Ladies and gentlemen, thank you for standing by. Welcome to ASML 2015 4th Quarter and Annual Results Conference Call on January 20, 2016. Throughout today's introduction, all participants will be in a listen only mode. I would now like to turn the conference call over to Mr. Craig De Jong.
Please go ahead, sir.
Thank you, Aaron, and good morning and good afternoon, ladies and gentlemen. This is Craig De Jong, Vice President of Investor Relations at ASML. Joining me today from our headquarters here in Veldhoven, the Netherlands is Mr. Peter Wenig, our CEO and Wolfgang Nickell, ASML's CFO. The subject of today's call is ASML's 2015 Q4 and annual results.
Before we start, I'd like to take a brief moment to address some questions from previous calls about our Q and A Q. The process is, you'll be advised that the Q and A starts upon the operator's instructions at the opening of the call and not before. Therefore, there's really no value in calling in too long before the call starts in an attempt to get into the queue. And as the operator mentioned, questions will be taken in the order that they are received. The length of the call will be 60 minutes.
The call will be broadcast and is being broadcast live over the Internet at asml.com and a replay of the call will be available on our website for approximately 90 days. Lastly, 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 meanings of the federal securities laws. These forward looking statements involve material risks and uncertainties. For a discussion of these 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 20F and other documents as filed with the Securities and Exchange Commission. With that, I'd like to turn the call over to Peter Wenick for a brief introduction.
Good morning. Good afternoon, ladies and gentlemen, and thank you for joining us for our Q4 and annual 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 our view of the coming quarters. Wolfgang will start with a review of the Q4 financial performance with added comments on our short term outlook. I will complete the introduction with some further comments on the current general business environment and our future business outlook.
So, Joakim, to you?
Thank you, Peter, and welcome, everyone. For Q4, our net sales came in at €1,430,000,000 This included system sales of €881,000,000 of which memory represented 44,000,000 and logic represented 56%. Service and field option sales came in strong at €553,000,000 This part of our business as growth continues driven by strong demand for holistic lithography options, high value upgrades and a growing installed base. Our gross margin for the quarter came in at 46%, slightly above the guidance. R and D expenses came in at €273,000,000 and SG and A expenses came in at €90,000,000 essentially as we guided.
For the full year, our net sales reached a new record of €6,300,000,000 which is up 7% from the prior year and includes over €2,000,000,000 for field options and services. Gross margin for 2015 was 46.1 percent, up from 44.3% in 2014. Our basic earnings per share for 20.15 were €3.22 up 18% year over year. Turning to the balance sheet. Quarter over quarter cash, cash equivalents and short term investments grew from €2,680,000,000 to €3,410,000,000 driven by strong free cash flow, which was impacted by a significant amount of customer prepayments on orders received.
In Q4, we repurchased shares was €141,000,000 bringing the total amount for repurchased shares in 2015 to €565,000,000 Regarding the order book, Q4 bookings came in at €1,200,000,000 31% above our Q3 bookings. Strength in memory bookings continue to be notable with a significant growth in our foundry bookings, leading to a strong and nicely balanced backlog across all industry sectors of approximately EUR3,200,000,000 With that, I would like to turn to our expectations and guidance for the Q1 of 2016. We expect continued healthy memory shipments supported by a strong backlog. Our service and field option sales will be around the $500,000,000 mark again. We expect relatively modest logic shipments in the first quarter of 2016, leading us to guide Q1 revenue at approximately €1,300,000,000 As indicated at this time last quarter, we do, however, expect our logic customers to take shipments in Q2, which will start the ramp of 10 nanometer.
And as a result, we expect Q2 sales to increase significantly from Q1. Based upon expected customer and product mix, a lower sales volume forecast and lower field option sales, we expect gross margin for Q1 to come in at around 42%. R and D expenses for the Q1 will be about €275,000,000 and SG and A is expected to come in at about €90,000,000 Both are roughly the same as the previous quarter. Our annualized tax rate for 2016 is expected to increase to around 13% based upon a change in tax rules that transfer some tax benefits into R and D credits. Peter will talk more about our 2015 EUV accomplishments and 2016 key performance targets shortly, but I would like to make a few points regarding 2016 EUV shipments and explain a bit further the current and expected situation related to EUV revenue recognition.
We completed 3 EUV shipments in 2015 and started the shipment of 4th system before year end. 1 of the 3 systems was recognized in revenue during 2015. The other 2 systems that shipped and the one system where shipment was started should lead to a revenue of about €110,000,000 in the middle of 2016 with the balance booked in 2017. For 2016, we expect to ship between 6 and 7 EUV systems. The 2016 shipments will be a combination of NXE 3300, 3350s and 3400s going to both logic and memory customers.
As a reminder, we will continue to guide expected revenue timing on additional EUV systems as they ship. And finally, but certainly not without significant importance, ASML paid €302,000,000 in dividends in 2015, and we purchased 6,300,000 of our own shares for €565,000,000 providing a total cash return to shareholders of 8 €67,000,000
during the year.
In 2016, we are proposing to our Annual General Meeting of Shareholders on April 29 to increase our dividend by 50% to a level of $0.01 0.05 per ordinary share. Today, we have also announced a plan for an additional €1,000,000,000 of share repurchases over 2016 2017 on top of the remaining €500,000,000 from our prior program. With that, I would like to turn the call back over to Bjorn.
Thank you, Wolfgang. As Wolfgang highlighted, we concluded the financially very satisfying year. Expectations for the Q1 sales are approximately €300,000,000 reflecting continued shipments for 28, 16, 14 nanometer logic capacity additions albeit at a relatively low level and shipments to memory customers consisting of a mix of advanced and more mature system types. While first quarter sales are expected to be relatively moderate, we clearly see, as Wolfgang said, a significant increase in combined system and service sales in the 2nd quarter, largely driven by system shipments for the initial ramp of advanced 10 nanometer production processes at our Logic customers. While it
is still a bit
too early to say anything quantitatively about 2016, we do see trends and developments that we believe are worthwhile mentioning. In memory, as evidenced by the 4th quarter bookings and our current backlog strength, our customers have indicated that their system demand will continue throughout the first half of twenty sixteen at levels roughly equivalent to those of Q4. Although we expect that 2 DRAM taps will continue to install some additional tools, largely meant to support the next DRAM node, we also believe that 2016 shipments to this application will be down versus a strong 2015. On NAND, we believe that the capacity expansions will be focused on 3 d NAND applications. With the announcement of the conversion of a Chinese fab to 3 d NAND that is now largely supported in our current backlog, we expect a flattish level of NAND systems revenues versus 2015.
One additional memory development that appears to be worth following is the introduction of the Crosspoint architecture. While the full opportunity extent of this new memory architecture is still under evaluation, its potential seems significant and could therefore become important to our business as the advanced processes anticipated in this application are quite little intensive. As for Logic, it has now become clear to us that the introduction of the advanced 10 nanometer node ramp is progressing well, hence the continued and clear customer commitment to ramp this node starting in Q2 2016. 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 16 and 14 nanometer node. The ultimate spend levels for Logic in 2016 will depend amongst other things above the level of end demand and the rate at which customers will be able to execute their ramp and it's therefore too early to accurately predict this today.
For field options and services, we see continued strength in 2016 and this should show growth previously estimated to be in the range of 10%. On the product side, HML continues to focus R and D spend on lithography tools that are essential to ramp all of the current and advanced processes. With the growing litho challenges of complex and costly multi pass patterning, our recently launched TwinScan NXT 1980 DPV Immersion Scanner with significant improvements in all key performance metrics started volume shipment last quarter. And now with its widespread acceptance, it is ramping at a rate greater than any other advanced system in our history. Our holistic lithography products continue to gain acceptance at leading edge customers.
We're using our full suite of Immersion process window enhancements and process control solutions to optimize yield at the most advanced product nodes. Holistic lithography products are now extending also into EUV processes with customers evaluating our EUV source mask optimization software for the development of their 7 nanometer and 5 nanometer technologies. And finally on EUV, as most of you are aware our 2015 focus has been on improving EUV's stability, availability and productivity, the key performance metrics that drive new technology adoption. In several recent public presentations, our customers have clearly recognized our EUV progress in these In a 4 week customer run manufacturing readiness test at production conditions, we've seen 15,000 wafers exposed with comparable results achieved using the same power configuration at multiple customers. On the raw productivity side, we have a new system configuration, the NXE 3350, that has demonstrated in our factory more than 12 50 wafers exposed in a 24 hour period.
6 out of 8 systems at customer sites have achieved 4 week average system availability of greater than 70% with one system reaching the 80% mark. However, the worldwide average is currently still lower indicating that performance in the entire installed base needs to be further improved. We believe that our 2016 performance targets of 1500 wafers per day and 80% total system availability are achievable and will therefore be aggressively pursued over the year over the course of this calendar year. Now with that, we will be happy to take your questions.
Thank you, Peter. Ladies and gentlemen, the operator will instruct you momentarily on the with one short follow-up if necessary. This will allow us to get as many callers on today as possible. Now, operator, could we have your instructions and then the first caller, please?
Of course, sir. And that comes from Kai Korusheld from the Bank of America. Please go ahead.
Yes, good afternoon, gentlemen, and thanks for taking my question. So the first one was just on the Q2. So I'm just wondering what level of visibility do you have? What could be the magnitude of, I guess, the snapback? And the reason I'm asking is, I think if I just take your bookings in the Q4 and if I add maybe €500,000,000 service sales, then it looks like we should be well above €1,600,000,000 So I'm just wondering if that's the right ballpark?
And then I have a follow-up $1,000,000,000 So I'm just wondering if that's the right ballpark? And then I have a follow-up. Thank you.
Well, we don't want to leave you down any particular number, but we chose the Ward significantly wisely. So we wouldn't do that it would be just a little bit of. So we'll leave it at that today, but it's all underpinned by a strong ramp in 10 nanometer and we also said that memory will be throughout the first half at Q4 levels. So I think you can approximate it from there pretty well.
Okay. And then just a quick one on the gross margin. So I think the Q1 guidance is probably below where most people think it would be even if we look back at quarters with similar revenue run rate. So I'm just wondering broadly what are the reasons and should we kind of expect that if we do see the recovery in demand and revenues in the second quarter that we should sort of settle back at the 47%, 48% level that I think we've become used to that's obviously before EUV? Thank you.
Yes. Cai, I can address it as well. First of all, there are no structural changes in the sense that you should be worried that pricing came down or we have any cost issues. This is purely a function of lower volume at one end and then more so a change in mix between products and customers. And then also within the service and field options, the service is a bit higher when compared to the field options, which come at higher margin.
And then you can also read that when we say foundry is lower and memory is higher, foundry tools are usually in the richer configuration going to the customer. Now if you want to look at Q2, we won't give you an exact number. But when you consider that the volume will go up and the foundry shipments will go up and it's 10 nanometer, it will be pretty nicely configured tools, you'll know in which direction the margin will know.
Okay, great. Thank you.
Thank you.
The next question comes from Sandeep Deshpande. Please state your company name followed by your question. Hi.
I'm Sandeep Deshpande from JPMorgan. My question would be, Peter, on the memory market, you've said that you're going to have a flattish trend in the first half in the memory market. Do you see this into the second half substantially correcting? Or you don't have visibility at this point into this segment? Secondly, I have a quick question on EUV as well.
I mean, clearly EUV is progressing much better at this point in terms of throughput and you've given some of the statistics. What timeframe do you see EUV actually being built for production volumes?
Okay. On the memory market, like I said in the introductory comments, we have very clear visibility given by our customers, also evidenced by our bookings that we received in the Q4 on what we are going to ship in the first half, which is focused on also the introduction of the new DRAM nodes. So you could say it's clearly a technology transition that is driving the shipments in the first half. We don't have that visibility yet on the second half. This is our current thinking.
I will only give you some indication of what was said by some of the market research analyst firms. They expect and if they are right, and 25% bit growth for next year would mean about flat wafer capacity year on year 2016 versus 2015. So that means that if the initial shipments of the technology transition is happening in the first half, then the second half will be lower if there are no capacity additions needed. How much lower? That's a bit too early to say, but clearly, first half technology trends and transitions and second half, probably a lot less.
On EUV throughput, yes. And on we've made good progress. We've agreed with our customers the targets for 2016. And we have confidence, good confidence that we're going to get there. You have to look at 2016 as, I would say, the last phase in the EUV introduction of where our customers are developing their next nodes for which they're planning their production output in 2018 2019.
So it's the last phase of the development now and the qualification of those architectures that we will see in 20 eighteentwenty 19 hitting the market. That means that 2017 will be the year where we will start to see the start of the EUV shipments for production, and they will be used in 2018. And that will accelerate throughout 2018. So 2017, we'll see the first start to make sure we can do customers can do the output in 2018, which will accelerate in 2018 further on. So that's nothing different than we said I think last quarter.
So no change from that respect.
Thanks, Peter.
The next question comes from Garrett Jenkins. Please state your company name followed by your question.
Yes, a couple if I could or other one and one follow-up. So I just wondered if you could talk about the 10 nanometer ramp. Now you've got maybe a bit more visibility around it. Should we still be thinking about 10% fewer wafer starts between the 2016, 2014 nodes and the 7 10 nodes, but also a 40% to 50% lithography intensity increase. Just wondering if we could kind of elaborate on that now you've got more line of sight.
And then I have a follow-up on EUV. Thank you.
Yes. Just for clarification, I just missed part of your question on your 10%. You referred to 10%. What was that exactly? The lower wafer starts, Peter, between 2016, 2014 and 2017.10 percent?
Yes. It's basically, that's the assumption on the 10% that we still work with. We don't have any other data. I'll comment on that a bit later also. The 40% bit to intensity, yes, that's a no to no.
That's still what we think is a realistic number. On the note on note, wafer capacity reduction, the 10% is still what we are using. You have to bear in mind that starting from the 28 nanometer node, we see those nodes extending a lot longer than what we saw in the past. And you've been around a long time, so you know that between 5 10 years ago, nodes had a 2 year life and then the previous node stopped, next node came and lasted about 2 years and almost all logic customers moved in that same time period, which is less the case today or not the case today. We see the initial acceptance of a new node being driven by the leading edge customers.
And they install rather swiftly and rather fast quite a significant amount of capacity. And then you see the other customers in that segment, you could say, the 2nd tier customers following later. It is also what we see today. 28 nanometer still being shipped even in Q1 of 2016,
which is
more than 4 years after the initial introduction. So you see you could see a kind of a camelback in the first phase of that node and then a much longer tail, which also makes it more difficult for us to say how much will that weight of capacity would that node be. Yes, we assume 10%, but over time we'll it needs to be proven whether this is the correct number.
It's great. And just one follow-up. It looks like your Chinese orders are very strong, somewhere around €500,000,000 which I assume is mostly Dalian. Can you just give us a sense of your market share into China through the course of this year or rather on those orders?
Well, our market share in China has always been pretty good, and it will stay pretty good. I'm not going to give you an exact number, but we have no worries about our market share in China.
Okay. Thanks.
The next question comes from Joao Ramon. Please state your company name followed by your question.
Yes. Good afternoon. Joao Ramon from Exane BNP Paribas. Peter, just to come back to the point you made that your clients seem to be keen on moving to the 10 nanometer node because that's a significant improvement compared to the 16fourteen versus the 20. Could you just give us a sense what is better?
Is it the term of yield? It's in term of cost per transistor? What would make the 10 nanometer node more attractive than the 16fourteen?
Yes. From a lithography point of view, the 1614 node is very similar from a little half pitch dimension point of view, very similar to the 20 nanometer So you really should not go past 16 14 from a little pitch point of view to 10, but really 20 to 10. And that's a big shrink. And as you know, shrink has a big impact on the cost per bit. So it is driven by cost per bit.
And for some customers, actually, it's also value, just putting more functionality on the same Square service. That's what driving it.
So you see to make clear, you see the cost per transistor going down at 10 nanometer node?
Yes.
Okay. And maybe just one follow-up. You gave kind of guidance for the full year I mean, quantitative guidance for the memory, so flash being flat and DRAM going down. I'm not sure I understood for Logic and Foundry what the trends are in terms of qualitatively compared to 2015?
Well, I think the Wolfgang said the Q1 is relatively benign, but we really see the ramp starting in Q2. And then also we're extending into IDM, not only for Foundry but also IDM on 10 nanometer, which will be the remainder of the year, which will drive the remainder of the year. Now if you just look at the size of that ramp and the ultimate size for this year is always a bit difficult to predict in the 3rd week of January, so as we were very early in this year. But if you look at that, what customers are telling us is going to be a significant ramp and will be driven by leading edge players, not so much by the followers, which will follow on. I said it in an earlier as an answer to an earlier question, which will probably have a much longer tail.
But the initial ramp what we are seeing will be significant and that causes us to state that the 2016 logic market for us will be significantly higher than 2015.
For Logic, does that include Logic and Foundry or that's just purely Logic?
That is Logic versus Foundry and IBM.
Okay. Thanks. Yes.
The next question comes from Mr. Muse. Please state your company name followed by your
question. Yes, good afternoon. C. J. Muse with Evercore ISI.
I guess first question, I know there's a lot of moving parts here, but curious what are the key milestones we should be watching for EUV to be designed in at the 7 nanometer node?
I think we mentioned those. I think for our customers, it's most important that they have a certain level of productivity. But it's very important that when you start planning your production that the availability is critical. So the 80% availability target is what we agreed with our customers. This is what we are at least following.
And I'd also like to refer to our presentation where you can see that. On productivity, quite interesting, one of our key customers in a question that was asked recently on whether 500 wafers per day would be sufficient for them to go into production assuming
a reliable
or a, let's say, good availability of the tool. And the answer was yes, they would use it. So you can draw a conclusion from that answer that it's not so much now about the productivity, it is about availability. So this is what we are really focusing on this year.
That's helpful. And I guess as a follow-up, in terms of foundrylogic spend this year, clearly a very good year for 10 nanometer. Curious if you could share your thoughts on sort of the mix this year between 10 nanometer China foundry spending year over year as well as whether you're seeing any incremental capacity adds at the 14, 16 nanometer nodes? And then I guess to follow on to that, your expectations for that 10 nanometer ramp to continue into 2017? Yes.
I'll make some notes. The 10 nanometer ramp is predominantly outside China, if you refer China. When we see Chinese logic or foundry market clearly focusing on the nodes before 10. So it's the 28 nanometer node is still relatively strong in China, but also very clear indications of the move to 16 and 14. And that is where we see Chinese foundries going.
Like I said, the 10 nanometer ramp will be outside China. 2017 is a good question. I think it's too early for us to say anything about 2017. I think what we'll have to go through is the next 2, 3 quarters of the initial ramp, which we have a pretty decent visibility of and 2017 will be driven I think by the end markets and we'll just a bit too early to comment on that CJ.
But directionally for CJ, directionally for 2016, the 10 nanometer will make out the majority of
the shipments.
But those will still be 28 and 16 and 14 shipments as well.
Yes, but those are then predominantly in the direction of China and somewhat in Taiwan. Great. Thank you so much.
The next question comes from Mr. Hosseini. Please state your company name followed by your question. Mr. Hosseini, you can ask your question.
Sounds like he's not there. Operator, do you want to go to the next one?
The next question comes from Amit. I'm sorry for the pronation. Harshidani from Citi. Please go ahead, sir.
Thanks. This is Amit Harshidani from Citigroup. Good afternoon, gentlemen, ladies and gentlemen. I've got two questions. Firstly, with regards to a topic that does come up often for discussion, which is equipment reuse.
We've heard some of your peers talk about it, customers talk about it. Could you give us a sense of how you see equipment reuse impacting your prospects for this year as compared to last year? And more so looking forward towards your medium term financial roadmap across the different end segments? So that would be my first question and I have a follow-up.
Okay. The equipment reuse is always a wide it appears to dominate some of our discussions lately, but it's always been there. I mean large IDMs have always done this. And it's a very sensible way to manage your capital efficiency. Now with tool prices going up to where they currently are, advanced DPV prices are €50,000,000 There's more and more focus of our customers on capital efficiency.
And the reuse program, which we have designed by adapting the architecture in such a way that we can upgrade from one node to the other and with little intensity going up with about 40% node on node. And there's a very clear drive of our customers to say what part of my installed base can we upgrade to the next node that's called a reuse. That doesn't cover the 40% litho weigh density at all. It just covers part of it. And we have had situations whereby reuse is, let's say, upgrades were planned on the previous node, that never happened because the previous node extended longer than the original planning.
So it's nothing new. I think it's going to be part of our business going forward, very healthy part if you think about an extensive upgrade from a 1950 to a 1970 for instance is a €20,000,000 plus upgrade with decent margins, which is good business for us, helps us increase our services and option sales business and it helps to our customers to manage their installed base. So I think it's going to be part of our business going forward. It might be new to some of our peers, but it isn't to us because our tools have always been one of the most expensive in the customer fab. So it's here to stay and it's good.
Thanks, Peter. And just to clarify the extent of reuse that you're seeing out there right now is in line with your 2020 financial roadmap?
Absolutely. Yes, in our 2020 roadmap, we have actually included that reuse. It is an inevitable event. And the level of reuse that we are seeing is very much in line with our expectation.
Thank you. And just as a follow-up, if I may, Wolfgang, could you kindly just once again explain or elaborate upon your comment of EUV revenue recognition for this year? I'm afraid I did not catch it correctly. Was it a $110,000,000 in the middle of the year? So what are we looking for in terms of EUV revenues this year, if you could shed some light on that?
Thank you.
You got that right. I mean, first of all, we told you that while we're in this transition period, where we can recognize not when the tool leaves our factory, we will give you guidance as we ship the tools. And I said we shipped 3 tools last year and of which only one recognized and on top of that we started the shipment of another tool. Of the 2 tools that shipped and have not recognized last year and the tool that has started to ship from these three tools together, you should expect approximately $110,000,000 in revenue and that will be somewhere in the Q2, Q3 mid year timeframe And the balance of the revenue will likely recognize in 2017. Now that's the starting point.
And then also said that we'll ship more tools this year. And those, of course, will we also told you there is, for instance, 3300 amongst them, which will recognize faster because the other recognition rules are different because we just need to demonstrate that we can print the wafer. So there's more to come. So you got to bear with us as we make these shipments. And lastly, I'll say also that we will start to see some service revenue in the EUV field.
We already had some last year. Our total revenue was about $100,000,000 or so and only a little bit over $60,000,000 came from systems. So you have to bear with us, Amit. We'll give you information as we go through the year.
But just to confirm, a minimum of 110, but the actual number could vary depending on your updates as you go through the quarters now?
That is correct. Thank you.
The next question comes from Mr. Sankania. Please state your company name followed by your question. I'm sorry, one moment.
There is same level as hello?
Hello?
Yes. Memory
hello?
Go ahead. I can hear you. Can you hear me? Yes. We hear you now.
Yes. Okay. So you said memory at similar level to Q4, which is about $350,000,000 down 35%. So first half at that level and second half you said decline, that will indicate a significant down year over year. Did I understand that clearly?
Well, I referred to DRAM and since we don't split our DRAM in the Q4 results. So DRAM shipments will be about the equivalent to Q4. NAND will be over the year, year on year will be about flat.
Okay. And on I want
to follow-up on the China. You had pretty strong orders on China. Somebody mentioned $500,000,000 pretty close and mostly probably on NAND side. Is that shipment to China mostly in Q2?
That shipment starts in Q1.
Starts in Q1.
And we'll continue.
All right. Thank you.
Thanks. The next question comes from Mr. Mehdi Hosseini. Please state your company name followed by your question.
Thanks for taking my question. Peter, going back to your 2015 performance, your foundry revenues were up 36%, but emerging system shipment was down and ASPs were down too. And can you help me understand how did this mix change despite the fact that the foundries are up so much? And I have a follow-up.
2016, you said? 2015. 2015. 2015. Yes.
Again, foundry shipments are up to ASP. We shipped significantly more systems altogether. And there were also KRS and other systems in there. So like for like, the ASP didn't go down, but because of the mix, the ASP went down.
Yes, it's KRF.
Does that reflect the foundry spend more on the trailing edge versus leading edge?
That is absolutely like we said earlier, we are currently shipping at different node layers. We're shipping at 28 nanometer, 14, 16, the first 10 nanometer R and D tools. So it's quite a mixed bag of those tools. So to draw a conclusion on ASPs or ASP trends is a bit difficult because it's quite a mixed bag. But what we can say is that with every node transition, the ASP goes up because of the richer configuration, including a lot more holistic little options.
Now in 2015, which is true, we had a mixed bag of 28 nanometer node, 14, 16 nanometer node and some early 10 nanometer node shipments. So I think it's a bit difficult. And it did include, as we put in the presentation, there's a lot more KRF.
Okay. And then my follow-up question is a little bit China. Can you elaborate more what are the key end markets or device stuff that is driving such a strong growth in backlog as it relates to China?
Well, it's both foundry and now also memory. So it's ship 2. So it's the ship 2 region is indeed stronger and that's because memory is now also adding on top of the logic shipments, which are predominantly driven by 28 nanometer.
So there is a new NAND fab that is coming online, but also one of your Korean customers has a fab in Xiong. How should we think about the mix, new fab, existing fab on the 3 d NAND and also the foundry market? Is it evenly split or is one more than the others?
Well, I think there are existing fabs and the refurb fab, one of the existing fabs that you referred to is already full. So that means that the refurb fab is going to take tools. That's what it is. It's as simple as that and not more difficult than that. Got it.
Thank you.
The next question comes from Pierre Ferragu. Please state your company name followed by your question.
Hey, good morning. It's Pierre Ferragu, Bernstein. So I have a question on your gross margin for the back end of the year. If I understand you correctly, foundry is going to be very strong. That's a 10 nanometer node.
It's very high end tools, a lot of options and upgrades and memory is going to be low. So should we expect like a very, very healthy gross margin development beyond Q2? So like Q3 and Q4 gross margin should be also heading in the right direction. So that's one question. And then I have just a quick follow-up on EUV.
I got at some point confused about insertion. My understanding is that both your IDM customers and your Thunder customers are going to insert EUV at the 5 nanometer node, so not the next one, but the one after. Is that also how you see the world from where you are? And then maybe on this 5 nanometer node insertion, how much visibility do you have today on how heavy an insertion it is going to be? Are we going to use the UV tools at a very, very low level for the first layers?
Or are we heading into a more massive adoption of EUV at this 5 nanometer node? Thanks.
Yes. Let me answer that EUV question first. Whether it's called 5 nanometer or 7 nanometer, I don't want to go into that nomenclature because there's a lot of confusion about what is what. I'm also not going to tell you what we believe the lithography pitches because that's what's probably going to be make it easier to understand that we're talking about this same thing. What is most important and that's what we should focus on is whether you call it 5 or whether you call it 7, yes, our customers, our leading edge customers make it very clear to us that they will start their the output of their chip architectures that need EUV, whether that's 5, whether that's 7, I don't know how they call it, I don't care.
But when they need EUV IV output is 2018 starting, 2018, 2019, which actually means that our shipments for production purposes need to start in 2017. It takes about a year to really qualify for a production ramp. So this is what we are focusing on. This is what we're discussing with our customers. And this is also driving the decision points and the entry points for our customer for production insertion.
It's 20 eighteen-nineteen timeframe.
Okay. And in terms of the volume of insertion, so is that going do you have already visibility and how high in the architecture of the chip is going to be used? Is it just going to be the most critical layers or more than that? Do you have that visibility already? Or is that still something that needs
to be refined?
Yes, that's
visibility, reasonable visibility from our customers. But it actually leads us to believe what we said in the past that the 1st year of volume ramp, and as you know, with the lengthening of the nodes, we discussed it a couple of quarters ago, everything is about 6 to 12 months later than we thought about a year ago. But we believe that the initial year of the production shipment will be a dozen or so tools And then this will double every year that we move on. So we're still all our simulation models still show the same thing. So the 1st year of the production shipments, it's about a dozen tools and then it will double the year after that and double the year after that.
That would be the right model.
And as it relates to the gross margin question, Pierre, yes, you're right from a direction in the second half as logic will be a bigger part of it, directionally, margin comes goes up. Of course, we don't know the exact volume yet, so we can't describe that volume effect. But directionally, you're right. One caveat, if there's a concentration of EUV revenue recognition in a quarter, you will see some distortion. But when we get to that bridge, we will explain to you how that works and show you the margin without EUV as well.
Excellent. Thank you very much.
You're welcome.
Next question comes from Andrew Gardiner. Please state your company name followed by your question.
Thank you. It's Barclays. Good afternoon, guys. Just another one on EUV. In terms of the sort of looking at the milestones you're targeting for this year, I'm just trying to understand roughly when we might be able to sort of get a better idea as to how you're making progress.
You seem to be in a bit of a gap at the moment. Clearly, the customers have the 3,300 tools installed and running and those are a lot of the metrics you're talking about. The 3350s are there or on their way. So when can we expect to see some of the first news on the 3350 tools at the customer site? Is SPIE too early?
Or is it going to be a bit later than that?
It's a good question. You pointed out that 3,350 is really the tool that has the improvements on it that will give us the 1500 waves per day and the 80% availability capability. Now those tools are just starting to ship. They need to be installed. The installation normally takes a quarter or 3 months, which actually makes it too late for any, let's say, significant information on the SPIE conference, which is in February.
So it will be around mid year. That's what you need to focus on.
Okay. And then just sort of quick follow-up. I mean you've highlighted the 6 to 7 tool shipments, EUV tool shipments this year. Can you give us any sense as to when those are coming? I mean, you haven't really I know there's no revenue recognition for those tools.
But just in terms of the rough timing of shipment to for us to gauge when those are leaving the facility?
Well, they started, we believe, the facility this quarter, the first one. So it will be throughout the year. There will be a tool shipping every quarter. And as to revenue recognition, Wolfgang already said it, he gave some clear guidance for the revenue recognition of the tools that we shipped last year and the one that was in the process of shipping towards the end of the year. Now of the 6 to 7 tools that will ship in this year, there will be some revenue recognition costs.
There's a 3,300 in there, which will very likely 2 of them could be, which will book revenue. And also on the 3350s, it depends on the conditions or the order conditions where we can take some revenue already in 2016. So that's why Wolfgang said it's the minimum and there's very likely going to be EV revenue on top of that in the course of the year.
Understood. Thanks very much guys. Next question from Francois Mounier. Please go ahead sir.
Thanks for taking my question. I just wanted to have some technical details about this 3350B that you're currently running in your factory? And first, congratulations for achieving the 1200 50 wafers per day in Q4. That's a great achievement. What is or what was the availability of this machine actually during Q4?
And maybe if you could give us some details about the laser, which was used, if it was 120 watts or a different laser source for EUV? That's the first question. The second question is, I know it's a bit cheeky, but good to announce a €1,000,000,000 share buyback, but why not more, given the progress made by EUV Adderment and your confidence in the 2020 target of €10,000,000,000 revenues? Thank you.
Well, I'll start with the second part and then Peter, that's the first part. This is just another layer. We have a very clearly stated financial policy that as we evaluate what our minimum cash needs are, then we serve as a dividend first that we want to have at least stable, preferably growing. Last 6 years, we've always been growing it. And then all the balance will go towards share buybacks.
Now we just roll out layers of the share buybacks. And as soon as we have used up the money, we will introduce the next layer of funds. So you shouldn't be concerned by that at all. We're executing the financial policy. And as we generate the free cash flow, once we're through the remaining 1,500,000 you should expect us to announce the next tranche.
On the other question on the technical details of the 3,350, well, we started shipping the 3,050 in our and we measure availability at the customer sites. Well, we haven't installed it yet and are running it at the customer sites, so it would be a bit difficult to give you an answer there. It's too early. Also to the question of as an earlier question when are we going to see data on availability and waivers per day probably more towards the middle of the year. So the technical details, but there are some features in the 3,350 like the in situ cleaning and some other features that give us the confidence that we should have a higher availability and also a higher throughput, not so much because we have a stronger laser.
Laser is the same, but more because of the transparency of the illuminator and the optics that gives us a better transmission and that's why we get better throughput.
Okay. Thank you.
The next question comes from Mr. Ahmad. Please state your company name followed by your question.
Hello. This is Farhan Ahmed from Credit Suisse. Thanks for taking my question. Peter, my first question is regarding 3 d NAND. I just wanted to make sure I understand correctly.
Relative to your last call, it seems like you're upticking on the overall non CapEx. And I wanted to understand whether the linearity of the CapEx is also more weighted like the DRAM CapEx in the first half? Or do you expect like the non CapEx to be more evenly split throughout the year?
Well, the 3 d NAND guidance is up as compared to last quarter where we thought we were going to be down in this year, but that's because we have this new refurb fab of PDN in China that actually came up. And it's relatively flat throughout the year. So there's not a big bias to 1 or the other half.
Got it. And then relative to your NXE 3350 systems, they are supposed to get you to about 80% availability and 1500 wafers per day. Where do you see the performance in the lab today? And what should we expect when the tools are at the customer site? Should we start getting like 1500 wafers per day from the get go?
Or will that take some time to get demonstrated at the customer sites?
Well, what customers will actually do because they're very expensive machines, they will always ramp these tools slowly. They go through a process of qualification and then they will start increasing the power. They will start increasing with increasing the power, they will get more wafers. So it's going to be through cycles of learning. So it is not to be expected that it will do a gun haul from day 1.
They will probably say let's start where the 3,300 left off and then they're going to gradually increase.
Got it. Thank you. That's all I had.
Thank you.
The next question comes from Peter Coe. Please state your company name followed by your question.
Thank you very much. Stifel, Nicholas. Peter, just in terms of the EUV insertion at the 7 nanometer logic node, do you believe the change in cadence with your TikTok process, do you believe that buys you a little more time in terms of, I guess, guaranteeing the insertion for high volume production at 7 nanometers?
Well, I
don't think that's related. I mean customers have their plans and whether they follow a cadence A or a cadence B. What they tell us is that they need that production output in a certain period, in a certain year, which is starting in 2018 and then you just calculate back using the cycle time that we need and then we come to a moment where we need to start shipping the tool. And what ultimately drives the decision of the customer to say, I need that output in 2018 or 2019 for many, many reasons. It is not only cadence.
It's also time that they need to actually develop that next node. And for us, it's not that relevant. Most relevant is when do they need the tool, when do they tell us that they need the tool. And that's clear, 20 eighteen-nineteen output, 20 17 shipment starting for us.
Great. And my follow-up question in terms
of the holistic lithography growth
that you've seen over the last few years, how do you project the growth first in 2016 and maybe over the next couple of years given that it's been it's gotten strong adoption? Do you see the growth rates tapering out somewhat? Where do you expect to continue to see that growth in that segment of your business?
Yes. So in 2014, our holistic lithography business was just over 500,000,000 dollars Last year, it was over 600,000,000 So it's growing nicely. Previously talked about by 2017, 2018, we want to be at €1,000,000,000 for this business. And as a reminder, to a very large degree, a software type of business with very healthy gross margins, only the yields are being the hardware there. And then you can anticipate that it will continue to grow going into our 2020 plan.
It's part of helping us on the accretion of the gross margin to a 50% level. And we've also started to see and reported back to you that customers are evaluating some of the software features for EUV as well. So it's not going to go away when EUV is coming in.
Yes. I think just to add to this, I think on the total service and option sales, which includes holistic withdrawal that Wolfgang referred to, in our model, we see that growing from the €2,000,000,000 where we are today to the €3,000,000,000 to $3,500,000,000 by that time by 2020.
Great, thank you. Excuse me,
ladies and gentlemen, we have time for one last call. So if you're unable to get through on this call and still have questions, please feel free to contact the Investor Relations department with your question and we'll get back to you as soon as we can. Now, Arren, can we have the last caller, please?
The final question comes from Timothy Acree. Please state your company name followed by your question.
Collin and Company, thanks. I had two questions. I guess first of all, Peter, just on the overall 2016 outlook, I know you said that DRAM is going to be down a lot, NAND is flat and logic is up a lot due to 10 nanometer. So where do you think things that that leaves us for the year? Obviously, it's going to be up, but how much?
Is like up 10 a comfortable number for the year at least?
Well, you know, we're all well trained accountants. So if you take the 2015 and I would give you a percentage up, we would guide you for 2016, which we said we weren't going to do. So unfortunately, we have to stick to what we call this qualitative guidance. And I think throughout the year, we get to it's a better feel for how the back end of the year will is developing and really talking about really the Q4 back end of 2016.
Okay. And then I guess just to follow-up on China, I know that there were some questions asked about this, but the big order number of roughly $500,000,000 sounds like this is really 3 d NAND, but if I divide the numbers that suggests it's like 120 ks of wafer starts worth of capacity. And we know that the Korea fab in China is full and the only fab this big is the one that's still searching for a technology partner. I think the fab you talked about in the prepared remarks was like half the size. So are we seeing orders for this other fab that's still looking for a technology partner or is my math not right?
Let me make one thing clear. China is not only 3 d, that's a new feature of the Chinese market on this particular refurb fab, but it's only part of the story. There's also Chinese foundries in there. So there's also, once you get enthusiast shipment to a fab that are almost full. So it's a mixed bag.
It's definitely not only through the
Okay. Thanks so much.
Yes. Okay. Thanks, Ed. Well, thank you everybody. On behalf of AS Board of Management, I'd like to thank you for joining us on the call today.
So now operator, if you could formally close the call, we'd appreciate it. Thank you.
Ladies and gentlemen, this concludes the ASML 2015 4th quarter and annual results conference call. Thank you for participating. You may now disconnect your line.