.

Very helpful, thank you.

If I could suggest that we have time for one more call.

If you were unable to get through and ask a question, the IR department is available this afternoon, this evening here in Veldhoven.

So feel free to give us a call, send us an email, and we'll be glad to get back to you.

Now operator, could we have the last question, please?

Simon Schafer, Goldman Sachs.

Yes.

Thanks so much for the question.

I just wanted to go back on this topic of gross margin potential in the DUV business.

Obviously three very clear trends in terms of rising holistic litho proportion.

And then secondly, I wondered whether you could just go through how we should think about the potential gross margin benefits now that you have sort of had a few months to digest Cymer.

So, point number one, the integration benefits and gross margin from Cymer, and then secondly, how some of the accounting terms of the customer investment plan from Intel would affect gross margin as well?

So those three things are clearly inflationary to gross margin and DUV, but I wonder how much?

That would be very helpful.

Yes, the gross margin, like I said on the 1970, we're not going to be specific on the gross margin of that product for obvious reasons.

Clearly the gross margin profile is improving.

And like I said, is it's -- repeat; it gives you -- if you don't have a proxy, you can look at the fourth quarter results, look at the breakdown of the sales numbers, the number of immersion systems.

We sold another four NXT:1970s in Q4.

And if you take out the one-time impact of the Cymer purchase price accounting and eliminate for the EUV sales number, then you have a gross margin number that is between 46% and 47%.

So, now, that -- and clearly the impact -- the improvement of the gross margin has to do with the richer mix of high quality [canvas].

So that gives you an indication.

That's as far as I want to go.

And with respect to your last part of the question was?

It's (multiple speakers) just because the Intel investment plan obviously has an impact on the gross margin as well, I just wonder whether that 46%, 47% underlying run rate has more room to go?

Yes, but that has nothing to do with the Intel or the Customer Co-Investment Program, although part of the program credits will be allocated to gross margin relative to the number of shipments that we make in this particular case to the biggest partner in that program.

But the upside in gross margin is really driven by two things.

It's the application products.

So it's more -- we are providing more and more litho solutions with very advanced nodes and that drives the gross margin up because of the product profile.

And secondly, yes -- I mean going forward in EUV, there is a gross margin impact when we are at full integration with Cymer on the EUV source, and we are driving costs down because basically, our critical integration, you will keep that margin you would otherwise pay to your supplier.

You would keep that of course in your own profit or loss account.

So there is margin upside, different by vertical integration in EUV.

But like I said, that also has to do with volume that we need to make in EUV.

And I think the margin profile has benefited from the holistic litho product portfolio.

Makes sense, Peter.

Thanks so much for clarifying.

All right.

I would like to, on behalf of the board of management here at ASML, I would like to thank you for joining the call today.

And operator, if you could formally conclude the call, I would appreciate it.

Thanks.

Ladies and gentlemen, this concludes the ASML fourth quarter and annual 2013 results conference call.

Thank you for participating.

You may now disconnect.