Ladies and gentlemen, thank you for standing by. Welcome to the ASML first quarter results conference call on April 15th, 2015. Throughout today's introduction, all participants will be in a listen-only mode. After ASML's introduction, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press star zero for operator assistance. Now I would like to turn the conference over to Mr. Craig DeYoung. Go ahead, please, sir.
Thank you, Peter. Good afternoon and good morning, ladies and gentlemen. This is Craig DeYoung, Vice President of Investor Relations at ASML. Joining me today from our headquarters in Veldhoven, the Netherlands, is ASML CEO, Peter Wennink, and our CFO, Wolfgang Nickl. The subject of today's call is ASML's first quarter 2015 results. This call is also being broadcast live over the internet at asml.com. A replay of the call will be available on our website for approximately 90 days. Before we begin, I'd like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of the federal securities laws.
For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation found on our website, asml.com, and in ASML's annual report on Form 20-F and other documents as filed with the Securities and Exchange Commission. As a reminder, the length of the call today is 60 minutes. Now I'd like to turn the call over to Peter Wennink for a brief introduction.
Thank you, Craig. Good morning, good afternoon, ladies and gentlemen. Thank you for joining us for our first quarter 2015 results conference call. Before we begin the question and answer session, Wolfgang and I would like to provide an overview and add some commentary on the first quarter and provide our views of the coming quarters. Wolfgang will start with a review of the first quarter 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. Wolfgang, if you will.
Thank you, Peter, and welcome everyone. In Q1, our net sales came in at EUR 1.65 billion, which was in line with our guidance, and driven as expected by a nice balance of memory and logic sales. Memory represented 55% and logic represented 45% of system sales. This compares to 65% and 35% in the December quarter, respectively. Service and field option sales came in at EUR 403 million, very similar to last quarter. Gross margin for the quarter increased from 44% in the December quarter to 47.2% in Q1 and was in line with our guidance. The increase in gross margin was enabled by volume-driven cost effects and a product mix which included no EUV system sales for the quarter. R&D expenses came in at EUR 261 million, and SG&A expenses came in at EUR 82 million. Both in line with guidance, despite a strengthening of the US dollar throughout the quarter.
Our effective tax rate for the quarter was approximately 11% of free tax income. Turning to the balance sheet. Quarter-over-quarter cash equivalents, and short-term investments grew to EUR 2.84 billion from EUR 2.75 billion at the end of the prior quarter. Regarding the order book, our Q1 systems bookings came in above the EUR 1 billion mark. We did not book any additional NXE:3350 systems during the quarter. We saw a shift back towards memory in Q1, representing 53% of bookings versus 27% of bookings in Q4. We finished the quarter with a solid overall backlog of EUR 2.6 billion, nicely balanced between memory and logic. With that, I would like to now turn to our expectations and guidance for Q2 and share an initial qualitative view on the balance of 2015. As mentioned, we end the Q2 with a strong and nicely balanced backlog.
From this, we expect strength in system sales in both memory and logic in the quarter. Adding continued strong service and field option sales expectations supports the net sales guidance of around EUR 1.6 billion for Q2. This will leave the first half of 2015 growing over the second half of 2014 as previously forecasted. Our Q2 net sales guidance includes revenue recognition of one NXE:3300 system, which we shipped in Q1. We expect gross margin for Q2 to be around 45%. The difference from Q1 is largely driven by the recognition of one NXE:3300 EUV system in net sales. R&D expenses for the second quarter will be about EUR 265 million, and SG&A is expected at about EUR 85 million.
As to the rest of 2015, we do expect that most of the forecasted DRAM memory bit demand will be satisfied with first half year litho shipments, leaving memory shipments to taper into the second half of the year. We expect stable foundry business throughout 2015 in support of the current FinFET node ramps and next node development. Our service and field option sales will likely increase over the coming quarters as we benefit from increased adoption of our holistic lithography products. The purchase of system node enhancement packages supporting customer node migrations. We expect this part of our business to reach EUR 500 million per quarter exiting the year. 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. Meanwhile, we continue to discuss the exact need and timing of potential NXE 3300 upgrades to NXE 3350 light configurations of three prepaid systems on order. Depending on the outcome of these discussions, we may ship these tools as NXE 3300 systems in 2015 or as upgraded systems in 2016. We hope that these discussions with our customers, including agreed-upon configuration and shipment timing, will be concluded within this quarter. In addition, we continue in-depth interaction with multiple customers on the planned 2015 shipments of four NXE 3350s in addition to the two systems already on order.
I would like to take a moment now to proactively address what has become a commonly asked question of late. That is: how do changing exchange rates impact our business? Firstly, we contract the majority of our business in euro, we have not changed our pricing as a result of currency fluctuations. Therefore, the recent strengthening of the US dollar, also the relative strength of Asian currencies, have a positive effect on our customers' capital spending compared to their original budget. We also have some of our service business, including our Cymer light source business, quoted in foreign currencies. For that portion of our business, we have a positive translation effect in our P&L.
Secondly, we do originate a substantial part of our operating spending from the U.S., where we employ approximately 3,100 professionals in development, field service, and manufacturing of sources and paths for NXT and NXE systems. This spending weighs in heavier in our P&L when translated into euro. Net-net, despite our hedging programs, the disadvantage from our foreign currency-based spend is larger than the advantage from our non-euro-denominated sales. For the first quarter, the unfavorable impact on our net margin was less than one percentage point. Finally, as an update on our capital return program, next week at our 2015 annual general shareholders meeting, shareholders will vote on our proposal to increase our dividend per ordinary share for 2014 by 15% to EUR 0.70 per share. As to our 2015-2016 buyback program announced in Q1, we saw the first repurchases totaling EUR 129 million for the quarter.
Now with that, I'd like to turn the call back over to Peter.
Thank you, Wolfgang. As Wolfgang highlighted, the expectation that our strong second half of last year would continue into the first half of this year has been confirmed by our first quarter results and our second quarter guidance, which is supported by continued memory spend and a significant increase in the logic sector as compared to last year. We expect that our shipments to the DRAM sector will be healthy in 2015 and show an increase as compared to 2014. However, with shipment strength continuing in Q2, we expect that 2015 sales to DRAM will be weighted to the first half, and limited litho tool purchases will support continued NAND planar strengths this year. Although all NAND players have 3D NAND process development programs underway, likely bringing samples to the market in the second half of this year, we do not expect significant volume capacity additions in 2015.
We continue to see the logic sector working essentially on three lithography nodes at the same time. Capacity additions continue at some foundries at the 28 nanometer node. At the same time, we see some customers converting 28 nanometer capacity to 16, 14 nanometer capacity, driven by our capability to upgrade tools from node to node. This is helping our customers to manage capital efficiency at the most advanced nodes. The 16, 14 nanometer node is moving into volume at all leading foundries, while most advanced foundries are also fully engaged in process development at the 10 nanometer node. Meanwhile, MPU microprocessors is starting the transition to the 10 nanometer node in this calendar year. Therefore, we see logic shipments as relatively stable quarter-on-quarter through the year across the combination of the 28 nanometer, 16, 14, and 10 nanometer node.
Touching on a couple of things mentioned by Wolfgang, we are seeing an increase in demand for our holistic lithography products as well as our field upgrades. Given that the current advanced logic processes are driving increased multiple patterning, the requirement for tighter system overlay or alignment is increasing substantially. This, in turn, is driving our process control product sales on things like our YieldStar metrology products and associated process management software, as well as overlay and focus enhancement products for our NXT 1970 product. On top of this, we have seen first orders for our next-generation TWINSCAN NXT1980, supporting next node requirements. As mentioned earlier, our customers are increasingly confronted with higher capital requirements in semiconductor manufacturing, forcing them to focus on improving capital efficiency.
We think we are uniquely positioned to help our customers in execution of their capital efficiency programs by providing lithography system node enhancement packages, supporting each customer's node migrations through significant system upgrades. This, in turn, provides us with an additional sales stream next to new system sales opportunities. Regarding EUV, we continue to demonstrate real progress against our targets in source power and system availability, which are the two key components of our wafer per day program. One customer has already demonstrated wafer per day performance at the level of our 2015 target of 1,000 wafers per day. We are now in the process of upgrading several systems to an 80-watt configuration in order to demonstrate similar wafer per day performance across the EUV install base. The first two orders for our fourth generation NXE:3350 EUV tools are in our backlog.
Output planning has the first system shipping mid-year with a new high-power drive laser system and in-situ collector cleaning capability. Meanwhile, we are having extensive discussions and making good progress with several customers on the sale of additional systems in 2015 and beyond. The EUV adoption curve will be driven by the continued progress we will make on the key EUV performance metrics. The 2015 target levels of 1,000 wafers per day, a minimum of 70% availability, and the synchronization to our customers' roadmaps, which are different per customer, combined with the customer confidence in us reaching the 2016 performance targets, will drive the EUV demand for the next couple of years. In order to deal with this demand, we are developing a production plan for 2016 of one EUV system per month, supporting a ramp-up to a 24-system manufacturing plant for 2017 and doubling that again in 2018.
With that, we would be happy to take your questions.
Thanks, Peter. Ladies and gentlemen, the operator will instruct you momentarily on the protocol for the Q&A session. Beforehand, I'd like to ask, as I always do, to have you kindly limit your question to one question with one short follow-up if necessary. This will allow us to get in as many callers as possible. Peter, could we have your instructions and then the first question, please?
Of course, Mr. Craig DeYoung. Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one to register for a question and star two to withdraw your question from the queue. Your questions will be answered in the order that they are received. If you're using speaker equipment today, please lift the handset before making your selections. One moment, please, for the first question. The first question is coming from Mr. Kai Korschelt. Please state your company name followed by your question.
Yeah, hi, it's Merrill Lynch. I had a couple on memory. The first one, could you give us an update on the 20 nanometer conversion? From an industry perspective, it looks like that's benefited you for a while. I just wanted to ask, sort of which inning you thought we are here. The second question is, some of your memory customers have announced new fabs or new factories to get built. Roughly, when would you expect to benefit from the deployment of equipment? Thank you.
Okay. On the 20 nanometer conversion, that's the low 20 nanometer. That's in full swing. We're moving towards the end of the year to the lower nodes. That's end of the year early 2016 to, what I would say, just under the 20 nanometer node. This, by the way, has been a main driver, the 20 nanometer node for our shipments over the last couple of quarters. New fabs. Yes, there are new fabs. We have two fabs in Korea. One fab opened last year. Another will open in the middle of this year. Shipments clearly in Q1 and Q2 are for the fab that opened last year and the second fab of the year. Part of the orders that we received in Q1 are for shipments to M14, which is a factory of one of our customers, Hynix.
Throughout the year, we will be shipping tools to those new fabs.
Yep. Next call, I think. Kai?
Thank you. Yeah. I was actually wondering about some of the new fab products, more looking into next year, whether you had any visibility on those yet.
Well, we have the same visibility as you have as public announcements of those extensions. As we all know, in Japan are being worked on a NAND extension. There's been an extension being worked on in Singapore. Those are too far away to reflect in our order book today. Those are clearly promises, and that's good news.
Okay. Thank you.
The next question, Mr. C.J. Muse. Please state your company name followed by your question.
I guess first question, you highlighted the initial order at the 10 nanometer node from foundries. Curious, based on that, what you can read in terms of litho intensity there versus 2016, 2014?
Yeah. The node-to-node litho intensity is about 40%, 40%-50%. That also means that you will see also at the 10 nanometer node, customers focusing on what I referred to in the introductory statements, that how much of the installed base can be reused or can be upgraded to the next node. Partly part of that litho intensity will be covered by new system sales, another part will be covered by the, I would say, upgrade of an installed base from one node to the other, which in fact for us is pretty good business. Overall, about 40%-50% higher litho intensity, node on node.
Okay, great. I guess that's my follow-up. As you think about mix in the back half of the year being more levered to logic versus memory, all else equal, plus your service and spares business moving higher throughout the year, I'm curious if you could talk about the impact of that higher margin service spares plus presumably higher ASPs, particularly on the immersion front, and what that will do for your gross margins through the year.
Well, we're not going to give you gross margin guidance for the remainder of the year. It is true that the leading-edge logic shipments have a richer configuration, which has more holistic lithography options included, which would provide a somewhat higher margin, and also margin of the service and system upgrade business is also healthy and is in some instances, especially where it concerns software, of course higher than the corporate average margin. I think the margin profile favors clearly high-end logic shipments, and also favors some of these software packages that we are shipping. Too early to give you detailed margin guidance.
Okay, great. Thank you.
The next question, Mr. Amit Harchandani . Please state your company name followed by your question.
Good afternoon. Good morning, gentlemen. Amit Harchandani from Citigroup. Thanks for taking my questions. Two, if I may, centered around EUV. Firstly, could you maybe give us a little more clarity or a little more insight into the kind of discussions that you're having with your customers with regards to production orders, kind of inquiries you get, whether they are across sectors or limited to only logic? Secondly, as a follow-up, you've talked about there potentially being a requirement wherein even below 1,500 wafers per day would be enough to drive insertion of EUV into full-time production. Maybe you could clarify a little more on that. Do you see more of such applications merging over time? How should we think about insertion and production? Thank you.
Okay. On the first question, where I can give you some more detail on the discussions with customers, unfortunately I cannot do that. I can tell you it's cross-sector. It's not only logic. We are engaging with almost every major customer in deep discussions about the insertion point of EUV and about the potential orders. It's definitely not only the logic space. Although, if we would refer to one of the slides in our slide pack, it is true that logic in terms of pilot production is the first to put EUV into pilot production, and memory could follow one, and you could argue for NAND two to three years later. Logic is definitely starting, but we're engaging in discussions with customers across all sectors.
On the 1,500 wafers per day, when you think about the cost per wafer, cost per function, cost per bit, how you want to call it, we've always looked at the cost as a function of productivity. As you would know, on our immersion products, we're driving productivity up, so the cost per wafer, cost per bit, or cost per function goes down. Next to that, on EUV, there are other customer benefits. It's particularly the reduction of the process complexity, the increased design flexibility, the shorter cycle times, which is a big issue if you go to multiple patterning and you have on some critical layers seven to nine or even 10 passes, which you can replace this with a much lower number of passes when you use EUV. It's a massive impact on your cycle time.
That means that there are other economic drivers that will force customers to very seriously look into the application of EUV. This is why for certain customers, depending on their roadmap and depending on their design complexity, 1,500 wafers per day is kind of a general statement, but for some of them, it could indeed be lower.
Thank you.
Next question, Mr. Sandeep Deshpande. Please state your company name, followed by your question.
Hi. Sandeep Deshpande from J.P. Morgan. My first question is regarding EUV as well. Peter, you're upgrading some customers to the 80-watt laser at the moment. Would you say at this point, based on what you've announced on EUV, your EUV program seems to be running ahead of what you had previously guided the market to. Would you be saying that at this point that you are much, much more confident that EUV is now going to be production-worthy by the end of this year for the 10 nanometer node next year? Secondly, some of your customers are doing 10 nanometers without using EUV initially. How do you see lithography intensity increasing for that node, given that it will require not double patterning, but multi-layer patterning to be able to achieve that? Are you going to see orders for that this year or next year? Thanks.
The last question that you asked, is that focused on the 10 nanometer question?
Yes, the 10 nanometers.
10 nanometers. Yeah. To say the 80-watt upgrades, we are rolling that out over the install base because that's a promise to our customers. Actually, the more than 1,000 wafer per day achievement was done on the 80-watt configuration, and we would like to give every customer access to that capability. Having said that, the tool that customers are focusing on to put into production is the 3350, because the 3350 with the higher power drive laser and the in-situ cleaning capability will give our customers the ability to output more wafers and to have a higher availability or a higher uptime. This is what, of course, if they put the machines into production, is what they really want.
The NXE:3350B, if you can do 1,000 wafers per day on the NXE:3300B, you should be able to do this on the NXE:3350B. This is where our confidence that we will reach our 2015 targets is, of course, based on the NXE:3300B achievement and our ability to at least copy that onto the NXE:3350B, but to the next layer of performance on top of that. This is why we feel confident, and it is also why the intensity with which we're talking to customers has gone up. On the 10 nanometer node, the logic node, largely, I think the default solutions that our customers have in their production plans is on multiple patterning.
The late insertion in 10 nanometer of EUV will be driven by our ability to show them that the NXE:3350B is indeed a pilot production-worthy tool. The first part of my answer, I think our confidence has gone up based on the performance of the NXE:3300B. The default solution is multiple patterning. We have to realize that those designs were finished some time ago. When you go into pilot production at the end of the year, it means that those design decisions were at the end of last year. At the end of last year, we were not yet at the EUV performance levels that we are seeing today. That means that N10 default starts with immersion, and one of the earlier callers asked the question, how much more litho intensity will it give?
Between 40% and 50%, which part of that requirement will be filled in by our upgrade business. Is that clear, Sandeep?
Thank you.
The next question, Mr. Jerome Ramel. Please state your company name, followed by your question.
Jerome Ramel from Exane BNP Paribas. Thanks for taking my question. Question, Peter, how big do you see the 16/14 nanometer node will be in term of wafer start per month?
Yeah, that's a very interesting question. I tried to make that clear in the introductory statements. We are in a pretty unique situation. Since I've been with the company, I've never seen a situation whereby we are shipping to our logic customers, foundries, but still I say logic customers, effectively in three nodes. I've always seen that one node ends and the other node starts. You see all shipments moving from one node that ends to the next node. It was much easier to say everything that we are shipping is obviously for that next node. What we're currently seeing is we're seeing shipments of 28 nanometer node, which we're seeing capacity being taken out of 28 nanometer being reused in 14 and 16 nanometer FinFET, and we're seeing 10 nanometer capacity being built up. For us, it is a pretty opaque picture to give you.
It's very difficult for us to say how much installed capacity are we shipping to what node. Because of the reuse capability, the fact that we have three nodes now shipping at the same time, I don't dare to give you a specific installed wafer out per month capacity. I'm sorry about that, but it is what it is. It's a bit convoluted. The only thing that we do see is that we have a stable logic business over the three nodes, and that the intensity and the need for deep UV immersion leading edge solutions is going up because of the higher litho intensity. Difficult to answer your question, so I'm not going to guess. The only thing I'm going to say that logic business is strong, healthy, and stable.
Okay. Thank you very much.
The next question, Mr. Mahesh Sanganeria. Please state your company name followed by your question.
This is RBC Capital Markets. The question on the memory side, you talked about first half being stronger and second later half tapering a little bit. Can you give us a sense of, qualitatively, how the distribution is in terms of DRAM versus NAND in the first half and the second half?
Yeah, it's weighted towards DRAM, both the first half and the second half.
Okay. A question on EUV. You talked about shipping the high-power laser. Does the new high-power laser, does that take you to 100-watt operation or beyond that? Or if it's taking you to 100-watt operation, what do you need to change to go to 200-watt operations?
Yeah, the high-power laser takes you to 125 watts. It's in principle the architecture to take us to 250. It's.
Okay. That's very.
Yeah.
Okay. Thank you.
The next question, Mr. Timothy Arcuri. Please state your company name followed by your question.
Cowen and Company. Thank you. Couple things. First of all, Wolfgang, I just have a question on the second half revenue. I know you don't want to guide it, but if DRAM is down, you're saying that there's not a lot of NAND business, and logic is pretty stable. I understand that service will be up maybe EUR 75 million on a quarterly basis exiting the year versus where it is now, or possibly even more than that. Does that overall paint a picture that second half revenue is down versus the first half of the year, or is that not the right read?
Yeah. A little bit difficult, Tim, because I'm answering this question without going into numbers. That's why we decided to do it qualitatively. When we use the word tapering, so it's going down somewhat, that's by definition. Logic is stable, as we said, and it's quite a nice increase in the upgrade and service business. We said we're going to exit at EUR 500 million run rate. Of course, it also depends on how the final orders come in for the year. We don't have the visibility and the clarity on how exactly Q2 will look like and Q3 would look like. Otherwise, we would guide. Second half could be a little bit weaker than the first half, I think, is what you can conclude.
Yeah, it won't be. It's not going to be, as you would say, does it look like a drop-off? That's absolutely not the case. It's like Wolfgang said.
Tapering
It's tapering.
Okay. Thanks, Peter. I guess second question, I had another follow-up after that, just on DRAM, it seems like there's some change in tone there. Last quarter, you were pretty positive. Everyone was expanding wafers. Now the message is that the sort of incremental wafer supply is going to be met by what ships in the first half. Is this the right read? Can you sort of give a little more color there in terms of what the tone is from the DRAM guys? Has there been a market change in tone?
No, I don't think so. I think they're still very confident. It's just a matter of timing when they put their capacity in place. Like one of the questions that were asked earlier, is what fabs are taking tools? I think there are fabs in Korea taking tools. There is capacity to take tools in Taiwan and in Japan, particularly. That will be used. I think it's a matter of timing more. When you look at 2015 and you just chop the entire ramp-up in calendar years, the only thing that we're saying is that in a calendar year, there is more shipments in the first half than in the second half on DRAM customers. When we listen to our customers, absolutely not an indication that our customers feel that the business is weakening, and that's why they need less capacity.
It's just a matter of timing of when they ramp their fabs, and it's the culmination of those four potentials in Taiwan and Japan and the two in Korea, how that ramp-up is scheduled. It's no more than that.
Okay. Maybe if I can just squeeze in one more quick one on EUV. You had guided previously you'd ship 10 systems this year. Now it sounds like if I add it up on the slide, you're shipping like between eight and 10, and the change really is on the three systems that were going to be 3350s converted from 3300s. Why is that change given that the progress on EUV is clearly better than at this time last quarter? Thanks.
Well, it is because the progress has been better than we thought, you have to think about it this way. You have the 3300, then we could not show the 3300 results that we've shown in the last quarter when we had SPIE. One of the customers said, "Now we can do 1,000 wafers per day on the 3300." Before that time, customers were looking at, if we want the capability to do 1,000 wafers per day, we need to go to a 3350. Could you please wait with the 3300 shipment and upgrade to a 3350 in order to give us that capability?
Now you can understand that having an 80-watt configuration for a 3300 and doing 1,000 wafers per day, that some customers are scratching their head and saying, "Shouldn't we then take the 3300, start using it?" At 80 watts instead of waiting and then getting a shipment of the 3350 later. It's all a matter of when are we going to do what with respect to EUV. You could basically say, as a result of the progress, we have now this situation where some customers are rethinking their original plan of the 3350 upgrade and actually wanted to ship it earlier. Is that clear?
Peter, thanks so much.
Thank you. Yes. This will do, Mr. Acuri?
Yeah, I think that's.
Yes. Okay. The next question, Mr. Farhan Ahmad. Please state your company name followed by your question.
Thanks for taking my question. This is Farhan asking the question from Credit Suisse. My first question is on the reuse. Peter, you mentioned that reuse is much higher on the 14 nanometer. You have not seen it previously, and even on 10 nanometer you're going to see it. Will we be able to get to the 2020 revenue targets if we are having such high reuse? Also, if you could shed some light on just the 14 nanometer, 16 nanometer node, what % of the capacity was actually coming from reuse versus new capacity addition? That would be really helpful.
Yeah. We don't think the long-term business model impact is there because we actually included this in our model. When we modeled it, and we showed you at the Analyst Day, by 2020 model, and we showed you the new systems, that assumed a certain percentage reuse. Actually, that is what we're seeing today. It is going to be an integral part of our business model going forward, but it doesn't change the long-term business model. You said the 14-16 nanometer as the percentage of the capacity reuse. Difficult to say. It's customer by customer different.
Some customers that have, let's say, a large production of limited products, they would probably do this sooner and more than very large foundries that have multiple customers, dozens of customers that are actually still requiring capacity, for instance, on the 20-nanometer node to stay in place because they are upgrading their 45- and 65-nanometer products to 28. It's a bit different per customer. I don't think you can give this as a standard percentage. In general, you could say those foundries with large volumes of, and let's say, smaller quantity of types of products, they would do this earlier and sooner than foundries with a lot of customers.
Got it. That's very helpful. Following up on Sandeep's question earlier, 10 nanometer was initially started with multiple patterning, and there was late insertion on 10 nanometer with EUV. As you look at the seven-nanometer node, I believe the decision on seven nanometer would be later this year. What are your expectations? Would it be started initially with EUV or multiple patterning? Also, like at SPIE conference, it appeared that for seven-nanometer node, if you want to do multiple patterning, the overlay and the edge placement are a big issue. Do you think from a lithography perspective, is immersion able to handle all the needs, or is it going to be like either it's EUV or we can't do it?
Well, ultimately, that call is with the customer. We have an internal view that we believe that EUV should be the technology of choice very clearly. Customers will tell you that in the absence of a fully production-worthy EUV as we see it today because we're too early for it, that default solution is always going to be looking at what they know today, which is immersion, multiple patterning. That's what every customer will tell you. Every logic customer will tell you, say, "We will look at that." At the same time, also at SPIE, customers made the public statements, default we are going there because we're going for a double patterning immersion because it is what we know. When EUV is available, we will use EUV.
It all comes down to the production worthiness, i.e., the percentage availability of the tool that is going to drive the decision for EUV. When it is there with the right level of availability and right level of reliability, they're going to use EUV. There's no doubt in our mind. The fact that they're talking about two strategies simply got to do with the fact that nobody can point at an EUV production-worthy tool at 85% availability doing 1,500 wafers per day because it's not there yet. This is how you need to look at that.
Got it.
When you go into seven-nanometer, the last comment, we all understand, and you pointed to it also, that seven-nanometer multiple patterning immersion is a web of pain. That customers are trying to avoid that.
Got it. Thank you. That's helpful.
The next question, Mr. Gareth Jenkins. Please state your company name followed by your question.
Yeah, it's UBS. Just a couple if I could, please, gentlemen. Utilization times. I just wondered on the immersion side of things, whether you could give a sense of cycle times or your cycle times currently. Then just secondly, on R&D, I just wonder whether you still see it sort of phasing down through the course of this year in a sort of fairly progressive manner. Thank you.
Yeah. On capacity utilization, we obviously had more volume in Q1 than in Q4 that helps with absorption in general, we're also making pretty good progress in general in shortening our cycle time in the factory. The second question was on R&D?
Yeah, that's right.
Yeah. R&D, we pretty much came in line with our guidance at like EUR 261. We have obviously four, actually four sites where we incur R&D expenses in the U.S. and in San Diego, of course, and holistic lithography in Santa Clara, and we have a center in Chandler, and then we have a big base in Wilton, Connecticut. We have literally hundreds and hundreds of R&D people there. There we do have an FX impact. I said in my prepared remark, not fully offset for the total company by positive effects from the sale in the U.S. dollar. I would just suggest there that you model it somewhere in the EUR 265-ish range for the remainder of the year. We are committed to get to the 13% of revenue in terms of the long-term model by 2020.
You'll also understand that in this time where we're firing on all cylinders in EUV holistic and DUV extension, that we're not going to run the risk to cut a program prematurely, just to make an artificial number to offset an FX risk.
Thanks.
You're welcome.
The next question, Miss C.J. Muse. Please state your company name followed by a question.
Hi, it's Pierre Ferragu speaking at Bernstein. I think there's probably been a mix-up of names. Thank you for taking my question. Peter, I'd like to come back to the two points you made on the fact that three nodes are being run at the same time at the moment, it's really something new for you guys and the emphasis you put on reuse at the 10-nanometer nodes. There is two way I kind of think about it. One is the 14-nanometer node is reusing the 20-nanometer node at the moment. It's very tactical. It's because maybe 20-nanometer is a disappointing node for the clients of your clients. If you consider 20, 16, and 14 as being the same lithography node, it's almost a non-event.
If we start seeing a lot of reuse between 2016 and 14 and 10, then it would mean that the 2016/14 node would be phasing down faster than lagging node had been phasing down in the past. That could in the long term, have some effect on demand for lithography. How do you think about that? Do you see a risk that going forward, a higher rate of reuse between nodes means that the total capacity of the industry is going to grow at a slower pace with the N-1 node phasing down faster than what we've seen in the past? Thanks.
A couple of comments. You assume that the reuse for 14 and 16-nanometer is out of 20. It's not out of 20, it's out of 28. We do that by the 28-nanometer capable tool to upgrade those tools to what we call a system node enhancement package sale. It could be big sales, could be EUR 20 million a piece. Those are almost open heart surgeries in the field. That, of course, it's cheaper than buying a new tool of EUR 50 million. What you will see, and I think I have to refer back to a previous comment. I think when you look at customers that are doing this, customers that are having large volumes of a limited number of products, where those limited number of products are really products that go from node to node.
That means that the current node of a limited number of products but a large volume, moves on to the next generation, which means that it almost obsoletes the current node when you go to N+1. That's also why basically the capacity follows that. The reuse of that capacity, which is in fact what has happened in the industry for a very long time in microprocessors. That's a well-known fact. That's what I say, it's a limited number of products with very large volume. In that sense, you are seeing also, I think in the foundry industry, some very large products, large volume, where the same logic, the economic logic applies as it applies or actually has applied for a very long time in the microprocessor world. I don't think it has a major impact in that sense.
Other than you could argue that if everything would be new, you would sell 40% more new tools. You should also realize that Moore's Law is an empirical law of economics. It's also how do you deal with capital efficiency? I think this reuse option is a way of customers to control their cost of
The additional capacity that they need because of the higher level of the higher intensity in the lithography systems. It's a logical way of customers dealing with the node-to-node transition for high volumes, whereby you have a limited number of products. It's basically, again, what we've seen in the micro customer business.
Okay. Excellent. That's very clear. Thank you very much. A very quick follow-up on what you've been discussing for the second half. I assume that when you talk about stable business in foundries between the first and the second half, you're excluding from the picture EUV, or are you taking into account, are you making an assumption on what you're going to recognize in terms of EUV revenues in the second half?
You're correct. That was a non-EUV statement.
Excellent. Thanks.
The next question, Mr. Francois Meunier, please state your company name, followed by your question.
Hi, it's Andrew Humphrey here for Francois from Morgan Stanley. Just one question on the comments you were making on 2016 EUV. I think those are consistent with what you said before in terms of having the capacity to ship one EUV machine a month next year and two EUV machines a month, a year after that. You sounded a little bit firmer in terms of there actually being demand for those machines, i.e., potentially some customers moving beyond the testing phase. Could you just talk a little bit more about what the sensitivities are around that, what the potential upsides and downsides could be for 2016?
Yeah, I think what you will see, it all hinges on, and I said it also in my introductory statements, is that when we zoom in on our targets of 1,500, or let's say reaching the overall targets of 1,000 wafers per day, zooming in on the 1,500 wafers per day next year, reaching the 70% availability this year, going to the 85% availability next year. That progress, I think that progress will increase the customer confidence. Now we are planning for success. It actually means that we think we will reach those targets.
We also think that when we reach those targets, there's not going to be one, there's going to be multiple customers that are going to say, then in 2016, we need to start at least shipping tools for the start of the pilot production, not in 2016, because those tool installation times and ramp-up times are quite long, but it will have an effect on 2017 in the customer fabs. This is why we have that production capability there.
You could say, "Peter, show me the orders for 2016." I'm going to say, "Francois, you're right that they're not there." When you say, "Peter, show us the progress that we have made," then we have made a lot of progress, and it's all the confidence that we have that by that time, it is 2016, and we're one year or one year and a quarter down the road, that we can show some tangible progress, which will give customers the confidence that they have to do this. That's why the production capacity is there.
Great. Thanks very much.
Next question, Mr. Patrick Ho, please state your company name, followed by your question.
Thank you very much. Stifel Nicolaus. First question on EUV. With the progress you've made, can you just give a little bit of color on some of the ecosystem areas, particularly on the mask inspection side, and how you believe that could potentially impact, I guess, the production-worthy capabilities for the industry, given that they also need to be ready even if you're ready on the system side?
Yeah. That's a good question. I think this has been a subject of heated debate over the last couple of quarters. On mask inspection, particularly, I think one of the most significant piece of news that came out of SPIE was the fact that we announced that we have a working prototype of what we call a removable pellicle. A pellicle is in fact a membrane that sits in front of the photomask. Because when they get onto a photomask, which is a reflective photomask, they will print. You don't want that.
The fact that we have now shown that that capability is there, and we can remove the pellicle and put it back on, it means that you can remove the pellicle, inspect the photomask with traditional inspection tools, and then put the pellicle back. It gives our customers, at least that's also what they said at SPIE, has a lot of confidence that they can do without what you call an actinic inspection tool, which is an inspection tool that uses the same wavelength. Which is basically an EUV mask inspection tool, which, of course, is not there. That takes away that need. Now, there are some customers that are saying, "Well, for some very critical layers, we would still like to have it somewhere down the line," and that's still a debate.
We believe that we can show going forward that this removable pellicle is good enough for customers to get confidence that they can work with a defect-free mask. This is where we are. I think this is a big step forward. Like I said, it removes the need for an actinic inspection tool this decade. That's why customers can move on with EUV. Now, on photoresist, there's also progress made on that point that is logical. Photoresist companies are not companies that are living on very high margins, so they always wait until the exposure tool is ready and that all the parts of the infrastructure are there, and they are there today. So we also see, since we have made progress with EUV, resist companies definitely stepping up in their R&D effort and coming up with EUV photoresist solutions that were not available six months ago.
We're making very good progress there. On the infrastructure, I don't think they're showstoppers. That is in, I could have started with this, so my answer would be a bit shorter. Just to give you some detailed information, I don't know real showstoppers.
Right. That's helpful. Maybe just as a quick follow-up on the industry front. You've talked about reuse, particularly on the foundry side of things. How much reuse of litho do you believe the NAND flash industry will see as it transitions to 3D NAND from planar?
None. That is because. Is there somebody else on the line? No?
Just go ahead.
Oh, sorry. Okay, good. No, I think there is none for the simple reason that when you talk about NAND flash or non-volatile memory, the different memory types, 2D, which is planar, or 3D NAND-
Sorry.
Hello?
Hello. Well, there's somebody interfering. Let me repeat what I said. There is going to be 2D devices, planar devices, living next to 3D devices, living next to what they call the next-generation memory or a CrossPoint or ReRAM. They're going to be in the memory space. I said it on previous calls also. The diversity in non-volatile memory devices is going up, and that means that there's a very long life for planar, for 3D NAND, and for new type memory. That means that the installed capacity will stay there. It's not going to be reused. It's just going to grow because 2D planar devices will serve another and at different end applications than a 3D device, than a CrossPoint device. This is not applicable. Reuse is not applicable in the NAND business.
Right. Thank you.
I'm going to break in here, ladies and gentlemen. I think we have time for one last question. As always, if you're unable to get through with a question and feel a need to talk to anybody, the IR team is available this evening and tomorrow, so please give us a call. With that, Peter, can we have the last question?
Of course, Mr. DeYoung. The last question is coming from Mr. Weston Twigg. Please state your company name, followed by your question.
Hi. Thanks. Weston Twigg from Pacific Crest. Thanks for fitting me in. First on foundry bookings, it looks like they dropped a lot in Q1, and yet you're talking about confidence in having stable demand from foundries. Just wondering if maybe you're seeing orders picking up this quarter, or what really gives you that confidence? Secondly, my second question would be just on the stock buyback program. Why not a bit more aggressive so far?
Yeah. Let me take this. On the bookings, we were not disappointed. We're actually quite satisfied with our overall backlog. We said it in the remarks. It's very balanced. I think it's always important to also note that we do have volume purchasing agreements with all of our customers, which actually makes the act of placing an order almost an administrative act. We have visibility beyond the bookings and the backlog. We were not disappointed, and we are, as a matter of fact, quite happy with the backlog and feel confident in our statement that we have a stable business. Stock buyback, we have a pretty time-proven policy of systematically giving back what we have available on top of minimum required cash balance. We want to go to the dividend first, and the rest is used for stock buybacks.
You saw us ending at EUR 2.8 billion and not EUR 2.5 billion, which is our stated objective. That's really in preparation for the dividend that's payable in April. We are executing the program that we announced last quarter, and that, again, will put over EUR 1 billion or around EUR 1 billion in stock buybacks for the next two years.
All right. Thank you. Very helpful.
You're welcome.
Good. Thanks, Wes, for joining the call. On behalf of the ASML's Board of Management, I'd like to thank everybody for joining today. With that, Peter, if you could formally conclude the call, we'd appreciate it. Thank you.
Of course, Mr. DeYoung. Ladies and gentlemen, this concludes the ASML first quarter 2015 results conference call. Thank you for participating. You may now disconnect.