艾司摩爾 (ASML) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the ASML second-quarter results conference call on July 15, 2015.

(Operator Instructions).

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

Please go ahead, sir.

Thank you, Erin.

And good morning and good afternoon, ladies and gentlemen.

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

I would like to inform you that today we are conducting our conference call from two locations.

We are participating here in San Francisco at the SEMICON West show and with me is Peter Wennink.

In our headquarters in the Netherlands we'll be joined, or are joined by Wolfgang Nickl, ASML's CFO.

I mentioned this just in case there is a technical problem; when one of the calls drop we will get back to you as soon as is technically possible, although we don't anticipate any problems.

As a reminder, the subject of today's call is ASML's 2015 second-quarter results.

The length of the call will be 60 minutes as usual.

This call is also being broadcast live over the Internet at www.ASML.com, and a replay 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 the 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 materials found on our website and in our annual report on Form 20-F and other documents as filed by the Securities and Exchange Commissions.

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

Thank you, Craig.

Good morning, good afternoon, ladies and gentlemen and thank you for joining us for our second-quarter 2015 results conference call.

Before we begin the question-and-answer session, Wolfgang and I would like to provide an overview and some commentary on the recent quarter and provide you our view of the coming quarters.

Wolfgang will start with a review of the second-quarter financial performance with some added comments on our short-term outlook.

And I will complete the introduction with some further comments on the current general business environment and our future business outlook.

Wolfgang, if you will.

Thank you, Peter, and welcome, everyone.

For Q2 our net sales came in at EUR1.65 billion with system sales again nicely balanced between memory and logic.

Memory represented 47% and logic represented 53% of system sales.

Our system sales included one EUV tool.

Service and field option sales came in at a very healthy EUR520 million driven by strong demand for field options and upgrades.

Gross margin for the quarter was 45.6%, above our guidance and impacted by revenue recognition of one EUV tool which shipped in Q1.

R&D expenses came in at EUR267 million and SG&A expense came in at EUR88 million, both slightly above our guidance driven by accelerated product development and infrastructure projects.

Our effective tax rate for the quarter was approximately 11% of pretax income.

Turning to the balance sheet.

Quarter-over-quarter cash, cash equivalents and short-term investments dropped to EUR2.52 billion from EUR2.84 billion at the end of the prior quarter, in part due to a EUR302 million dividend paid in Q2.

We also paid EUR166 million during the quarter for repurchased shares.

Regarding the order book -- our Q2 non-EUV system bookings came in at about EUR1 billion.

This was better than we expected in both memory and logic.

We see additional booking of six EUV systems; our total system bookings during the quarter were EUR1.5 billion.

We finished the quarter with a strong overall backlog of just over EUR3 billion.

As it relates to our EUV backlog and our backlog in general, I do want to point out a change in our definition driven by this quarter's EUV orders which allows us to make these orders visible to investors.

Our prior definition included a timeframe of requested system deliveries within one year.

That time limit has been removed at the current [delivery] time on new EUV systems is greater than one year.

With that I would like to turn to our expectations and guidance for Q3 and share our view on the balance of 2015.

We enter Q3 with a strong and nicely balanced system backlog.

Adding continued strong service and field option sales at the level of Q2, we expect Q3 revenue to be between EUR1.5 billion and EUR1.6 billion.

Q3 will not include any revenue recognition for EUV systems.

Based on expected customer and product mix we expect gross margin for Q3 to be around 45%.

R&D expenses for the third quarter will be about EUR275 million.

SG&A is expected at about EUR90 million.

R&D and SG&A are both up slightly from the Q2 levels driven by investments in future technology and continued [FX] from a strong US dollar.

As to the rest of 2015, we expect less tapering in our memory business in H2 than we anticipated last quarter.

This is driven by continued capacity additions in two new DRAM perhaps and by some additional capacity needs in the one existing volume 3D NAND fab.

We continue to see a stable logic business throughout 2015 in support of current FinFET node RAMs and next node development.

Our service and field option sales exceeded the EUR500 million mark in Q2 and we expect that level to continue throughout H2 due to increased adoption of our holistic lithography products and the purchase of system node enhancement packages supporting customer node migrations.

We expect to see Q4 revenues holding up at the Q3 level with some upside opportunity possible due to logic's need for additional advanced node development tools.

This means that we are on track to another record sales year for 2015.

Peter will talk more about EUV shortly, but I would like to make a few points regarding 2015 EUV shipments.

As most listeners are aware, we continue to show great progress in improving on key EUV performance metrics related to productivity and availability with unchanged targets of improving both further throughout this year.

We are delighted about the receipt of purchase orders for six EUV production ready tools during last quarter.

Of the six tools, two tools are scheduled to be delivered this year and the remainder will ship from next year on.

This is an indication of EUV's continued progress along the new technology adoption curve.

For 2015 we now see the opportunity to ship five NXE:3350 production ready systems supported by four system orders and with close customer interaction on the fifth system continuing.

Also we plan to ship one additional NXE:3300 before year end.

With the one NXE:3300 that we shipped earlier this year we therefore now forecast a total number of seven EUV shipments for the year.

One of the two remaining prepaid NXE:3300s is planned to be upgraded to an NXE:3350B or higher.

And for the other systems, discussions with the customer have not been conclusive as of today.

We expect the EUV revenue for the year to be limited to the one NXE:3300 that we are recognized during Q2.

Revenue recognition for the remaining shipments this year will depend on the achievement of certain performance milestones and attribution of overall revenue to the system itself and related services.

Revenue recognition will vary from customer to customer based on the specific terms and conditions in the respective agreements.

We will provide our assumptions for timing of revenue recognition after we have shipped incremental EUV systems.

Once the performance of EUV technology is matured we expect to recognize revenue in the same fashion as we do in our EUV business.

Finally, as an update on our capital return program, our proposal to increase our dividend by 15% was accepted by our shareholders at our annual meeting in April resulting in a payment of EUR302 million in dividends in Q2.

In addition, relative to our 2015-2016 buyback program announced in Q1, we now executed total repurchases for the first half of 2015 of EUR285 million at an average price of EUR96 per share.

Now with that I would like to turn the call back over to Peter.

Thank you, Wolfgang.

As Wolfgang highlighted, last quarter we had an expectation that our strong second half of last year would continue into the first half of this year.

We can now say that the strength in the first half of this year is expected to continue through the second half leading us to a record revenue year in 2015, as Wolfgang mentioned.

This is clearly supported by our strong service field options and upgrade business.

Our customers appear to be preparing for continued growth in their business as we see, for example, the two new DRAM fabs that Wolfgang mentioned continue to install capacity.

In addition, we have all heard announcements of the two new NAND fabs likely to begin taking manufacturing equipment in 2016 for volume build of vertical NAND.

On top of this we see two new foundry fabs beginning to take tools in the second half this year in support of advanced FinFET process node brands and early development of next node logic devices.

So before I move on to EUV I would like to share some highlights of our DPP and holistic lithography programs.

Firstly, with respect to our DPP program we will begin shipping this year our NXT:1980 immersion product which is capable of 30% improved overlay accuracy versus our prior offering, along with the world's first 275 wave per hour immersion capability.

This will help our customers to deal with the increasing cost of complexity relating to multiple patterning strategies.

Next to these platform improvements we are increasingly focusing on the availability performance of our systems.

And I am glad to report that this year the average availability of our worldwide installed base of more than 300 NXT tools increased to above 96%; again an important driver of affordability.

Secondly, I would like to highlight that our holistic lithography products now have a 100% attach rate of newly sold immersion systems.

Our integrated metrology system, which we call YieldStar, is now broadly accepted with more than 250 systems in the field.

Our holistic lithography concept of providing imaging, measuring and modeling capability allows unique support for controlling today's and tomorrow's most challenging advanced patterning processes across all industry sectors.

Thirdly, we feel that we are strongly positioned with our wide range of field options and upgrade products.

These products allow for extraction of maximum performance from the installed base of our lithography tools and extension of their performance over multiple nodes allows for a more efficient capital use of our lithography equipment.

And as witnessed this past quarter, demand for these products continues to grow with combined service field options and upgrades crossing the EUR500 million mark last quarter for the first time ever, as Wolfgang mentioned.

It is expected to continue to stay around this level for the next few quarters.

And finally, on EUV.

As we are -- as most of you are aware, we continue to demonstrate real progress against our targets in system throughput and system availability.

These are the key metrics of performance that drive new lithography technology adoption once imaging and overlay performance are demonstrated and accepted.

As mentioned on many prior occasions, our focus in 2015 is on improving EUV stability and availability, with continued steady progress on productivity.

As it relates to productivity, during the first quarter we demonstrated 1,022 wafers exposed in a 24-hour period at one customer site with an 80 watt configuration.

Our target is to be able to repeat this at several customers and at several sites.

Now upgrade of systems in the field to 80 watt has virtually been completed in the second quarter.

This gives us further confidence that the customer targets are realistic and should be met.

In addition, we have demonstrated 130 watts dose controlled source power in our facilities enabling further productivity improvements.

On system availability, which is targeted at 70% by year end, we have been running at a 55% average of customer installed systems.

With current upgrades multiple sites are now achieving average availability of greater than 70% for one weekend with one customer achieving a 70% average over a four week run.

So excellent progress on this important front.

Now with the first two orders for our fourth-generation NXE:3350B production tools announced late last year and entered into our backlog, this past quarter we not only signed a volume purchase agreement for a minimum of 50 tools with a US customer, but have also taken a six tool purchase order against that agreement which has now also entered our backlog.

And as Wolfgang mentioned, also discussions are continuing with multiple customers on the exact timing of their requirements for more EUV systems.

Clearly the EUV adoption curve will be driven by the continued progress we are making on these key EUV performance packages.

The question of how many EUV orders we will see during the next few quarters can only be answered by relating the aforementioned progress with each customer's specific roadmap, adoption drivers and risk appetite.

These are of course different per customer, but generally we can say that our logic customers are most aggressive given the complexities of multiple patterning strategies followed by DRAM and ultimately NAND customers.

In any case, in order to deal with this eventual and inevitable demand we recently opened our new EUV factory which will enable an output of 24 systems by 2017 and potential further output capacity growth to 60 systems in the years to follow.

Now with that we would be happy to take your questions.

Thanks, Peter, and thanks, Wolfgang, as well.

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

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

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

Now, Erin, could we have the first -- or your instructions and the first question, please?

(Operator Instructions).

Sandeep Deshpande.

Sandeep Deshpande, JPMorgan.

If I may ask on EUV, I mean in terms of what you are discussing with the customers you have given some indication of the US customers' orders which are going to ship into next year.

Do you have any sort of visibility about the other major customers and how EUV shipments would go into 2016?

Clearly you are going to have capacity now to do that given the opening of your new EUV factory.

And secondly my question is on OpEx.

You have had some impact to your OpEx from the euro/dollar exchange rate.

Is there any further impact to the OpEx from the euro/dollar exchange rate or is the current OpEx reflecting what the current euro/dollar exchange rate is?

Thank you.

Sandeep, I will answer the first question and Wolfgang will take the second one.

Your question on do have visibility on the EUV shipments in 2016.

Well, there is -- part of that visibility is pretty certain because we've received the orders and we know what to do.

And I think there also we are currently planning on the 3300's that will be upgraded to 3350 performance and have not been shipped yet.

That could be part of the 2016 shipment pattern also.

I would say, like I said in my introductory statements, the question of how many EUV orders we will see during the next few quarters, you should really see in the context of the progress we are making on the availability and the productivity vis-a-vis what customer specific roadmaps are and what their risk appetite is and their adoption drivers.

Now, I think we have made good progress on availability and on productivity, which is evidenced by our current performance after the 80 watt upgrade.

So I would say if you would have a conservative view of 2016, I would say you should pencil in the same number of EUV systems that we have seen in 2015, which is a combination of the 3200s and the 3350s.

If you a bit more positive, and that will have to show over the next two quarters as in the second half of this year, that could run up and that could run up to approximately 10 systems.

So it is anywhere in between will be shipped today and 10 units, that is what our best estimate is today.

Don't forget that the real ramp is in logic first, which is basically 2018 production for our customers, which means 2017 shipment.

So the real shipment ramp will be in 2017.

And 2016 will be, you could say, an extension of the 2015 development work that our customers are going to be doing (multiple speakers).

Because just to clarify, you are talking about shipments and not recognition, correct?

So when you say that 7 to 10, or whatever, that is shipments and not recognition?

Yes.

What is important is that as those tools get shipped, because once they ship and it is a EUR100 million tool customers will use them.

And usage is extremely important in the learning curve.

And indeed adoption of EUV technology.

So shipment is very important.

So I would say the order of priority is to ship them first and get the cash in, which is part of the orders, and then we do rev rec which is, you could say, a discussion we will have with the accounting community, which -- and then Wolfgang can go into that into more detail.

But it just means that you need to go through the list of agreed performance criteria; you need to tick every box.

So in that order we need to ship first, that is the most important for the learning curve and for the adoption, and then we get the cash and revenue recognition will deal with the orders.

Sandeep, and I'll go into the OpEx question.

Yes, if you look at like where we started the year in R&D around the EUR260 million level and then in SG&A in the low EUR80 millions or so, and now we are guiding to EUR275 million and EUR90 million respectively, it is indeed true that the majority of that jump comes from FX effects.

Like if you look at R&D alone I think we have about 25% or so of our spending in the US and with an exchange rate going from the [1.30s] to [1.10], that probably accounted for two thirds of that jump from EUR260 million to EUR275 million.

The balance is really in accelerating investments in future technology before we get some of the wind down of investments in existing technology.

SG&A very similar, an FX impact of course.

And we are investing in certain areas, for instance in business development teams for field options and upgrade sales.

We are completely focused on the 2020 model that we published last November and we plan on being at about 13% of revenue in R&D and about 4% in revenue for SG&A.

So I think we are in good shape.

I want to mention on the FX effects that of course as a Company we also have positive effects from FX because we are selling field options and also services -- in particular services abroad in local currency at about 10% of our revenue in total.

And there we have a positive impact on our P&L as well.

But net-net there is probably 1 percentage point on the net income that we were impacted with from FX.

I hope that clarifies it, Sandeep.

Thank you very much.

Mr. Korschelt.

Kai Korschelt at Merrill Lynch.

I had two, the first one was on EUV.

So Peter, just to make sure I understand correctly, are you saying that demand and orders will depend essentially on the performance over the next six to nine months?

But my understanding is the availability is already moving up to 70% now with what is essentially an all tool and the 3350 will have I guess [mature] improvements and availability in source power.

So my question is, by the time these tools ship why would the major logic customers, when they see those improvements compared to the 3300 that they are using today, not order those tools?

Is there anything really that you think the 3350 will not be able to deliver, let's say in the first 12 months of shipments, that your main customers need?

That would be the first question.

The second one would be for Wolfgang just on the balance sheet.

From what I can tell it has been not a great cash flow quarter, because obviously the dividend has been paid.

But you are still above that EUR2.5 billion threshold I think that you have mentioned to us.

So, is it still right for us to assume that any cash that you generate essentially from here onwards will find its way back to the equity holders either through buybacks or the divi?

Thank you.

Yes, and perhaps the shortest answer is probably on the second question, so why don't you (multiple speakers)?

Yes, I will get started, Kai.

Yes, the assumption is right, we haven't changed anything on our returns policy.

We have established that minimum growth cash balance that we think that we need to run the business, it is around EUR2.5 billion.

Last year -- last quarter indeed the cash balance went down by some EUR300 million, and that was -- like you mentioned, it was purely a function of share buybacks and dividends that.

There was a nice free cash flow in the quarter as well.

And the policy remains intact.

We look first at dividends on excess cash [over] the 2.5 and our goal there is a stable or preferably growing dividend.

And then the balance we use for share buybacks we have EUR1 billion, or thereabouts, program announced in Q1 and we have executed EUR285 million against this program in the first two quarters.

So same policy as we had before, no change.

Good.

And on your question, basically with all the progress that we have made in the introduction of the 3350, why wouldn't customers order those tools.

That is a very good question and I think I would ask the same question, why wouldn't they order those tools, because we are making very good progress.

Now I think the answer is, we have had -- in the past couple of years we had many expectations and promises on the EUV introduction.

We have as a Company now basically over the last 1.5 to 2 years said we are going to tell you and to give you EUV guidance on what we actually see.

Now what we are seeing is a significant improvement I would say in availability and in productivity.

So your assumption is why wouldn't they come, it is a very fair one.

And on the 3350 we still need to ship the 3350.

We have the expectation that the 3350 will perform better than what we have in the field today, because you are correct, it will be higher productivity, it will better availability with in-situ cleaning in there.

So this is indeed our expectation.

But what we do not want is to give you all our expectations; we would like to guide you on what we actually see.

And like I said, if you want to be conservative and think that progress is going to be slow, you say, well, perhaps it is going to be in 2016 an extension of what we saw in 2015.

If you are a bit more positive then you would pencil in higher numbers for next year.

And if you have higher numbers for next year you also need to book the orders.

Now, given where we are today -- and you know me a bit.

I am more an optimistic person.

But we are not here yet to give you specific numbers on orders and when orders will come and when we will ship.

Great, thank you.

(Inaudible).

Hi, this is C.J. Muse with Evercore ISI.

I guess first question you talked about potential upside in Q4 led by logic.

Curious if you could provide a little more color there as to what the main driver and magnitude could look like.

And I guess as a follow on to that, as you see the 1980 layer in, presumably beginning in Q4 and then throughout calendar 2016 and beyond, how should we think about the uplift for ASPs?

Yes.

On the potential upside logic, that is really driven by the fact that when you look at the announced node to node transition, we make it specific and say that is the 10 nanometer node transition.

What we have witnessed also to on the 14 and on 20 we see an extended period of customers take for development of a qualification of those nodes as it relates to the timing of the ramp.

So it just takes longer to go to the ramp of that node, which effectively means if the ramp of that node is a given, yes, then you need more development time, brings the shipment of the early development tools back in time.

So you need them earlier.

And this is where we see the upside.

When we talk to customers and they talk about their newest node they just take more time to do the development and the integration work.

And that means that as an upside that we are seeing for the second half of the year.

So it is really advanced technology transitions, earlier acceptance and earlier delivery of those tools because they need more time.

(Multiple speakers).

You want to cover the ASP, Wolfgang?

I can cover the ASP, I mean I can't give you an exact number, but you should assume, C.J. that the ASP is up.

You see it in our press release for instance, a tool -- the 1980 provides for a 30% improvement in overly and all the better throughput of 10% to EUR275 million.

That's significant value to the customer.

And like we always do, we share that value.

So you should assume that that tool has a higher ASP, a few million than the 1970 has.

Great.

And then I guess as a quick follow-up on EUV, and I know there is a lot of timing uncertainty and you guys are more focused on shipments and the ramp in 2018.

But wanted to get your view on what would be sort of a low end number and a high end number in terms of revenue recognition on the EUV side in calendar 2016?

Well, I will take that, it is Wolfgang.

I won't to be able to give you a number today.

I can explain to you a little bit about the complexity and what we are going to do in the future to provide you to some guidance.

Like we said, we expect to ship seven systems this year, of that only one will recognize.

So you have the opportunity to get some revenue recognition in 2016 of these tools.

Plus then we will ship other systems like, for instance, the upgraded 3300 and you can expect to get some revenue recognition there as well.

Now as it relates to the 3350, as we launch this tool the revenue recognition will actually depend on a few factors.

It will of course depend on shipment acceptance, but it will also depend on certain performance milestones, plus we have the revenue and we've got to attribute it to the system and related services.

So it is fairly complicated and it has actually been made more complicated that every customer agreement looks different from each other.

So it is very difficult if you don't know the -- if you can't go into the detail on all these schedules and milestones to give you a forecast and, as you can imagine, they are also not cast in stone from a timing perspective.

So what we are going to do is we are going to give you an indication as we start shipping these tools, what the timing and the euro amount of the revenue recognition will be.

I mean, the first one of these could go as early as this quarter.

So you could expect us in Q4 to talk about this particular tool how the revenue recognition will go.

And then as we ship four tools in the fourth quarter and January I am certain that we'll give you some specific guidance, but can't do it today.

And I would also like to mention like this is a temporary situation.

Ultimately the objective is of course as the technology has matured that we go and recognize revenue in the same fashion as we do it for our EUV system.

Sorry to not be specific about the numbers, but that is kind of the complexity behind it.

But you will see us giving you more specific guidance as these tools actually ship.

Makes sense, thank you.

Gareth Jenkins.

Gareth Jenkins, UBS.

A couple if I could.

I just wanted a bit of clarification, Peter, on something that you have talked about just on the 10 nanometer insertion for EUV.

Presumably the design window is closing for that in terms of insertion.

And I just wondered whether you need further or whether you expect further orders for EUV to support 10 nanometer insertion.

Or should we just now expect a kind of full insertion at 7 nanometers across the three main logic customers?

And then I have a follow-up.

Yes, I think on the -- it is clear that I think the EUV insertion is now focusing on 7. However, things are a bit fluid in the sense that when you talk about 10 nanometer and you listen carefully to what customers say about the 10 nanometer node, there have also been clear public statements by customers about phases in that 10 nanometer node.

You have a first phase and a second phase and they will have nodes nomenclatures that are changing.

But from our point of view when you talk about a 10 nanometer node it is a certain pitch or a half pitch.

And there could be several phases.

Now I am -- in this particular case and given the complexities of 10 nanometer production using very complex multi-patterning strategies, I would never rule out that with progress of EUV the way it is today, and even if we can accelerate that progress, that as a customer that says listen, in the last phase of a 10 nanometer node I am going to use EUV, for two reasons.

One, it might be beneficial to reduce [complexity] at that moment in time and you have to learn -- you have to learn for 7. So, I am not ruling this out, it is going to be a function of the progress that we are making over the next one or two quarters.

Just on that, Peter.

So presumably at the half pitch shrink you are talking about maybe something like 8 nanometers.

So maybe EUV is not inserted at 10 but something like a half pitch at 8, is that the sort of thinking?

Well, the half pitch stays the same whether it is 10 or X, whatever that node is going to be -- 9, 8, 7, 8.5, 10 minus, 10X, I mean whatever customers are going to think of as a node nomenclature, it effectively is the second phase of the 10 nanometer node.

But the pitch and the half pitch is going to be the same.

So, but like I said, this is going to be a function of progress that we are making, the complexities in the yields of customers are experiencing using DPP multiple patterning strategies, that is going to -- those two things together will determine a potential if you were to say the second phase introduction.

And I am not going to say that is a slam-dunk.

With 7 nanometers I think it is clear.

I mean we see very clear announcements from customers that say we are going to use EUV at 7 nanometers.

But it is really the performance and their complexities that they are engaging or running into that are going to determine a potential second phase introduction.

And that is for learning also.

Right, that is very clear.

And just on a slightly shorter-term question, you mentioned that you are seeing earlier development in H2 2016 than maybe previously.

Does that mean that you are actually seeing some pull in effectively, some pull in business from H1 2016 to H2 2015 that we might have expected a bit later?

So I am not asking for H1 2016 guidance, but can you help us out with the sort of phasing through into next year?

When you look -- I think when you look at the potential upside that we are talking about, that is really like I explained earlier.

That is because of the development and the integration time for the next nodes, for instance 10 nanometer node, it is more complex and takes more time.

So you see as compared to the original assessment of when they would need the early development tools, which would be the first half of 2016, we see a potential of that being pulled into the fourth quarter of 2015, that is correct.

But that is technology transition.

With respect to capacity, like we mentioned in the introductory statements, both in DRAM, NAND and logic there are several new fabs out there that will take tools.

And they will take tools for the most advanced nodes and they will definitely ramp the first phase.

Now that the first phase will happen, that is why we are positive or we feel comfortable about the second half of this year.

How that will translate into 2016 ramp and speed of that ramp we don't know yet.

But the fact that those are new fabs, that they have to be ramping the first line gives us a lot of confidence of the next couple of quarters.

Thanks.

Mr. Arcuri.

Cowen, thank you.

I guess my first question is, Wolfgang, I want to make sure that the EUV systems that you are putting in the backlog this quarter, these are the 125 wafer per hour spec tools.

So the ASP we should think about is like EUR110 million and that is about the ASP that we should think about for all the EUV systems that you book from here on in.

Is that right?

And the backlog includes some of the 3350s, but then there is also some of the next generation 3400 included there as well.

And we said before that the 3350 list price is somewhere in the [mid-90s] and the 3400 would be over [110].

And then you have got to be a little bit careful when you look at it in the backlog because what you have got to do is you have got to take the ASP and split it over several elements of things that you deliver.

So there may be a little bit that gets allocated to a service that you deliver or an installation or a warrantee.

So you have got to be a little bit careful with the backlog ASP.

But I can tell you for the six tools that we took last quarter the backlog ASP is somewhere in the low 90s.

Low 90s, okay, great.

And then I guess I also had a question on holistic.

And Peter, you said that that attach is now up to 100%.

And I am assuming you are talking even in memory.

And so I guess my question is, of the EUR1.9 billion in service you are going to do this year, how much of that is going to be holistic and YieldStar?

And sort of what is the right opportunity for that going forward?

I guess I am thinking about what gross margins are going to be on your immersion systems because it looks like in June, if I assume zero gross margin, that the non-EUV gross margin is sort of 47.5 and it looks like maybe if holistic is that strong that you could get to 50% maybe next year or the year after.

Thanks.

I think on the margin question, Wolfgang, are you going to take that?

Yes.

I think on the holistic business, yes, 100% -- it is 100% attach rate.

That is definitely true for advanced logic, but now also increasingly for advanced memory and especially DRAM.

Also there you see multiple patterning strategies, you see multiple patterning spaces strategies, which basically also need the control software that we can provide together with the scanner to make sure that customers can control their process and they make it yield.

So, yes, you see it now also in memory and that attach rate will probably expand over time to the entire product base and to -- well, I would say across all industry sectors.

Wolfgang, you want to take the margin?

Yes.

As it relates to the gross margin it's important to know first of all when we report revenue we report in systems and we report in a second category, field options and services.

For the holistic lithography, it depends on whether the customer orders it with the original system, the option, then it gets reported in the system.

When it is later on ordered as an upgrade option then it will be in our field options and services.

So when you hear us talking about holistic lithography achieving over EUR500 million last year and us aiming for EUR1 billion by 2017, you will actually find that in both buckets.

I think that is important to know.

As it relates to the gross margin, we have said that before there is a strong software content in that business and there is some hardware in there was with the YieldStar metrology tool.

But the blended margin is somewhere in the mid-70s.

So as we approach the EUR1 billion in 2017 and as holistic outgrows the rest of the business, yes, it is going to be accretive to the gross margin over time.

I don't think I have an exact number to share with on what could we in which scenario.

But in general it is accretive.

Okay, thanks so much.

Mehdi Hosseini.

Thanks for taking my question, it is Mehdi Hosseini, Susquehanna International.

My first question goes back to some clarification.

You are increasing the age of backlog for EUV system, now it seems like it's going to extend more than 12 months.

It seems like you also have incremental confidence on seeing a double-digit EUV shipment by 2017.

You have a capacity of 24 systems per year by then.

Why -- can you -- in that context can you help us understand what is your base assumption for the mix of these systems that are going to be shippable in 2017?

And what I mean by mix, either on the logic side you can help us 7 versus 10.

And would there be any DRAM that would be included?

And the fact that your IDN customer -- US-based IDN customer has stepped up and placing order, also makes us wonder if they have revisited insertion at 10 or is it still going to be at 7 nanometer?

And I do have a follow-up.

Well, on the last question we are not going to be specific on any customer.

So that is unfortunate, Mehdi, but I don't think it is really appropriate in this call.

On the split in 2017, logic DRAM and the potential.

Well, like I said in my introductory statement the majority will be logic.

However, if you look at the DRAM roadmap, in 2018 we will be in the mid-1x DRAM nodes which is EUV territory.

So we are indeed seeing potential for a 2017 shipment which also includes advanced DRAM.

But the majority will be logic.

And that is going to be if you take 24 units it is going to be significantly over 50% is going to be logic, which is microprocessors and the foundry.

And I would say it is a minority.

I don't know if you want to get a number, it could be 75%, 80% logic and the rest DRAM.

And would you expect maturity to be like 7 nanometer logic or would there be a mix of --?

Yes, I think it is going to be 7 nanometer, yes, largely, yes.

Okay.

And then my second question has to do with your core business.

The bookings in Q1 declined 26% on a sequential basis and Q2 is down low-single-digit.

Is this the kind of base booking that would be required for technology investment and if there is any capacity coming in later on it would help with any kind of improvement in booking?

Is that a fair way of thinking about your current booking?

Yes, I think we probably sound like a broken record in this sense, but we're going to repeat how bookings are being administered in the Company.

We only have a handful of customers and actually we plan our production and our shipments to customer based on an agreement that we have with the operations executives of the customers and looking at their ramp schedule and we agree with them that have a certain production capability there to do the shipments.

And then the orders are almost an administrative follow on part of the process.

Just to give you an example, with a few customers we have volume purchase agreements that span a node, that basically you have a whole node agreement which is a lot more units that are under the volume purchase agreement.

And they will just follow on with orders based on the lead time that we give them.

And they will be very disciplined on giving us the orders taking into account the lead time.

With other customers we have annual volume purchase agreements.

And with other customers we have let's say volume purchase agreements which span a period of two years.

So when you have an annual volume purchase agreement and you negotiate it for three, four, five, six months and it comes in, then the orders will follow because then you only have six months left.

So there you get an input of orders as you could say is a big lump of those orders in one quarter.

So what I am trying to say is don't put too much emphasis on the order intake.

Over a longer period of time, you are correct, it needs to reflect our future business.

But a quarterly order intake is not indicative of our business going forward and might be almost deceiving if you understand how the ordering goes in our business.

More important is I think our guidance on what we believe that we ship that is based on the agreements which we have with operational executives of our customers.

Got it, very helpful.

Thank you.

Andrew Gardiner.

It is Andrew Gardiner with Barclays.

Peter, you do seem more optimistic now than you were earlier in the year and it seems as though despite broader concerns about the end markets and the cycle investments clearly continuing.

Your optimism though seems more around capacity additions as we come to the balance of the year rather than a very high level of a sort of technology race.

I think we can see this in the tool mix as well.

Looking at 2Q you had a higher level of KrF shipments, for example.

But as we then move into next year it seems as though you are talking much more about a technology driven year particularly when thinking about logic, beginning the initial investment at 10 nanometer and that requiring a high end immersion.

I am just wondering is this a fair characterization or is it perhaps too much of a generalization.

And so what are your expectations of your -- or those of your customers in terms of capital intensity for next year?

I am just wondering why wouldn't your product mix move more towards the higher end in 2016 relative to where we are in 2015 if indeed that technical complexity increases.

Yes, I think this is -- generally the ASPs are going up, and as you have seen and that is just a reflection of the increased need for tools that can help our customers address the complexities of the next nodes.

And whether it is on input overlay, higher productivity and was an earlier question, it will translate into a higher ASP.

So I think that is definitely the case.

Now, to your point, yes, I think it is too much of a generalization.

And to try to split the shipment pattern (multiple speakers) capacity and technology.

Because when we look at the capacity additions they are not in existing fabs, they are in new facts, which all those new fabs are addressing the most advanced nodes in those sectors.

So that in fact is technology, yes?

So -- and I would definitely say that the first phase ramp of those fabs is a technology insertion, but they have to add capacity because it is -- it is basically a new fab.

So for this year this is what is happening.

We have two DRAM fabs taking those tools we have, logic fabs taking those tools, that is driving our business in the second half, and that will happen.

Now if you ask 2016, it is too early to give you guidance on 2016.

But customers generally, when they have went through the first phase, they just look at where they are and what the end markets do and they will time the remainder of that ramp to fill up the fab.

And that you could argue is then capacity demand.

And I would say this is how we actually look at it because 14, 16 nanometer logic is now ramping, we are now shipping.

How much of that capacity will be filled in 2016 we don't know yet.

The same is for DRAM.

So I would say it is probably just the other way around a bit.

I mean what we are currently seeing is more technology capacity additions whereby 2016 will be driven by the situation in the end demand.

And that is for us still opaque, we don't know that and I think our customers don't know that either.

So we will just have to wait and see.

Understood.

Thanks for the clarification.

Francois Meunier.

The first question is about the new machine, which is about to ship, the 3350.

So how is it going to work?

I mean, you are going to ship the machine, unpack the machine, plug it in, put the floppy disk, switch it on.

What should we expect from this machine?

Is it going to start at like 500 wafer per day, 800, 1,000?

What is that next data point on this new machine?

Thank you.

Yes, we -- basically the 3300 that we now have has an upgrade package which brings us to 80 watts.

The 3350 ships with a [new drive blade] which brings it to 125 watt.

So that is a productivity increase from 80 to 125 watt, which you could say is almost a linear impact on the productivity.

So maybe 500 wafers per day on the 3200 80 watt and you can calculate -- you don't even need a floppy disk for it, you can calculate on a piece of paper to what that means for the productivity.

And as you know, we have a target of 1,000 good wafers per day next year so we need that productivity of the 3350.

Now is not only productivity, it is also availability.

Now we have a 70% target for this year, but a 3350 with all the new I would say options on it, which includes better stability of the [drop in] generator which includes in-situ cleaning, actually brings the targeted availability to 85%.

Now, so if you go from 80 to 125, which gives you more productivity, you get an availability that goes from 70% to 85%, it gives you more productivity, you can just calculate that the 1,000 good wafers per day is a very reasonable and good target for 2016.

Right, very good.

Now a more longer-term question.

There has been quite a bit of news flow recently about China and even a rumor of a Chinese company wanting to buy Micron this week.

It is pretty clear that the Chinese government wants to get more involvement in the semiconductor industry.

Do you expect China in general to become a bigger customer of yours going forward?

Yes, I think you just mentioned -- I could have given that -- what you just said could have been my answer.

Yes, it is clear that there is more focus in China on building semiconductor capabilities both in logic -- and also I think that statement is clearly that they want to be somehow involved in advanced memory.

Yes, I think China is becoming a bigger market.

But don't exaggerate it either.

I mean they're still, when you think about logic as compared to the leading edge logic makers, two generations behind.

And Moore's Law is not slowing down.

As a matter fact, and you could argue that 10 nanometer is actually being pulled in.

So, yes, there is a lot of attention, there is more attention -- I spend more time in China than I did the years before.

We have more interaction with our customers.

28 nanometer is now ramping in China -- 28 nanometer logic.

There is definitely more activity, but the -- like I said, the generations are still two generations behind.

And in terms of leading edge memory, there is a lot of leading edge memory in China, but that is in NAND and in DRAM and that is not in Chinese ownership, that is in Korean ownership.

So, yes, China is moving, but don't think it is going to be a blowout, it is going to be gradual growth over the next 5 to 10 years.

All right, thank you very much, guys.

Amit Harchandani.

Amit Harchandani from Citigroup, good morning and good afternoon.

Two questions if I may.

The first question relates to your field option and services.

We've seen an elevated level in this quarter and I am wondering to what to create is this an outcome of increased (inaudible) by customers as they move [within a node] or across nodes.

And how should we think about service and field option sales going forward versus the EUR2.5 billion to EUR3 billion target that you have in your 2020 model?

And the second question regards to EUV.

We have talked about throughput and productivity, (inaudible) seem to be under an acceptable level.

Could you give us an update on the defectivity aspect and where is that trending versus customer expectation?

Thank you.

Okay, I will take the EUV defectivity question and the growth drivers for field option and service and I think Wolfgang can then talk about the 2020 targets.

Basically I think you are referring to our model that we showed at the Investor Day last year.

On the EUV defectivity, this is currently not a -- well, that is not entirely true.

There was a defectivity worry, which largely had to do with mask induced defectivities.

I think with the introduction of the EUV pellicle, which we talked about last quarter, as basically that those worries are gone.

It is now making EUV pellicle the mountable and demountable pellicle, bringing that to an industrial state and that will take care of that.

Now, clearly there are resist induced defects, there are process induced defects.

This is why customers need those development tools.

This is why they are running hundreds of hundreds of good wafers per day today to figure that out.

Now we do not get the feedback from our customers that that is a showstopper.

They just -- what I would say it is the normal development activities that customers have to do before they can go into a production ramp.

So we don't have those numbers.

And even if we would have those numbers I would not give them to you because this is a public call, this is customer privy information.

So -- but it is not a major concern, especially since we have now a mask solution.

Now on the drivers for the fields option and service growth, very clearly it is the install base that grows.

It is the drive of the customers to look at their installed base and say how much CapEx have we still on the balance sheet and how can we reuse that.

Or how can we use it more efficiently by either getting more wafers out, doing productivity upgrades, doing overlay and focus improvements so that they can use those machines for the next nodes?

That is the big driver and it includes upgrades.

So, very advanced upgrades that include a land swap, a new optical system, it could be over EUR20 million -- EUR20 million to EUR25 million.

Now those are drivers for the field option and service sales.

I would call it installed base management, that is what customers are focusing on to have a better capital efficiency.

Wolfgang, you want to take the target number?

Yes.

First of all also on the reuse, yes, reuse is enabled by us through these packages and therefore we have also modeled that in our 2020 revenue numbers.

And no, the assumptions have not changed as it relates to reuse in our field options and services.

The EUR2.5 billion to EUR3 billion that you referred to in the different scenarios -- it will depend a little bit on, like I explained earlier on an earlier question, on whether customers order holistic options right with the system or whether they do options later on.

But again, at EUR400 million in the first, EUR520 million in the second and that being stable, you will be somewhere over EUR1.9 billion.

So, it is still quite a bit of growth left to get to the EUR3 billion level.

We feel very comfortable about it.

It is good business for us.

It is approximately at the average of the gross margin of our systems business.

So, we believe that is still a good target range for now.

(Technical difficulty).

Ladies and gentlemen, with that our 60-minute call time has expired.

For those participants that were unable to ask a question and have a need to do that, feel free -- please feel free to contact the Investor Relations Department with your question and we will get back to you as soon as we can.

And with that, on behalf of ASML's Board and management, I would like to thank you all for joining us today on the call.

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

Thank you very much.

Thank you.

Ladies and gentlemen, this concludes the ASML second-quarter 2015 results conference call.

Thank you for participating.

You may now disconnect your line.