Ladies and gentlemen, thank you for standing by. Welcome to the ASML 20 16 First Quarter Financial Results Conference Call on April 20, 2016. Throughout today's introduction, all participants will be in a listen only mode. After ASML introduction, there will be an opportunity to ask questions. I would now like to open the Q and A.
I would now like to turn the conference call over to Mr. Craig De Jong. Please go ahead, sir.
Thank you, operator, and good afternoon and good morning, ladies and gentlemen. This is Craig De Jong, Vice President of Investor Relations at ASML. Joining me today from our headquarters here in Beldhoven, The Netherlands is ASML's CEO, Peter Wenig and our CFO, Wolfgang Nickell. The subject of today's call is ASML's Q1 2016 results. Just as a reminder, for this call and for subsequent calls, the Q and A Q starts with the operator's instructions at the opening of the call and not before then, just FYI.
And as mentioned, questions will be taken in the order that they're received. As another reminder, the length of the call will be 60 minutes. 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. 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 meanings 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 found on our website atasml.com and in ASML's Annual Report on Form 20 F and other documents as filed with the Securities and Exchange Commission.
With that, I'd like to
turn the call over to Peter Wenig for a brief introduction. Peter?
Thank you, Greg. Good morning, good afternoon, ladies and gentlemen, and thank you for joining us for our Q1 2016 results conference call. Before we begin the question and answer session, Wachan 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 Q1 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 on our future business outlook. Ron?
Thank you, Peter, and welcome, everyone. For Q1, our net sales came in at €1,330,000,000 This included system sales of €856,000,000 of which memory represented 42 percent, with Logic representing 58%. Service and Field Option sales came in at €477,000,000 Our gross margin for the quarter came in at 42.6 percent, slightly above our guidance. R and D expenses came in at €275,000,000 and SG and A expenses came in at €89,000,000 essentially as guided. Regarding the order book, Q1 system bookings came in at €835,000,000 At this level, it's 30% below our prior quarter bookings.
I would guess that some listeners might find this confusing relative to our guidance, which includes a 30% increase in Q2 revenues. I would like to remind you that we are not an order driven company and that the order patterning varies from customer to customer. Therefore, our bookings are not always a real indication of our near term business opportunity. However, you can clearly see that our Q1 bookings have changed the complexion of our backlog in a way that supports our Q2 guide of growing strength in logic and flattening in memory. I can also tell you that we expect strong logic bookings in Q2.
Just as a further reference in this regard, I would like to draw your attention to our consolidated statement of operations found on Slide 21 of our Q1 2016 results presentation, where you can see the lumpy nature of our bookings over
the last 5 quarters as well.
Turning to the balance sheet. Quarter over quarter cash, cash equivalents and short term investments came in at €3,140,000,000 Our free cash flow for the quarter was negative €65,000,000 This was expected since we received a significant amount of customer prepayments on orders received in Q4, where free cash flow totaled €864,000,000 We expect free cash flow to return to a more normal level in Q2. Year to date through the 3rd April, we repurchased 2,700,000 shares for €223,000,000 as part of our newly announced €1,500,000,000 share buyback program for 2016 2017 combined. With that, I would like to turn to our expectations and guidance for the Q2 of 2016. We expect Q2 total revenue of approximately €1,700,000,000 Due to recent demand forecast increases, we now expect continued stable memory shipments for the rest of this calendar year.
Memory shipments for the second half of the year should be roughly equal to shipments for the first half of the year. Logic shipments in Q1 were primarily for the 28 nanometer node. We expect some level of continued capacity adds throughout the year at this node. But as mentioned last quarter, we expect a strong pickup of total logic shipments in Q2 in support of 10 nanometer production ramps. Our current view of combined logic indicates that the second half of the year will be greater than the first half of the year, the extent being determined by ultimate 10 nanometer ramp levels in 2016.
Last quarter service and field option sales came in at €477,000,000 and is anticipated to grow throughout the year. We continue to plan on a year over year increase of approximately 10% in 2016. This part of our business as growth continues to be driven by strong demand for holistic lithography options, high value upgrades and a growing installed base. Gross margin for Q2 is expected to come in around 42%. Gross margin will be significantly influenced by revenue recognition of 2 EUV systems in the quarter.
Our 2nd quarter net sales guidance includes about €110,000,000 for EUV. As previously stated, we can only recognize part of the system revenue, but must recognize the full cost. This, along with an initial low profitability on EUV, will cause a negative impact of approximately 5 percentage points on the gross margin for Q2, which is included in our guidance. R and D expenses for the Q2 will be about €270,000,000 and SG and A is expected to come in at about €90,000,000 both roughly at the same levels as the previous quarter. Peter will talk more about the status of our EUV program, but I would like to mention that we completed the shipment of 1 EUV system in Q1.
This shipment will lead to revenue in 2017. We expect to ship one additional system in Q2. And finally, at our upcoming Annual General Meeting of Shareholders on April 29, shareholders will vote on our proposal to increase our dividend by 50% to a level of €1.05 per ordinary share. We fully expect that this proposal will be supported by our shareholders. With that, I'd like to turn the call back over to you, Peter.
Thank you, Wolfgang. As Wolfgang highlighted, our Q1 results were very much in line with expectations, and our business is developing along the lines that we communicated over the last two quarters. While Wolfgang gave a qualitative outlook for 2016 with combined memory appearing flattish half over half with combined logic up in H2 over H1 and with combined services up half over half as well. We do see trends and developments that we believe are worthwhile mentioning. First one, despite a difficult pricing environment in DRAM, our forecast has further strengthened a bit in support of a continued drive by our customers to keep shrinking cost and specifically for low-twenty nanometer and sub-twenty nanometer nodes.
This has resulted in our current flattish half over half sales view for our combined memory business. For 3 d NAND, shipments continue to new fabs and to fabs preparing for 2 d to 3 d conversions. And of course, we are watching with interest the developments in the volume introduction of the cross as it will become quite little intensive in time versus the 3 d NAND architecture. Secondly, as mentioned in previous earnings calls and evidenced by our backlog, it is clear that our sales to our combined logic in support of in support of initial 10 nanometer node ramps. And as a result, we now forecast the significant increase in combined system and service and fuel option sales in Q2 to be at the level of €1,700,000,000 Also of note, in the Q1, we saw shipments for 28 nanometer logic capacity additions continue.
I would like to make an observation here regarding logic node ramp behavior. Looking at the ramp speed, size and length of the latest most advanced nodes, it appears to us that the rollout pattern of such nodes is changing. Previously, node transitions followed each other in a rather predictable pattern throughout our entire Logic customer base, whereby new nodes ramped quickly, in turn, ending the capacity ramp of the previous node concurrently. What we see today, effectively starting with the 28 nanometer node, is that the initial new node ramp is done by a very limited number of customers, but with greater intensity, meaning speed and initial size of the ramp. Then the rest of the node ramp is executed over a prolonged period, whereby the rest of the Logic customer base follows the initial customers in phases.
Current evidence of this trend is the aforementioned continued shipments for 20 nanometer logic capacity additions. This is still continuing more than 4 years after the initial introduction. In discussions with our logic customers, we see similar capacity expansion behavior over time for future nodes. With litho intensity rising significantly node by node, initial node transitions are lengthening to 3 years with the aforementioned longer tail end of previous nodes. This will likely make shipment and order patterns for a specific note as well as the ultimate wafer capacities less transparent over time.
However, based on the input from industry analysts' forecasts of end market developments, we believe that our long term assumption of a 10% note on note reduction of the ultimate installed wafer capacity is still appropriate. As you all know, this was one of the pillars underlying the simulation leading to our €10,000,000,000 sales target by 2020. As for a 10 nanometer node, its introduction is clearly progressing. The speed and initial size of this ramp can be explained by the value proposition provided by the significant shrink of this node versus the prior node. The ultimate spend levels for Logic in 2016 will depend on, amongst other things, both the level of end demand and the rate at which our customers will be able to execute their ramps.
This is why it is still a bit too early to predict the overall 2016 SPAD levels today. For Field Options and Services, we see continued strength in 2016, and this should show growth as previously estimated in the range of 10% over 2015. On the AS and L product side, we continue to focus R and D spend on lithography products that are essential to the ramp of our current and advanced processes. In BQV, addressing the growing litho challenges of complex and lithography intense multipass patterning, Our recently launched the TwinScan NXT 1980, with significant improvements in all key performance metrics, has rapidly reached productivity of more than 4,000 wafers per day, demonstrating the maturity of our latest MXD platform. In holistic metrology, we started rolling out our YieldStar 350 integrated metrology system.
YieldStar enables highly accurate metrology for subsequent analysis in ASML's holistic lithography software products, which allows customers to control leading edge production processes for increased yield. Holistic Lithography products are now expanding into EUV processes with customers evaluating our EUV source mask optimization software for development of 7 and 5 nanometer logic technologies. In EUV, you're all aware that our continued focus has been on improving EUV stability, availability and productivity, the key performance metrics that drive new technology adoption. Expect no changes in this focus for the foreseeable future. In the past 3 months, we again demonstrated improved productivity and availability, moving EOB towards manufacturing readiness.
By way of example, we achieved productivity of more than 13.50 wafers per day in our factory on an LXE 3350, bringing us closer to our 1500 wafer per day target for 2016. Separately, 3 customers showed availability of more than 80% on average for 4 weeks on the NSE 3300s. In addition, industry leading customers presented an abundance of EUV results at the SPA Advanced Lithography Conference this past quarter that reinforced the need for EUV and demonstrated real and significant progress in key tool performance areas, making increased customer confidence in EUV for manufacturing insertion and parent. ASENOS commitment remains to do everything within our capability and power to bring EUV to manufacturing readiness. Now with that, we would be happy to take your questions.
Thank you, Peter. And ladies and gentlemen, the operator will instruct you momentarily on the protocol for the Q and A. But beforehand, as I always do, I'd like to kindly ask you to limit yourself to one question and one short follow-up if necessary. And of course, this will allow us to get as many callers on to the call or questions on the call as possible. Now, operator, could we have your instructions and then the first question, please?
Of course, sir. Thank you. And we will now open the line for questions. Thank you. And our first question is Francois Mounier from Morgan Stanley.
Please go ahead, sir.
Yes. Thanks for taking my question. Yes, I think you're making some comments about customers making improvement in terms of availability, which is the key metric for EUV this year. I was wondering, is there anyone making like a pure DRAM maker in those 3 customers improving their availability?
There's not a pure memory maker. These are customers that are either doing both memory and logic or they are focused on logic.
Okay. So actually, when in the video, you talk about your customers ramping EUV from the end of 2018 in terms of production up to 2020. It is for Logic and Memory, not just for Logic?
Correct.
Okay. Very good. Thank you.
The next question comes from Farhan Ahmad. Please state your company name followed by your question.
Hi, Farhan Ahmad from Credit Suisse. Thanks for taking my question. My first question is on EUV. There was good progress demonstrated at the SPIE conference and all the companies appear to be working on it. In terms of the work that you're doing with your customers, can you talk about how many layers of adoption do you expect at the 7 nanometer node and also on memory?
How should we think about the number of layers progressing for different nodes?
The most relevant information in that sense we have on the node that's upcoming first, upcoming first and that's a 7 nanometer node. And the 7 nanometer node for Logic, I have to say that is the 7 nanometer node, not the 7 nanometer node that you need to look at in conjunction with 10. So it's what we call 7 or 5. That can be anywhere between 8 and 12 layers. It depends on the customer.
Thank you. And then in terms the second question I have is in terms of your memory shipments. Previously, if I remember correctly, you had indicated that first half shipments would be roughly flat from second half of last year. If I take your first quarter shipment level and I assume that second quarter is flat, maybe down a little bit, It appears the first half of the year is down about 20% from second half of last year and then it's going to remain at about that level for rest of the year. Is that a reasonable assumption on how I'm looking at the memory shipments?
And also if you could clarify if there were any push outs on the memory that led to the somewhat change in the linearity?
Yes, Fahad, it's Wolfgang. You're correct. The first half is going to be a little bit lower than the second half of last year. But then the second half of this year is higher than we originally expected. So overall, there's always like push and pull, but overall, it's actually slightly higher than we thought about last call and also in the call before that.
Got it. Thank you. That's all I have.
You're welcome.
The next question comes from Mehdi Hosseini. Please state your company name followed by your question.
Thank you. Peter, can you please remind us when we're going to know more about the P350s that have been installed at the customer site? And what do we need to see or track for Milestone to better assess the timing of EUV insertion for 7 nanometer logic? And I have a follow-up.
Yes. The 3350s, we started shipping 3350s 2 in the Q4 of last year, 1 in this quarter. It takes about 6 months to install and to qualify The cluster somewhere in this quarter, the second quarter, you will see the first tools released, which actually drives the partial revenue recognition that we just guided. So when that is done, then customers start preparing their integration wafers and then basically running them in what they call marathon tests of sometimes months, sometimes quarters. We've actually done a marathon test with one of our customers on the 3300, by the way, which involved 13 weeks.
So that's 1 quarter. Now this will then start in Q2. So somewhere in Q3, we will see the first results. And the results will be focusing on metrics that we just talked about. It's productivity, availability.
That's what they will be looking at. And we expect that customers will repeat what we have seen in our own factory simply because we have the 30 to 50 there since the second half of last year, and we've done internal tests also. So what you need to track is really data coming out of the customers, and we will support you also with that by the time those medical tests have been run at the customers and will give you data.
And hitting the 1500 throughput target?
Yes. I think that's the throughput target that we want to see in a marathon test and at least to see the capability of that tool. A marathon test for customer work could be focusing at different productivity levels, but we would like to see in the installed base the capability shown several times that we can do 1500 wafers per day by the end of the year. Don't forget that customers don't run 1500 wafers per day at the current level of the N7 roll out. I mean, they don't have 1500 wafers per day for 13 weeks.
So it's the capability that we need to show on a regular basis plus the agreed upon results out of Marathon tests regarding availability and productivity.
Okay. And just one clarification for Wolfgang. I think in your prepared remarks, you said logic bookings will be up in Q2, but you didn't mention memory. Were you referring to booking? And if so, any qualitative assessment on memory booking into Q2?
Yes. If you look at our total backlog, you see about a quarter is in memory on a total of $3,000,000,000 that makes like 7.50 dollars And with what we shipped already and with our expectations with 2 equal halves, we will get some more bookings. So there will be memory bookings in Q2 as well. But you will see again the bookings weight towards Logic because the 10 nanometer ramp is continuing strongly in Q3. So you'll see both there.
But overall, you'll see strong bookings for the Q2, maybe.
Got it. Thanks so much.
The next question comes from Timothy Arcuri. Please state your company name followed by your question.
I had 2. I guess, first of all, Wolfgang, I have a question about the customer co investment program. And what happens when the program ends at the end of next year? And sort of how to think about your development burden? Does the overall R and D spend decline after the end of next year or does your portion of that burden go up?
Yes. And first of all, yes, the CCIP is about $1,400,000,000 over 5 years and that those contributions will end. As you may recall, there is a portion of that recorded through the gross margin. There is a portion in other income and there's actually a portion that goes straight through the balance sheet. So none of it actually is recorded in R and D.
Your And I would expect that it stays at that level as we continue to see And I would expect that it stays at that level as we continue to invest in EUV, but then also on what prolongs EUV I and A holistic lithography. So for planning purposes, I would just keep it at that level. And just to be safe in our $10,000,000,000 model by 2020, We have modeled 13% that would give us some room to grow and invest here. But for now, I would just keep it flattish at the $1,100,000,000 Tim.
Got it. Right. But then but even though you're being reimbursed through other means, your if the development spending isn't going to change, if you're not getting reimbursed anymore, then your burden basically goes up. Is that right?
That's right. I mean, we get co investment and we for that co investment, we made our co investors over shareholders. And when that period is over, of the co investment payments we're getting in, we have to decide by ourselves whether we'll keep the investment levels, and we look at our future business plan and feel
it justified to keep it at that level.
And don't forget, Tim, that the co investment program was designed to be a kind of a bridge R and D support until we started shipping EUE. And by 2018, you will see start you will see the ramp of EUV starting, which also has an impact on the top line and will have an impact on the gross margin. So by that time, we should be able to stand on our own feet.
Got it. And then as my second question, do you still plan to ship 6 to 7 UV systems this year? I think you had said 6 to 7. Is that still the plan for the full year? Thanks.
Yes.
That is still the plan.
Okay. Thank you so much. You're welcome.
The next question comes from Emmanuel Lloyds Liava. Please state your company name followed by your question. The next question comes from Mr. Sandeep Deshpande.
Yes, hi. My first question is on the short term. I mean, you're talking about this flattish memory trend into the second half, which is not what you were saying earlier. Clearly, things look better than before Wolfgang. So can you talk about where you're seeing these positive trends in the memory market into the second half of the year given the difficult memory environment at this point?
And I have a small follow-up.
Yes. I mean, I'll start and then let Peter chime in. But first of all, it's not one customer. I mean, we see forecast at multiple customers. It's also supporting like in DRAM, the new nodes, 18 nanometer nodes to start initial production on that.
And then we also see in NAND continued investments in China with news relief factories in Singapore and in Japan. So it's not one customer. It's for pretty much every customer. It's not like we see overall the same memory levels that we have last year. So memory overall will still be down quite a bit year over year, but it came out a little bit better than we expected
versus the last two calls.
Thanks, Wolfgang. And following on from that, when you look at the Q3, when you talk to us in January and you had what indicated SEK 1,300,000,000 in the Q1, you had indicated that you would see this significant ramp of revenues into the 2nd quarter. How do you see the 3rd quarter and 4th quarter developing at this point in terms of revenue from the Q2 levels?
Yes. I mean, you got to just add up what the bits and pieces. I mean, in Logic, we were pretty clear in both mine and Peter's remarks, Logic will be higher in the second half than in the first half. The ramp is not one quarter of fare. Q3 is pretty strong.
Q4, it remains to be seen just how our customers tape out with their customers and what the yields are and so forth. Memory is stable. And then you see field options and services. We haven't talked about that yet with a modest start into the year, but every quarter now should be better than the prior quarter, and that will lead us to a 10% increase also year over year. So it's also quite a bit better in the second half than the first half.
So it's relatively safe to assume that the second half is going to be stronger than the first half of the year. Now as you know, we guide only if we have clarity and certainty. And you also know one of these systems is $50,000,000 and we can go left or right in a quarter. So that's why we rather not do a quantitative guide right now. But we're looking pretty good for the year and also for Q3.
Thank you, Wolfgang, for the color.
The next question comes from Jagadish Eyre. Please state your company name followed by your question.
Yes. Thanks for taking my question. Two questions, Peter. First, one of the things if I look at it, why did your services revenue go down disproportionately when your Immersion sales went up quarter over quarter in Q1?
Yes, I can take this. This is Wolfgang. A little bit of something that we got to consider over time. We actually call this field option and services, that 407 bundle. What you see is that and we got to quite frankly consider in the future whether we report on this slightly different.
The service portion, which is dependent on certain projects like relocations, but mainly on the installed base, is a relatively stable, slowly growing number. What brings the volatility into the combined installed base related revenue are the field options and services, And those include everything from a software option to very, very complex, SNAP upgrades that can go into the $20,000,000 or so or even higher than that. And those vary quarter by quarter. You have seen the exact same thing last year, by the way. Our Q1 in last year was also it was just a tad over $400,000,000 So we're up 20% year over year.
So the service per portion is pretty stable. And then the options, the field options is the one that brings a little bit volatility. But in summary, we look at our forecast and we are very confident that we grow the number year over year by about 10% or so.
Okay, great. Thanks for the color. Just a follow-up question. Given how your gross margin is going to be impacted because of the 2 EUV tools in Q2, and if bulk of the EUV revenue recognition happens next year, what kind of gross margin levels should we be thinking about broadly as we look at in terms of your partial revenue recognition of the 6 or 7 tools that you shipped this year?
Thank you.
Yes. First of all, I mean, the Q2 dilutive effect from EUV is probably the only dilution effect on gross margin that I like because it means that we're actually shipping the product and customers are accepting the product. And you're right, I mean, the consequence of what we said is, if we have quarters now where we have partial revenue and full cost, we will have in the future quarters where we have partial revenue and no cost. So it will be accretive to a level in future quarter. It's very difficult for us because it depends on various things and it varies customer by customer.
It's very difficult for us to pinpoint that and therefore would rather don't give you numbers, but directionally, it will be accretive in the future, of course. Thank you.
The next question comes from Anani with Lloyd's Jaipur. Please state your company name followed by your question.
Hello, can you hear me?
Yes. Sure. Hey,
sorry about that. Yes, CJ Muse with Evercore ISI. I guess first question, now that you have pretty decent visibility into the 10 nanometer ramp, curious how you're 10
versus 2016, we think about 10 versus 2016, we think about anywhere between 30% 40% lithium intensity. So take an average of 30% or 35%.
Okay. Great. And I guess as a follow-up here, it sounds like not only a 10 nanometer ramp, but also a nice follow through of 2016, 2014 spend. And if we, I believe, exited last year with about 250,000 wafer starts of equipment shipped plus what you're expecting here as well as the EDA guys talking about tape outs of 250, 300 to date. I'm curious that down 10% node to node that you're talking about, is that something that you actually see at 2016, 2014 or does that start at 10% in your view given the robust tape outs to date at the 2016, 2014 level?
Well, it actually started in our simulation, in our estimates. It starts at 2016. But like I said in the comments, in the early comments that we made, is that as of 28 nanometer, we see this pattern of this prolonged node. In our 24% of our system sales in the Q1 was 28 nanometer, which is, of course, more than 4 years after its initial introduction is a significant amount of units going to a relatively mature node. When we look at the Collins customer currently make about the 20 and 16 nanometer node intensity rising, we expect the same thing.
When we look at the 10 nanometer node, we see the initial ramp being relatively speedy by only a very few customers. And that also means that when we talk to the other logic customers, their plans of going to 10 nanometer is a couple of years down the road. So the same pattern that we've seen at 28 is going to repeat itself. Now when we look at the industry analyst reports, and we take a couple of analyst reports of the and you know the analyst firms, Gartner, Vida, their research and those. And we look at what their current expectation is of the end markets that we currently know.
And it's all the products that we currently know, like the PCs and the tablets and the servers and the automotive. And there's nothing new in there like IoT because nobody knows what that is. So let's take what we know and we look at the conservative estimates and the changed estimates based on the most current insight in, for instance, the PC market. We can calculate the number of bits or the bit growth going forward. And the bit growth, we can then translate looking at the roadmap of our customers into Scratch's waivers that need to be processed.
We add it all up, and we look at the forecast. We just come to a number, yes, that is for those nodes, it's about a 10% node on node reduction. It's based on what we currently know and based on what we currently see, it's based on what customers tell us, which is corroborated by the analyst firms. And that is actually what we've used to calculate our SEK 10,000,000,000 by 2020 number. And this is how we do it.
And everything that we currently see points into that direction, 10% load on load capacity reduction, but the loads will be extended. That's going to be the message.
The next question comes from Kai Korsheld. Please state your company name followed by your question.
Yes. Good afternoon. It's Merrill Lynch. My first question was just on the EUV revenue recognition. So it's clear that I think the you're taking the full cost, only half the revenue.
And I think you also mentioned that certainly the UV tool is shipping in Q1, you don't expect it to generate any revenues in this year. So I'm just wondering how should we think about the balance of this year in terms of revenues? And then also looking into 2017 because I think by then you probably would have built up a backlog of, I guess, 6 or 7 EUV tools for which you may have recognized half, possibly less in a gross margin diluted fashion. So I'm just wondering how should we think about from a phasing perspective about that?
Yes. I'll go into that, Kai. First of all, we shipped 1 system in Q1. We're planning to ship 1 in Q2. That leaves 4 to 5 in Q3, Q4.
If you recall, some of the systems are actually the 3,300 that customers have already paid for. Some of they're getting some enhancements. Those will lead to quicker revenue. So you can expect some revenue there in the second half. And then we are also making progress on the maturity of the products and the predictability of the installation process.
And you see, for instance, we said on these 2 systems, the 110 we previously said midyear, and now we are saying it's in Q2. You see we're making some progress, which also makes it easier for us to recognize revenue. I won't give you a number here, but the additional units that we are shipping plus some of the performance milestones on the revenue that we already recognize that we may achieve this year, will certainly lead to more EUV revenue this year. And next year, you're right, there's going to be a carryover amount. I mean, we're shipping certain shipments that have no revenue this year, so we'll have it next year.
Plus then, as Peter mentioned before, we are ready to do like a system there on top of that per month That will be a bit back end loaded from a shipment perspective. But if you go to a 7 nanometer insertion or 7 nanometer equivalent, and we talked earlier about DRAM going to be around the same time, and you look at orderly times, people will have to take delivery starting end of 'seventeen and beginning of 'eighteen. So yes, you will have to carry over. It's hard to tell you what that number is. Plus, we are going to ship more systems next year.
So the revenue will be plus. The predictability of the installation will go up, which in general means you can recognize earlier. So the EUV revenue should be quite a bit up next year versus this year.
Yes. I think I can't help you any further in that sense only to mention that 2016 2017 will be complex in terms of revenue recognition. And that's unfortunately what it is. There's very strict accounting rules for new technology. We have to follow them.
And on top of that, the first customers that actually placed the orders and put certain criteria in there, performance criteria, those are not the same for every customer. The first customer actually took the first gave us the first orders without knowing less than the second customer. So our ability to negotiate terms and conditions and certain performance conditions with the second customer are different than from the first, which will be different from the third. So and all those performance criteria just drive revenue recognition. So it is not only what Wolfgang just said, it's also the fact that per customer, it is different.
We just have to guide you quarter by quarter. And it's unfortunately also for us not always that simple to predict when we do what level of revenue recognition at what margin. But I think for the next 2 years, 20 16, 2017, it is what it
Okay. And then I just had a quick follow-up because you mentioned it. So I believe the $3300 s are already prepaid. In terms of cash flow or cash collections on the $33,350,000 How exactly does that work? Does it follow the revenue recognition pattern?
Or how should we think about the impact on that?
We said this also earlier when we think about our EUV priorities, we think about order first, then shipment, then cash, then revenue recognition. And I don't want to sound sloppy, but the revenue recognition is what the revenue recognition is for new technology. But we have the cash flow much earlier. So it again it depends customer by customer. But you can make an average assumption that there is a significant portion of the cash coming at shipment.
Okay. Thank you.
You're welcome, Craig.
The next question comes from Andrew Gardiner. Please state your company name followed by your question.
Good afternoon. It's from Barclays. Thank you. Just a bit of a follow-up on that last one in terms of the sort of the planning for production next year. I mean, you've reiterated your confidence in 6 to 7 EUV tools this year with a gradual ramp in the back half of the year.
And clearly, this time last year, we had the sizable multiyear order from Intel. I'm just wondering how the conversations are going with the others in the customer base in terms of planning for those production slots. You're clearly planning on increasing the capacity to 1 a month, as you said, but depending on how people demand the tools or plan for that, you could see some bottlenecks. So just can you give us any insight as to how 2017 is sort of the planning is coming up?
Yes. I think we've also said it on the previous call, I think for next year, we have the capacity to anywhere between 12 15 units. Now your question, how are the conversations going with the other customers, I think an indication of and you can imagine how that goes if you I still like to refer back to what we said at SPAE or what the customer said at SPAE. SPIE. There's a lot of good data coming out of the customer base that showed a lot of confidence in the fact that EUV will reach manufacturing maturity.
Now have to remember that those presentations are very often done by the R and D people of our customers and that the people have to run the tools and have to commit output to their customers are the people in operations. So the discussion that we're currently having are with the operations people and they are about availability and levels of productivity, where they have given us certain targets and we have given them our internal targets. And they would like to see them. They would like to see them running at the 3,350, which is going to be the production tool together with the 3,400. And this is exactly the phase that we're in, where we're shipping 3350s to the key customers.
They're in installation or they're in this quarter, will some of them will be turned over to the customer. And then we'll see the first results, and that will drive also the order interaction with us and the customers. So to be very honest, I think it's just a matter of time this year that we will see a follow on. We're confident that what we see in our factory, we can repeat at the customer side. And that will drive orders.
Just like you said, if you want to ship 12 to 15 units next year, orders need to come and they will come.
Okay, understood. And then perhaps just a quick follow-up. Wolfgang, you mentioned the EUV tool, the 3,350 that shipped in the Q1, you're not going to recognize any revenue on that until 2017. If anything, that seems like a slightly longer timeframe from ship and install to rev rec than you've just planned for with the first two shipments. Is there any reason for that?
Andrew, I can't go into much details there because some of this stuff is also customer specific.
So I just refer to my answer on the previous question.
Okay. Thank you, guys.
The next question comes from Garrett Jenkins. Please state your company name followed by your question.
Thanks. Jarrod Jenkins from UBS.
A couple of quick follow ups.
Firstly, I just wondered if you
could talk about the applications of the 3 customers running at 80% or the sort of intended applications for the EV process is for those customers? And secondly, I just want to, Pete, whether you ever whether you'd expect to step down in availability as you move from a kind of ASML, Veldhoven factory environment to a more production orientated customer site? And then I've got a follow-up on something else. Thanks.
Well, to answer your last question, step down in particular, no, that's not what we anticipate. We are running these tools here as much as we can under circumstances which are comparable to what the customer will do. So that should not be the case. The what you're referring to, the 80%, I believe you're referring to availability, Carrot?
Yes. Just the customers in terms of what applications they intend to take EUV to eventually? What are they trialing the 80% availability? What are
they running the application? It's logic and also memory. I mean, there's also memory customers doing this. I mean, the 3,200s that are currently running are running predominantly in a logic environment, but also in some bleeding edge DRAM environments.
And then the last one is just on Crosspoint. I just wonder whether you could talk about the lift intensity for Crosspoint that you see maybe excluding EUV as a factor in the potential step up there?
Yes. I think the cost point is quite interesting. I mean, it's been introduced. It holds if you listen to the customers, it holds great promise in terms of speed and application space. Currently, those Crosspoint products are made with DPV Immersion Technology.
And ultimately, we believe because it's a shrink capability or at least an X and Y and Z direction shrink capability gives us a lot of space for EUV. And but it's not going to happen before the end of the decade. But when you take it all into consideration and it would ramp in volume towards the end of the decade, then you would think about 3x higher intensity for Crosspoint as compared to 3 d NAND.
Thanks.
The next question comes from Douglas Smith. Please state your company name followed by your question.
Hi. It's Doug Smith from Agency Partners. For like Wolfgang, you have continuously guided to around 10% growth in field options and services, but it's actually continuously growing much faster than that. I'm not complaining, but since it's around a third of revenues now, can you provide a little more breakdown into that business? I think you hinted that you might want to or you needed to provide more detail.
Yes. You can roughly, in average, think about it, about half of it being service. Like I said, that's pretty stable and that is growing with the installed base, of course. And then the other half in average, sometimes a bit more than us, sometimes a bit less, are various field options in all of our businesses. It will also be the case for EUV.
But a prominent one is the SNAP upgrade, which is basically it stands for System Node Enhancement Package, which is basically a complete open heart surgery on a scanner where you, for instance, can make a 1950, 1970 or even beyond that. Those are have been introduced last year in volume with quite a few there, and that provided for one of the step functions. We often get asked why is your system revenue flattening out. And part of the reason is because we are providing a win win alternative to the that helps them with capital intensity, and we're getting an option where the economics for us are acceptable as well. And then in the past, you may remember, we had several onetime events that gave us growth spurts.
For instance, we included CYMA at 1 year. That's quite a big well. And we continue to believe that it's growing at least as strong as the rest of our business, and that's pretty exciting for us.
Yes. Can you say whether the services and field options have higher or lower margins than the systems business?
So this is lower than
the corporate average. Field options are higher than the corporate average.
Right. And
average. There's a lot of software in there also. So it's also lots
of software components.
Right, right.
And, Fani, it's a lot
of that actually come from backlog. I mean, I would imagine for field upgrades, it's not like something you would do on the spur of the moment. It must have quite a bit of visibility to it.
That's correct. I mean, when we think because I was just for clarification, everybody on the call, our backlog that we report is just for systems. So if we would report that differently, some of the options have longer orderly times. I mean, if you think about the snap that I mentioned, I mean, that's a 6 to 7 week limited amount of teams and materials. So you got to schedule that.
So there we have more visibility. In some of the software upgrades, we have a little bit shorter lead times. So yes, there's some visibility on some of the options.
Okay, good.
In the early comments, you said we might if that becomes bigger and becomes more relevant, we just need to look at how we're going to report that.
Right, right. Because if it keeps on growing at the previous rate, it will be $2,500,000,000 this year or something if it's just using the trend from the previous years?
Yes. And as Walker said, there are sometimes these SNAP system upgrades could be anywhere between $20,000,000 to $30,000,000 apiece.
If you have 10
of them, that's $300,000,000 that's a lot of money. So we just need to look how that's going to develop. And if that becomes significant, then I think we need to start thinking about a different way to report it so you guys can actually follow it.
Sure. Okay. Thank you very much.
You're welcome.
The next question comes from Amit Hoschandani. Please go ahead, sir.
Good afternoon. Amit Harshandani from Citi. And thanks for taking my questions. 2 quick clarifications, if I may. Firstly, with regards to the topic of equipment reuse, we've again seen some comments from some of your larger customers that have reported Q1 results talking about reusing equipment.
Just wanted to confirm if you think the level of reuse in the industry being talked about is still consistent with your longer term financial model? And then I have and also if you could share any updated thoughts on equipment reuse? And then I have a follow-up. Thank you.
Yes. I think in our long term financial model, we have included, as you pointed out, we have included the possibility of our customers making use of the reuse capability. And what we're currently seeing is that it's still in line with what we are planning. And that has is because this is like Rothen pointed out, these upgrades are open heart churches in the field and they're planned per node. So when we discuss a node with a customer, 7 nanometer node, for instance, there is an assumption in there in the discussion with the customer because of the higher litho intensity, how much of that litho intensity will be split between increase of new systems versus upgrades of existing systems.
So we have a pretty good view as to how do customers think, and we work that thinking into our long term planning. So it's pretty consistent, but it's not a surprise because we're doing the bottom line.
And to add one thing, if I may, I mean, we're aware of the comments, but I also need to let you know that for us, the 10 and the 7, for instance, is in that application, for instance, the litho requirements are the same and that customer also said that it's exactly the same as 16 was to 20. So that part, we wouldn't even classify as reuse.
And to be honest, we also when we looked at 28 nanometer where with some customers we actually planned reuse of the equipment. But given the strength of the 28 nanometer node, it never got to any reuse. I mean, we never got to the point. Well, with other customers, 28 nanometer node was not that successful, and we used it in 'fourteen or in 'sixteen or in 'twenty. So it's a bit different per customer, but also the ultimate size of the capacity in a particular node will also determine how much reuse there will be.
Other customers will keep using the machine as is.
That's helpful. And in terms of the second clarification, if I may, you talked about memory or DRAM shaping up to be better in the second half versus the first half. You talked about second half being higher than the first half. Would you be willing to also comment and compare it to current market expectations out there for your full year revenues and say whether you think that, that implies an increase in market expectations? Or are there any downward trends that we should be aware of that would deviate away from the market expectation?
Thank you.
Yes. On the first part, just to clarify, we said memory would be approximately the same in the second half than in the first half. And if I would comment on the market expectations, and I would essentially give guidance. So we'd better stay away from this and remain, not just probably repeated. Logic is going to be up second half.
Memory is going to be stable, H1 versus H2. And like we just discussed with Doug, service and field options will go up in the second half. Thank you. You're welcome.
I'd like to jump in
here momentarily. Ladies and gentlemen, we have time for one last with your question and we'll do our very best to get back to you as quickly as we can. So operator, if we can have the last caller, please.
The last question then comes from David O'Connor. Please state your company name followed by your question. Mr. O'Connor? Operator, let's go ahead.
The next question comes from Amit Duryani. Please go ahead, sir.
Hi. This is Sean Yang for Amit and we're from RBC Capital Markets. So one question in the previous one to 2 large node transitions. Your bookings were at high levels for about 3 to 4 quarters. And given the 10% note to note reduction you mentioned and also quicker ramp at a few customers that you're seeing right now for 10 nanometer, is it fair to assume that the 10 nanometer ramp will be probably 1 to 2 quarters shorter than previous node transition and probably the booking euro amount will be smaller?
I think because the liquid intensity goes up, it's not likely the booking share amount will be smaller. It's not likely. So and also you have to I tried to explain in my introductory statements that these nodes, if you talk about a ramp of a node or a node to a total capacity, it takes a very long time. It has a very long tail end. So there will be an initial ramp.
And since the pattern is changing, it's very difficult to compare the initial, let's say, 1st 2, 3, 4 quarters of a new node with the nodes with the previous ones. But I would summarize it like this. I said the number of customers that over the last couple of years have been able to start an initial new logic node as shrunk, there's only a very few. They are more aggressive in ramping the first part of that node because they have to make sure that they can provide their key customers with wafers. So that's what you will see.
And then you have a long tail end. So I don't think you can draw any conclusions from that other than that the nodes will be longer and the little intensity will go up. Hence, when you also look at the need for EUV, ASML is looking to grow its top line, and we still stick to our simulated number by 2020, €10,000,000,000
Got it. That's helpful. And one follow-up. Last year, you had an EUV volume purchase agreement with at least 15 tools with a U. S.
Logic customer. I mean, given the discussion you have right now with this customer, do you have any update on the number of tools will be shipped under this agreement?
We'll give you the update when we get the orders. This is a volume purchase agreement where we purchase orders are issued according to a predetermined pattern, which is a reflection of when the customers need the tools to put them into production. So we'll inform you when we get the orders.
Thank you.
You're welcome.
Thanks. On behalf of ASML's Board of Management, I'd now like to thank you for joining us in the call today. And operator, if you could formally conclude the call, I'd appreciate it. Thank you.
Thank you, sir. Ladies and gentlemen, this concludes the ASML 20 16 Q1 financial results. Thank you for participating. You may now disconnect your line.