Ladies and gentlemen, thank you for standing by. Welcome to the ASML Second Quarter Results Conference Call on July 15, 2015. Throughout today's introduction, all participants will be in the listen only mode. After ASML's introduction, there will be an opportunity to ask questions. I would now like to turn the conference 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. Like to inform you that today we're conducting our conference call from 2 locations. We're participating here in San Francisco at the SEMICON West show and with me is Peter Wenneck in our headquarters in the Netherlands will be joined or are joined by Wolfgang Niccol, ASML's CFO. I mentioned this just in case there is a technical problem when one of the calls drop, we'll get back to you as soon as it's technically possible, although we don't anticipate any problems.
As a reminder, the subject of today's call is ASML's 2015 second quarter results. The length of the call will be 60 minutes as usual. This call is also being broadcast live over the Internet at www.asml.com and a replay will be available on our website for approximately 90 days. Before we begin, I'd like to caution listeners that comments made by management during the conference call will include forward looking statements within the meaning of the federal securities laws. These forward looking statements involve material risks and uncertainties.
For a discussion of risk factors, I encourage you to review the Safe Harbor statement contained in today's press release and presentation materials found on our website and in our annual report on Form 20F and other documents as filed by the Securities and Exchange Commissions. Now with that, I'd like to turn the call over to Peter for a brief introduction.
Thank you, Greg. Good morning, good afternoon, ladies and gentlemen, and thank you for joining us for our Q2 2015 results conference call. Before we begin the question and answer session, Wolfgang and I would like to provide an overview and some commentary on the recent quarter and provide you our view of the coming quarters. Now, Wolfgang will start with a review of the 2nd quarter financial performance with some added comments on our short term outlook. And I will complete the introduction with some further comments on the current general business environment and our future business outlook.
Wolfgang, if you want.
Thank you, Peter and welcome everyone. For Q2, our net sales came in at €1,650,000,000 with system sales again nicely balanced between memory and logic. Memory represented 47% and logic represented 53% of system sales. Our system sales included 1 EUV tool. Service and field option sales came in at a very healthy €520,000,000 driven by strong demand for field options and upgrades.
Gross margin for the quarter was 45.6 percent above all guidance and impacted by revenue recognition of 1 EUV tool, which shipped in Q1. R and D expenses came in at €267,000,000 and SG and A expense came in at €88,000,000 both slightly above our guidance driven by accelerated product development and infrastructure projects. Our effective tax rate for the quarter was approximately 11% of pre tax income. Turning to the balance sheet. Quarter over quarter cash, cash equivalents and short term investments dropped to €2,520,000,000 from €2,840,000,000 at the end of the prior quarter, in part due to a €302,000,000 dividend paid in Q2.
We also paid €166,000,000 during the quarter for repurchased shares. Regarding the order book, our Q2 non EUV system bookings came in at about €1,000,000,000 This was better than we expected in both memory and logic. With the additional booking of 6 EUV systems, our total system bookings during the quarter were €1,500,000,000 We finished the quarter with a strong overall backlog of just over €3,000,000,000 As it relates to our EUV backlog and our backlog in general, I do want to point out a change in our definition driven by this quarter's EUV orders, which allows us to make these orders visible to investors. Our prior definition included a time frame of requested system deliveries within 1 year. That time limit has been removed as the current delivery lead time on new EUV systems is greater than 1 year.
With that, I would like to turn to our expectations and guidance for Q3 and share our view on the balance of 2015. We ended Q3 with a strong and nicely balanced system backlog, Adding continued strong service and field option sales at the level of Q2, we expect Q3 revenue to be between €1,500,000,000 1.6 €1,000,000,000 Q3 will not include any revenue recognition for UV systems. Based on expected customer and product mix, we expect gross margin for Q3 to be around 45%. R and D expenses for the Q3 will be about €275,000,000 SG and A is expected at about €90,000,000 R and D and SG and A are both up slightly from the Q2 levels, driven by investments in future technology and continued effects from a strong U. S.
Dollar. As to the rest of 2015, we expect less tapering in our memory business in H2 than we anticipated last quarter. This is driven by continued capacity additions in 2 new DRAM fabs and by some additional capacity needs in the one existing volume 3 d NAND fab. We continue to see a stable logic business throughout 2015 in support of current FinFET node ramps and next node developments. Our service and field option sales exceeded the €500,000,000 mark in Q2 and we expect that level to continue throughout H2 due to increased adoption of our holistic lithography products and the purchase of system node enhancement packages supporting customer node migrations.
We expect to see Q4 revenues holding up at the Q3 level with some upside opportunity possible due to logic's need for additional advanced node development tool. This means that we are on track to another record sales year for 2015. Peter will talk more about EUV shortly, but I would like to make a few points regarding 2015 EUV shipments. As most listeners are aware, we continue to show great progress in improving on key EUV performance metrics related to productivity and availability with unchanged targets of improving both further throughout this year. We are delighted about the receipt of purchase orders for 6 EUV production ready tools during last quarter.
Of the 6 tools, 2 tools are scheduled to be delivered this year and the remainder will ship from next year on. This is an indication of EUV's continued progress along the new technology adoption curve. For 2015, we now see the opportunity to ship 5 NXE 3350 production ready systems supported by 4 system orders and with close customer interaction on the 5th system continuing. Also, we plan to ship 1 additional NXE 3,300 before year end. With the 1 NXE 3,300 that we shipped earlier this year, we therefore now forecast a total number of 7 EUV shipments for the year.
1 of the 2 remaining prepaid NXE 3300 is planned to be upgraded to an NXE 3350 or higher. And for the other systems, discussions with the customer have not been conclusive as of today. We expect the EUV revenue for the year to be limited to the one NXE 3,200 that we recognized during Q2. Revenue recognition for the remaining shipments this year will depend on the achievement of certain performance milestones and attribution of overall revenue to the system itself and related services. Revenue recognition will vary from customer to customer based on the specific terms and conditions in the respective agreements.
We will provide our assumption for timing of revenue recognition after we have shipped incremental EUV system. Once the performance of EUV technology is matured, we expect to recognize revenue in the same fashion as we do in our BUV business. Finally, as an update on our capital return program, our proposal to increase our dividend by 15% was accepted by our shareholders at our annual meeting in April, resulting in payment of €302,000,000 in dividends in Q2. In addition, relative to our 2015, 2016 buyback program announced in Q1, we now executed total repurchases for the first half of twenty fifteen of €285,000,000 at an average price of €96 per share. Now with that, I'd like to turn the call back over to
Peter. Thank you, Wolfgang. As Wolfgang highlighted last quarter, we had an expectation that our strong second half of last year would continue into the first half of this year. We can now say that the strength in the first half of this year is expected to continue through the second half leading us to a record revenue year in 2015 as Wolfgang mentioned. This is clearly supported by our strong service field options and upgrade business.
Our customers appear to be preparing for continued growth in their business as we see, for example, the 2 new DRAM fabs that Wolfgang mentioned continue to install capacity. In addition, we've all heard announcements of the 2 new NAND fabs likely to begin taking manufacturing equipment in 2016 for volume build of vertical NAND. On top of this, we see 2 new foundry fabs beginning to take tools in the second half this year in support of advanced FinFET process node ramps and early development of next node logic devices. So before I move on to EUV, I'd like to share some highlights of our DPV Analytic lithography programs. Firstly, with respect to our DPV program, we will begin shipping this year our NXT 1980 Immersion product, which is capable of 30% improved overlay accuracy versus our prior offering along with the world's first 2 75 wafer per hour immersion capability.
This will help our customers to deal with the increasing cost of complexity relating to multiple patterning strategies. Next to these platform improvements, we are increasingly focusing on the availability performance of our systems. And I'm glad to report that this year, the average availability of our worldwide installed base of more than 300 NXT tools increased to above 96%, again an important driver of affordability. Secondly, I'd like to highlight that our holistic lithography products now have a 100% attach rate on newly sold emerging systems. Our integrated metrology systems, which we call YieldStar, is now broadly accepted with more than 2 50 systems in the field.
Our holistic lithography concept of providing imaging, measuring and modeling capability allows unique support for controlling today's and tomorrow's most challenging and balancing patterning processes across all industry sectors. Thirdly, we feel that we are strongly positioned with our wide range of field options and upgrade products. These products allow for extraction of maximum performance for the installed base of our lithography tools and extension of their performance over multiple nodes allows for a more efficient capital use of our lithography equipment. And as witnessed this past quarter, demand for these products continues to grow with combined service, field options and upgrades crossing the $500,000,000 mark last quarter for the first time ever as Wolfgang mentioned. It's expected to continue to stay around this level for the next few quarters.
And finally on EUV. As we're as most of you are aware, we continue to demonstrate real progress against our targets in system throughput and system availability. These are the key metrics of performance that drive new lithography technology adoption once imaging and overlay performance are demonstrated and accepted. As mentioned on many prior occasions, our focus in 2015 is on improving EUV stability and availability with continued steady progress on productivity. As it relates to productivity, during the Q1, we have demonstrated 10 22 wafers exposed in a 24 hour period at one customer site with 80 watt configuration.
Our target is to be able to repeat this at several customers and at several sites. Now upgrade of systems in the field to 80 watt has virtually been completed in the Q2. This gives us further confidence that the customer targets are realistic and should be met. In addition, we have demonstrated 130 watts dose controlled source power in our facilities, enabling further productivity improvements. On system availability, which is targeted at 70% by year end, we've been running at a 55% average on customer installed systems.
With current upgrades, multiple sites are now achieving average availability of greater than 70% for 1 weekend with 1 customer achieving a 70% average over a full week run. So excellent progress on this important front. Now with the first two orders for our 4th generation NAC 3350B production tools announced late last year and entered into our backlog, this past quarter we not only signed a volume purchase agreement for a minimum of 15 tools with a U. S. Customer, but have also taken a 6 tool purchase order against that agreement, which has now also ended our backlog.
And as Wolfgang mentioned, also discussions are continuing with multiple customers on the exact timing of their requirements for more EUV systems. But clearly the EUV adoption curve will be driven by the continued progress we are making on these key EUV performance metrics. Question of how many EUV orders we will see during the next few quarters can only be answered by relating the aforementioned progress to each customer's specific roadmap, adoption drivers and risk appetite. These are of course different per customer, but generally we can say that our logic customers are most aggressive given the complexities of multiple patterning strategies for Crytran and ultimately NAND customers. In any case, in order to deal with this eventual and inevitable demand, we recently opened our new EUV factory, which will enable an output of 24 systems by 2017 and potential further output capacity growth to 60 systems in the years to follow.
Now with that, we would be happy to take your questions.
Thanks, Peter, and thanks Wolfgang as well. Ladies and gentlemen, the operator will instruct you momentarily on the protocol for the Q and A session. But beforehand, I'd like to ask as always that you kind of limit yourself to one question with one short follow-up if necessary. This will allow us to get to as many callers as possible. Now Aaron, could we have the first or your instructions and sorry, and the first question please?
Of course. The first question comes from Sandeep Deshpandev. Please state your company name followed by your question sir.
Hi. Sandeep Deshpande, JPMorgan. If I may ask on EUV, I mean in terms of what you're discussing with your customers, you've given some indication of the U. S. Customers orders which are going to ship into next year.
Do you have any sort of visibility about the other major customers and how EUV shipments would go into 20 16? Clearly, you're going to have capacity now to do that given the opening of your new EUV factory. And second, my question is on OpEx. You've had some impact to your OpEx from the euro dollar exchange rate. Is there any further impact to the OpEx from the euro dollar exchange rate?
Or is the current OpEx reflecting what the current euro dollar exchange rate is? Thank you.
Sandeep, I will answer the first question and Wolfgang will take the second one. Your question, do we have visibility on the EV shipments 2016? Well, there is part of that visibility is pretty certain because we've received the orders and we know what to do. And I think they're also we're currently planning on the 3300s that will be upgraded to 3,350 performance that have not been shipped yet. That could be part of the 2016 shipment pattern also.
I would say like I said in my introductory statements, the question of how many EV orders we will see during the next few quarters, you should really see in the context of the progress we are making on the availability and the productivity. Visibly what customers' specific roadmaps are and what their risk appetite is and their adoption drivers. Now I think we've made good progress on availability and on productivity, which is evidenced by our current performance after the 80 watt upgrade. So I would say if you would have a conservative view of 2016, I would say you should pencil in the same number of EUV systems that we've seen in 2015, which is a combination of 3300s and 3350s. If you're a bit more positive and that will have to show over the next two quarters as the second half of this year.
That could run up and that could run up to approximately 10 systems. So it's anywhere in between what we ship today and 10 units. That is what our best estimate is today. Don't forget that the real ramp is in Logic First, which is basically 2018 production for our customers, which means 2017 shipment. So the real shipment ramp will be in 2017.
And 20 16 will be you could say an extension of the 2015 development work that our customers are currently doing.
So just to clarify, you're talking about shipments and not recognition, correct? So when you say that 7 to 10 or whatever that is shipments and not recognition?
Yes. What is important is that
those tools get shipped. Important is
that those
tools get shipped because once they're shipped
and it's €100,000,000 tool, customers will use them. And usage is extremely important in the learning curve and in the adoption of EUV technology. So shipment is very important. So the I would say the order of priorities to ship them first and get the cash in, which is part of the orders. And then we do rev rec, which is you could say a discussion we will have with the accounting community, which and then Wolfgang can go into that into more detail.
But it just means that you need to go through the list of agreed performance criteria and you need to tick every box. So in that order, we need to shift first, that's the most important for learning curve and for the adoption and then we get the cash. And revenue recognition will be with the auditors.
Thank you. So Sandeep and I'll go into the OpEx question. Yes, if you look at like where we started the year in R and D around the 260 level and then in SG and A in the low 80s or so. And now we're guiding to 275 and 90 respectively. It's indeed true that the majority of that jump comes from FX effects.
Like if you look at R and D alone, I think we have about 25 percent or so of our spending in the U. S. And with exchange rate going from the 1 30s to 110, that probably accounted for 2 thirds of that jump from 260 to 275. So the balance is really in accelerating investments in future technology before we get some of the wind down of investments in existing technologies. SG and A very similar and FX impact of course.
And we are investing in certain areas for instance in business development teams for field options and upgrade sales. We are completely focused on the 2020 model that we published last November and we plan on being at about 13% of revenue in R and D and about 4% in revenue for SG and A. So I think we are in good shape. I want to mention on the FX effect that, of course, as a company, we also have positive effects from FX because we are selling field options and also services, in particular services abroad in local currency. That's about 10% of our revenue in total.
And there we have a positive impact on our P and L as well. But net net, there is probably a 1 percentage point on the net income that we were impacted with from FX. I hope that clarifies it Sandeep. Thank you very much. You're welcome.
The next question comes from Mr. Kolset. Please state your name and your question. Go ahead sir.
Yeah. Thanks for taking my question. It's Kai Korschlade at Merrill Lynch. I had 2. The first one was on EUV.
So Peter just to make sure I understand correctly, you're saying that demand in orders will depend essentially on the performance over the next 6 to 9 months. But my understanding is the availability is already moving up to 70% now with what is essentially an old tool. And the 3,350 will have I guess material improvements in availability in source power. So my question is by the time these tools ship, why would the major Logic customers, when they see those improvements compared to the 3,300 that they're using today, not order those tools? Is there anything really that you think the 3,350 will not be able to deliver, let's say, in the 1st 12 months of shipments that your main customers need?
That would be the first question. The second one would be for Wolfgang just on the balance sheet. From what I can tell you've it's been not a great cash flow quarter because obviously the dividend has been paid. But you're still above that €2,500,000,000 threshold I think that you've mentioned to us. So is it still the right for us to assume that any cash that you generate essentially from here onwards will find its way back to the equity holders either through buybacks or the divvy?
Thank you.
Yes. Okay. Yes, perhaps, it's the shortest answer is probably on the second question. So why don't you do that?
Yes. I'll get started, Cai. Yes, the assumption is right. We haven't changed anything on our returns policy. We have established that minimum growth cash balance that we think that we need to run the business.
It's around $2,500,000,000 Last year last quarter indeed the cash balance went down by some $300,000,000 and that was like you mentioned it was purely a function of share buybacks and dividends. There was a nice free cash flow in the quarter as well. And the policy remains intact. We look first at dividends on excess cash over the 2.5 and our goal there is a stable or preferably growing dividend. And then the balance we used for share buybacks.
We have €1,000,000,000 or thereabouts program announced in Q1. And we have executed 285 against this program in the first two quarters. So same policy as we had before, no change.
Good. And on your question, basically, say, with all the progress that we have made in the introduction of the 3,050, why wouldn't customers order those tools? That is a very good question. And I think I would ask the same question why wouldn't they order those tools because we are making very good progress. Now I think the answer is we've had in the past over the past couple of years, we had many expectations and promises on the EVA introduction.
We've as a company now basically over the last one and a half to 2 years said, we're going to tell you and to give you EUV guidance on what we actually see. Now what we are seeing is a significant improvement, I would say, in availability and in productivity. So your assumption is why wouldn't they come is a very fair one. And on the 3,350, we still need to ship the 3,250. We have the expectation that the 3,350 will perform better than what we have in the field today because you're correct, it will be higher productivity, it will be better availability with in situ cleaning in there.
So this is indeed our expectation. But what we do not want is to give you all our expectations. We would like to guide you on what we actually see. And like I said, if you want to be conservative and think that progress is going to be slow, you say, well, perhaps it's going to be 2016 an extension of what we saw in 2015. If you're a bit more positive then you would pencil in higher numbers for next year.
And if you have higher numbers for next year, you also need to book the orders. Now given where we are today and you know me a bit, I'm more an optimistic person, but we are not here yet to give you specific numbers on orders and when orders will come and when we will ship.
Great. Thank you.
The next question comes from Ms. Menacher. Please state your company name followed by your question.
Yes. Hi, this is C. J. Muse with Evercore ISI. I guess first question, you talked about potential upside in Q4 led by logic.
Curious if you could provide a little more color there as to what the main driver and magnitude could look like? And I guess as a follow on to that, as you see the 1980 layer in, presumably beginning in Q4 and then throughout calendar 2016 beyond, how should we think about the uplift for ASPs?
Yes. On the potential upside, logic that's really driven by the fact that when you look at the announced node to node transitions, we make it specific and say, let's do the 10 nanometer node transition. What we have witnessed is also true on 14 20. We see an extended period that customers take for development and for qualification of those nodes as it relates to the timing of the ramp. So it just takes longer to go to the ramp of that node, which effectively means if the ramp of that node is a given, yes, then you need more development time, which just brings the shipment of the early development tools back in time.
So you need them earlier. And this is where we see the upside. When we talk to customers and they talk about their newest node, they just take more time to do the development and the integration work. And that means that that is an upside that we are seeing for the second half of the year. So it's really advanced technology transitions, earlier acceptance and earlier delivery of those tools because they need more time.
Sorry, if you want to cover the ASP, Walter?
I can cover the ASP. I mean, I can't give you an exact number, but you should assume CJ that the ASP is up. You see it in our press release for instance, the tool 1980 provides for 30% improvement in overlay and also better throughput of 10% to 275. That's significant value to the customer. And it's like we always do, we share that value.
And so you should assume that that tool has a higher ASP, a few million than the 1970.
Great. And then I guess as a quick follow-up on EUV and I know there's a lot of timing uncertainty and you guys are more focused on shipments and the ramp in 2018. But wanted to get your view on what would be sort of a low end number and a high end number in terms of revenue recognition on the EUV side in calendar 2016?
Well, I'll take that Wolfgang. I won't be able to give you a number today. I can explain to you a little bit about the complexity and what we are going to do in the future to give provide you some guidance. Like we said, we expect to ship 7 systems this year. Of that only one will recognize.
So you have the opportunity to get some revenue recognition in 2016 of these tools. Plus then we will ship other systems like for instance the upgrade at 3,300 and you can to get some revenue recognition there as well. Now as it relates to the 3,350, as we launch this tool, the revenue recognition will actually depend on a few factors. It will of course depend on shipment acceptance, but it will also depend on certain performance milestones. Plus, we have the revenue and we get attributed to the system and related services.
So it's fairly complicated and it's actually then made more complicated that every customer agreement looks different from each other. So it's very difficult if you don't know the if you can't go into the detail on all these schedules and milestones to give you a forecast. And as you can imagine, they're also not in cast in stone from a timing perspective. So what we're going to do is we're going to give you an indication as we start shipping these tools, what the timing and the euro amount of the revenue recognition will be. I mean, the first one of these could go as early as this quarter.
So you could expect us in Q4 to talk about this particular tool how the revenue recognition will go. And then as we ship 4 tools in the Q4 and January, I'm certain that we'll give you some specific guidance, but can't do it today. And I'd also like to mention like this is a temporary situation. Ultimately, the objective is of course as the technology has matured that we go and recognize revenue in the same fashion as we do it for our UV system. Sorry to not be specific about the numbers, but that's kind of the complexity behind it.
But you will see us giving you more specific guidance as these tools actually ship. Makes sense. Thank you. You're welcome.
The next question comes from Mr. Garrett Jenkins. Please state your company name followed by your question.
Yes, thanks. This is Garrett Jenkins, UBS. A couple if I could. I just wanted a bit of clarification, Peter, on something that you've talked about. Just on the 10 nanometer insertion for EUV, presumably the design window is closing for that in terms of insertion.
And I just wonder whether you need further or whether you expect further orders for EUV to support 10 nanometer insertion? Or should we just now expect a kind of full insertion at 7 nanometers across the
the think the EV insertion is now focusing on 7. However, things are a bit fluid in the sense that when you talk about 10 nanometer, you listen carefully to what customers say about the 10 nanometer node. There have also been clear public statements by customers about phases in that 10 nanometer node. Yes, the first phase and then the second phase and they will have node nomenclatures that are changing. But from our point of view, when you talk about 10 nanometer node, it is a certain pitch or a half pitch and that there could be several phases.
Now in this particular case, and given the complexities of 10 nanometer production using very complex multi patterning strategies. I would never rule out that with progress of EUV, the way it is today and even if we can accelerate that progress that there's a customer that says, listen, in the last phase of a 10 nanometer node, I'm going to use EUV for two reasons. 1, it might be beneficial to reduce complexity at that moment in time and you have to learn. You have to learn for 7. So I'm not ruling this out.
It's going to be a function of the progress that we are making over the next 1 or 2 quarters.
Just on that, Peter. So presumably at the half pitch shrink, you're talking about maybe something like 8 nanometers. So maybe UV is not inserted at 10, but something like a half pitch at 8. Is that the sort of thinking?
Well, the half pitch stays the same whether it's 10 or X whatever that node is going to be 9, 8, 7, 8, 8.5, 10 minuteus, 10x. I mean whatever customers are going to think of a node known and glacier, it's effectively is the 2nd phase of the 10 nanometer node. But the pitch and the half pitch is going to be the same. So but like I said, this is going to be a function of progress that we are making, the complexities and the yields that customers are experiencing in using DPV multiple patterning strategies that is going to those two things together, yes, will determine a potential if you're to say a second phase introduction. And I'm not going to say that that's a slam dunk.
With 7 nanometers, I think it's clear. I mean, we see very clear announcements from customers that say we're going to use EUV at 7 nanometer. But it is really the performance and there are complexities that we are engaging or running into that are going to determine a potential second phase introduction. And that is for learning also.
Right. That's very clear. And just on slightly shorter term question on you mentioned that you're seeing earlier development in H216 than maybe previously.
Does that
mean that you're actually seeing some pull in effectively, some pull in business from H1 'sixteen to H2 'fifteen that we might have expected a bit later. So I'm not asking for H116 guidance, but can you help us out with the phasing through into next year?
Yes. Well, when you look at the potential upside that we're talking about that's really like I explained earlier. That is because of the development and integration time for the next nodes for instance a 10 nanometer node is more complex and takes more time. So you see as compared to the original assessment of when they would need the early development tools, which would be the first half of twenty sixteen, we see a potential of that being pulled into the Q4 of 2015. That is correct, but that's technology transition.
With respect to capacity, like we mentioned in the introductory statements, both in DRAM, NAND and logic, there are several new fabs out there that will take tools. And they will take tools for the most advanced nodes and they will definitely ramp the first phase. Now that first phase will happen. That's why we are positive or we feel comfortable about the second half of this year. How that will translate into 2016 ramp and the speed of that ramp we don't know yet.
But the fact that those are new fabs that they have to be ramping the first line gives us a lot of confidence over the next couple of quarters.
Thanks.
The next question comes from Mr. Arcuri. Please state your company name followed by your question.
Colin, thank you. I guess my first question is, Wolfgang, I want to make sure that the EUV systems that you're putting in the backlog this quarter, these are the 125 wafer per hour spec tools. So the ASP, we should think about it like €110,000,000 and that's about the ASP that we should think about for all the EUV systems that you book from here on in. Is that right?
Yes. The backlog includes some of the 3350s, but then there was also some of the next generation 3400 included there as well. And we said before that the 3,350s list price is somewhere in the mid-90s and 3,400 would be over 110. And then you got to be a little bit careful when you look at it in the backlog because what you've got to do is you've got to take the ASP and split it over several elements of things that you deliver. So there may be a little bit that gets allocated to a service that you deliver with an installation or a warranty.
So you've got to be a little bit careful with the backlog ASP. But I can tell you for the 6 tools that we took last quarter, The backlog ASP is somewhere in the low 90s.
Low 90s. Okay, great. And then I guess I also had a question on Holistic. And Peter, you said that the attach has been now up to 100% and I'm assuming you're talking even in memory. And so I guess my question is of the $1,900,000,000 in service you're going to do this year, how much of that is going to be Holistic and YieldStar?
And sort of what's the right opportunity for that going forward? I guess I'm thinking about what gross margins are going to be on your Immersion systems, because it looks like in June if I assume 0 gross margin that the non EUV gross margin is sort of 47.5%. And it looks like maybe if Holistic is that strong that you could get to 50% maybe next year or the year after? Thanks.
I think on the margin question, Wafner, are you going to take that? I think on the holistic business, yes, it's 100 percent attach rate. That is definitely true for advanced logic, but now also increasingly for advanced memory and especially DRAM. Also there you see multiple pathogenic strategies. You see multiple pathogenic spaces strategies, which basically also need the control software that we can provide together with the scanner to make sure that customers can control their process and they can make a yield.
So yes, you see it now also in memory and that attach rate will probably expand over time to the entire product base and to well, I would say across all industry sectors. Monty, do you want to take the margin? Yes.
As it relates to the gross margin, in 2nd category field options and services. For the holistic lithography, it depends on whether the customer orders it with the original system the option then it gets reported in the system. When it's later on order as an upgrade option, then it will be in our field options and services. So when you hear us talking about holistic lithography lithography achieving over $500,000,000 last year and us aiming for $1,000,000,000 by 2017, you'll actually find that in both buckets. I think that's important to know.
As it relates to the gross margin, we have said that before, there is a strong software content in that business and there is some hardware in there with the YieldStar, our metrology tool. But the blended margin is somewhere in the mid-seventy percent. So as we approach the $1,000,000,000 in 20 17 and as Holistic outgrowth the rest of the business, yes, it's going to be accretive to the gross margin over time. I don't think I have an exact number to share with on what it could be in which scenario, but in general it's accretive. Okay.
Thanks so much. You're welcome.
The next question comes from Mr. Mehdi Hosseini. Please state your company name followed by your question.
Yes. Thanks for taking my questions Mehdi Hosseini. Susquehanna International. My first question goes back to some clarification. You're increasing the age of backlog for EUV system now.
It seems like going to seeing
a
seeing a double digit EUV shipment by 2017. You have a capacity of 24 systems per year by then. Why can you in that context, can you help us understand what is your base assumption for the mix of these systems that are going to be shippable in 2017? And what I mean by mix either on the logic side you can help us 7 versus 10? And would there be any DRAM that will be included?
And the fact that your IDM customer U. S.-based IDM customer has stepped up and placed an order also makes us wonder if they have revisited insertion at 10 or is it still going to be a 7 nanometer? And I do have a follow-up.
Well, on the last question, we're not going to be specific on any customers. So that's unfortunate, Mehdi, but I don't it is really appropriate in this call. On the split in 2017 logic DRAM and the potential, well, like I said in my introductory statement, the majority will be logic. However, if you look at the DRAM roadmap in 2018, we will be in the mid-1x DRAM nodes which is EUV territory. So we are indeed seeing potential for a 2,070 shipment which also includes advanced DRAM.
But the majority will be logic. So and that's going to be if you take 24 units, it's going to be significantly over 50% is going to be logic, which is microprocessors and foundry. And I would say it's a minority. If you want to get a number it could be 75%, 80% logic and the rest of the year.
And would you expect majority to be like 7 nanometer logic or would there be a mix of Yes.
I think it's going to be 7 nanometer, yes, largely, yes.
Okay. And then my second question has to do with your core business. The bookings in Q1 declined 26% on a sequential basis and Q2 is down low single digit. Is this the kind of a base booking that would be required for technology investment? And if there is any capacity coming in later on, it would help with any kind of improvement in booking?
Is that a fair way of thinking about your current booking?
Yes. I think we
probably sound like a broken record in this sense, but we're going to repeat how bookings are being administered in the company. We only have a handful of customers. And actually we plan our production and our shipments to customer based on an agreement that we have with the operations executives of the customers and looking at their ramp schedule and that we agree with them that we have a certain production administrative follow on part of the process. Just to give you an example, with a few customers, we have volume purchase agreements that span a node that basically you have a whole node agreement, which is a lot more units that are under the volume purchase agreement. And they will just follow on with orders based on the lead time that we give them.
And they will be very disciplined on giving us the orders taking into account the lead time. With other customers, we have annual volume purchase agreements. And with other customers, we have buy we have, let's say, volume purchase agreements, which span a period of 2 years. So when you have an annual volume purchase agreement and you negotiate that for 3, 4, 5, 6 months and it comes in, then the orders will follow, because then you only have 6 months left. So then you get an input of orders as you could say is a big lump of those orders in 1 quarter.
So what I'm trying to say is don't put too much emphasis on the order intake over a longer period of time. You are correct. It needs to reflect our future business. But a quarterly order intake is not indicative of our business going forward and might be almost deceiving if you understand how the ordering goes in our business. More important is I think our guidance on what we believe that we ship.
So that is based on the agreements with which we have with operational executives of our customer.
Got it. Very helpful. Thank you.
The next question comes from Mr. Andrew Gardiner.
It's Andrew Gardiner with Barclays. Peter, you do seem more optimistic now than you were earlier in the year. And it seems as though despite sort of broader concerns about the end markets and the cycle, investments clearly continuing. Your optimism seems more around capacity additions as we come through the balance of the year rather than a very high level of sort of technology race. And I think we can see this in the tool mix as well.
Looking at 2Q, you had higher level of KRF shipments, for example. But as we then move into next year, it seems as though you're talking much more about technology driven year, particularly when thinking about logic beginning the initial investment at 10 nanometer and that requiring a high end immersion. I'm just wondering, is this a fair characterization or is it perhaps too much of a generalization? And so what are your expectations of your or those of your customers in terms of capital intensity for next year? I'm just wondering why wouldn't your product mix move more towards the higher end in 2016 relative to where we are in 2015, if indeed that sort of technical complexity increases?
Yes. I think this is generally the ASPs are going up. And as you've seen it, that is just a reflection of the increased need for tools that can help our customers address the complexities of the next nodes and whether it's on improved overlay, higher productivity. And it was an earlier question, it will translate into a higher ASP. So I think that is definitely the case.
Now to your point, yes, I think it's too much of a generalization and to try to split the shipment better between capacity and technology. Because when we look at the capacity additions, they are not in existing fabs, they're in new fabs, which all of those new fabs are addressing the most advanced nodes in those sectors. So that in fact is technology, yes? So that's and I would definitely say that the first phase ramp of those fabs is a technology insertion, but they have to add capacity because it's a it is basically a new fab. So for this year, this is what's happening.
We have 2 DRAM fabs taking those tools. We have Logicfab taking those tools. That is driving our business in the second half and that will happen. Now if you ask 2016, it's too early to give you guidance on 2016, but customers generally when they went through the first phase, they just where they are, what the end markets do and they will time the remainder of that ramp to fill up the fab. And that you could argue is then capacity demand.
And I would say this is how we actually look at it because 14, 16 nanometer logic is now ramping. We are now shipping. How much of that capacity will be filled in 2016, we don't know yet. Same is for DRAM. So I would say it's probably just the other way around a bit.
I mean what we're currently seeing is more technology capacity additions whereby 2016 will be driven by the situation in the end demand. And that is for us still opaque. We don't know that and I think our customers don't know that either. So we'll just have to wait and see.
Understood. Thanks for the clarification.
The next question comes from Mr. Francois Mounier. Please state your company name followed by your question.
Okay. Thanks for taking my question. The first question is about the new machine, which is about to ship the 3,350. So how is it going to work? I mean, you're going to ship the machine, pack the machine, plug it in, put the floppy disk, switch it on?
What should we expect from this machine? Is it going to start at like 500 wafer per day, 800, 1000? What's the next data point on this new machine? Thank you.
Yes. We basically the 3300 that we now have has an upgrade package which brings us to 80 watts. The 3,350 ships with a new drive laser which brings you to 125 watt. So that is a productivity increase from 80 to 125 watt, which you could say is almost a linear impact on the productivity. So maybe you find 100 good waves per day on the 3,280 watt then you can calculate you don't even need a floppy disk for that, but you can calculate on a piece of paper to it means what that means for the productivity.
And as you know, we have a target of 1,000 crude wafers per day next year. So we need that productivity of the 3,050. Now it's not only productivity, it's also availability. Now we have a 70% target for this year, but the 3,350 with all the new, I would say options on it, which includes better stability of the droplet generator, which includes in situ cleaning actually brings the targeted availability to 85%. Now so if you go from 80% to 125%, which gives you more productivity, you get an availability that goes from 70% to 85%, it gives you more productivity.
You can just calculate that the 1,000 good waivers per day is a very reasonable and good target for 2016.
Right. Very good. Now a more longer term question. There's been quite a bit of news flow recently about China and even a rumor of a Chinese company wanted to buy Micron this week. It's pretty clear that the Chinese government wants to get more involvement in the semiconductor industry.
Do you expect China in general to become a bigger customer of yours going forward?
Yes. I think you just mentioned it. I could have given that. What you just said could have been my answer. I mean, yes, it's clear that there's more focus in China on building semiconductor capabilities, both in logic and also I think there are big statements clearly that they want to be somehow involved in advanced memory.
Yes, I think China is becoming a bigger is a bigger market, but don't exaggerate it either. I mean, there's still when you think about logic as compared to the leading edge logic makers, 2 generations behind. And Moore's Law is not slowing down. As a matter of fact, you could argue that 10 nanometer is actually being pulled in. So yes, there is a lot of attention.
There's more attention. I spent more time in China than I did the years before. We have more interaction with our customers. 28 nanometer is now ramping in China. There's our 28 nanometer logic.
There's definitely more activity, but the like I said, the generations are still 2 generations behind. And in terms of leading edge memory, there's a lot of leading edge memory in China, but that's in NAND and in DRAM and that's in not in Chinese ownership, that's in Korean ownership. So yes, China is moving, but don't think it's going to be a blowout. It's going to be gradual growth over the next 5 to 10 years.
All right. Thank you very much guys. Thank you.
Thank you, Francois.
We have 5 minutes left. The next question comes from Mr. Amit Haruchani. Please state your company name followed by your question.
Thanks. Amit
Hazani from Citigroup. Good morning and good afternoon. Two questions, if I may. The first question relates to your field option and service sales. We see a elevated level in this quarter and I'm wondering to what degree is this an outcome of increased reuse by customers as they move say within a node or across nodes?
And how should we think about service and field option sales going forward versus the $2,500,000,000 to $3,000,000,000 target that you have in your 2020 model? And the second question regards to EUV. We've talked about throughput and productivity. Imagine an overly seem to be under at acceptable levels. Could you give us an update on the defectivity aspect?
And where is that trending versus customer expectation? Thank you.
Okay. I'll take the EUV, defectivity question and the growth drivers for field option and service. And I think Wolfgang can then talk about the 2020 targets. Basically, I think you're referring to our model that we showed at the Investor Day last year. On the EUV defectivity, this is currently not a well, it's not entirely true.
There was a defectivity worry, which largely had to do with mask induced defectivities. I think with the introduction of the EUV Pelicle, which we talked about last quarter, so as basically that those worries are gone. It's now making EV Pelicle the mountable and demountable Pelicle, bringing that to an industrial state and that will take care of that. Now clearly, there are resist induced defects. There are process induced defects.
This is why customers need those development tools. This is why they are running hundreds and hundreds of good waivers per day today to figure that out. Now we do not get the feedback from our customers. That is a show stopper. This is what I would say it's the normal development activities that customers have to do to before they can go into a production ramp.
So we don't have those numbers. And even if we would have those numbers, I would not give them to you because this is a public call, it is a customer privy information. So but it's not a major concern. And especially since we have now a mask solution. Now on the drivers for the field software and service growth, very clearly, it's the installed base that grows.
It's the drive of the customers to look at their installed base and say how much CapEx have we still on the balance sheet and how can we reuse that or how can we use it more efficiently by either getting more wafers out, doing productivity upgrades, doing overlay and focus improvements so that they can use those machines for the next nodes. That is the big driver and it includes upgrades. So very advanced upgrades that includes a lens swap, a new optical system could be over €20,000,000 €20,000,000 to €25,000,000 Now those are drivers for field office and service sales. I would call it installed base management. That is what customers are focusing on to have a better capital efficiency.
Wolfgang, you want to take the target number?
Yes. First of all, also on the reuse, yes, reuse is enabled by us through these packages. And therefore, we have also modeled that in our 2020 revenue numbers. And no, the assumptions have not changed as it relates to reuse in our field options and services. The $2,500,000,000 to $3,000,000,000 that you referred to in the different scenarios, It will depend a little bit on like I explained earlier on an earlier question on whether customers order holistic options right with the system or whether they do options later on.
But again, at $400,000,000 in the first, dollars 520,000,000 in the second and that being stable, you'll be somewhere over $1,900,000,000 dollars There's still quite a bit of growth left to get to the $3,000,000,000 level. We feel very comfortable about it. It's good business for us. It's approximately at the average of the gross margin of our systems business. So we believe that's still a good target range for now.
Thanks. Thanks, Wolfgang. You're welcome, Amit.
Ladies and gentlemen, with that, our 60 minute call time is expired. For those participants that were unable to ask a question and have a need to do that, please feel free to contact the Investor Relations department with your question and we'll get back to you as soon as we can. With that, on behalf of ASML's Board of Management, I'd like to thank you all for joining us today on the call. Operator, if you could formally conclude the call, I'd appreciate it. Thank you very much.
Thank you. Ladies and gentlemen, this concludes the ASML 2nd quarter 2015 results conference call. Thank you for participating. You may now disconnect your line.