Ladies and gentlemen, thank you for standing by. Welcome to the ASML First Quarter Results Conference Call on April 15, 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. Now I would like to turn the conference over to Mr.
Greg DeYoung. Go ahead please, sir.
Thank you, Peter, and good afternoon and good morning, ladies and gentlemen. This is Craig De Jong, Vice President of Investor Relations at ASML. Joining me today from our headquarters in Belleville in the Netherlands is ASML's CEO, Peter Wenig and our CFO, Wolfgang Nickl. The subject of today's call is ASML's 1st quarter 2015 results. This call is also being broadcast live over the Internet atasml.com and 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. These forward looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the Safe Harbor statement contained in today's press release and presentation found on our website, 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. And now I'd like to turn the call over to Peter Wenig for a brief introduction.
Thank you, Craig. Good morning. Good afternoon, ladies and gentlemen, and thank you for joining us for our Q1 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 Q1 and provide our views of the coming quarters. And Wolfgang will start with a review of the Q1 financial performance with 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. So Wolfgang, if you will?
Thank you, Peter, and welcome, everyone. In Q1, our net sales came in at €1,650,000,000 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 45% of system sales. This compares to 65% and 35% in the December quarter respectively. Service and field option sales came in at €403,000,000 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 product mix, which included no EUV system sales for the quarter. R and D expenses came in at €261,000,000 and SG and A expenses came in at €82,000,000 both in line with guidance despite a strengthening of the U. S. Dollar throughout the quarter.
Our effective tax rate for the quarter was approximately 11% of pretax income. Turning to the balance sheet. Quarter over quarter cash, cash equivalents and short term investments grew to €2,840,000,000 from €2,750,000,000 at the end of the prior quarter. Regarding the order book, our Q1 systems bookings came in above the €1,000,000,000 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 €2,600,000,000 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 entered 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 €1,600,000,000 for Q2. This will leave the first half of twenty fifteen growing over the second half of twenty fourteen as previously forecasted. Our Q2 net sales guidance includes revenue recognition of 1 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 1 NXE 3300 EUV system in net sales.
R and D expenses for the Q2 will be about €265,000,000 and SG and A is expected at about €85,000,000 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 sales will likely increase over the coming quarters as we benefit from increased adoption of our holistic lithography products and the purchase of system node enhancement packages supporting customer node migrations. We expect this part of our business to reach €500,000,000 per quarter exiting the year.
Peter will talk more about EUV shortly, but I would like to make 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 like configurations of 3 prepaid systems on order. Depending on the outcome of these discussions, we may ship these tools as NXE 3,300 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 in direction with multiple customers on the planned 2015 shipments of 4 MXE 3350s in addition to the 2 systems already on order. I would like to take a moment now to proactively address what has become a commonly asked question of late and that is how do changing exchange rates impact our business. Firstly, we contract the majority of our business in euro and we have not changed our pricing as a result of currency fluctuations. Therefore, the recent strengthening of the U. S.
Dollar, but 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 thermal light source business quoted in foreign currencies and for that portion of our business we have a positive translation effect in our P and L. Secondly, we do originate a substantial part of our operating spending from the United States, where we employ approximately 3,100 professionals in development, field service and manufacturing of sources and parts for NXT and NXE system. This spending weighs in heavier in our P and L when translated into euros. Net net and 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 Q1, the unfavorable impact on our net margin was less than 1 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 €0.70 per share. As to our 2015 2016 buyback program announced in Q1, we saw the first repurchases totaling €129,000,000 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 2nd 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 shrinks this year. And although all NAND players have 3 d 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 Logics sector working essentially on 3 lithography nodes at the same time. Capacity additions continue at some foundries at the 28 nanometer node. But 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.
And 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, MBU Microprocessors is starting the transition to the 10 nanometer node in this calendar year. And therefore, we see logic shipments as a 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 Trinscan NXT-nineteen eighty 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 2 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. And 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 installed base.
The first two orders for our 1st for our 4th generation NXG 3350 EUV tools are in our backlog. Output Planning has the 1st 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 1 EUV system per month supporting a ramp up to a 24 system manufacturing plant for 2017 and doubling that again in 2018. Now 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 and 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. And this will allow us to get in as many callers as possible. Now Peter, could we have your instructions and then the first question please?
Of course, Mr. Lyon. Thank you. The first question is coming from Mr. Kai Korchalt.
Please state your company name followed by your question.
Yes. 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.
So I just wanted to ask, sort of which inning you thought we are here? And then 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. So this is by the way has been a main driver of the 20 nanometer node for our shipments over the last couple of quarters. New fabs, yes, new fabs.
We have 2 fabs in Korea. 1 fab opened last year and other will open in the middle of this year. So shipments clearly in Q1 and Q2 are for the fab that over last year and the second half 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. So throughout the year, we will be shipping tools to those new fabs.
Next call, I think.
Yes. I was actually wondering about some of the new prefab projects 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 being worked on a NAND extension. There's been an extension being worked on in Singapore. But those are too far away to reflect in our order book today. But those are clearly promises and that's good news.
Okay. Thank you.
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?
Yes. The note to note litho intensity is about 40% 40% to 50%. And that also means that you will see also at the 10 nanometer node customers focusing on what I refer to in the introductory statements that how much of the installed base can be reused or can be upgraded to the next node. So partly part of that little bit density will be covered by new system sales and other 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 a pretty good business. So overall about 40% to 50% higher litho intensity node on node.
Okay, great. And I guess as 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. But 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. So I think it is the margin profile favors clearly high end logic shipments and also favors some of these software packages that we are shipping. But too early to give you detailed margin guidance.
Okay, great. Thank you.
The next question is Ahmed Auchandani. Please state your company name followed by your question.
Good afternoon. Good morning, gentlemen. Amit Auchandani from Citigroup. Thanks for taking my questions. 2, 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? And secondly, as a follow-up, you've talked about there potentially being a requirement wherein even below 1500 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 emerging over time? And how should we think about insertion in production?
Thank you.
Okay. On the first question where I can give you some more detail on the discussion with customers, unfortunately I cannot do that. But I can tell you it's cross sector. It's not only logic. So we are engaging with almost every major customer in deep discussions about the insertion point of EUV and about the potential orders.
So it's definitely not only at the logic space. Although if we would refer to one of the slides in our slide deck, is true that logic in terms of pilot production is the first to put EUV into pilot production and memory could follow on and you could argue for NAND 2 to 3 years later. But logic is definitely starting, but we're engaging in discussions with customers across all sectors. On the 1500 wafers per day, when you think about the cost per waiver, 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 know on our Immersion products, we're driving productivity up.
So the cost per wafer cost per bit or cost per production goes down. Now next to that on EUV there are other customer benefits. It's particularly the reduction of the process complexity, the increased design flexibility, but also the shorter cycle times, which is a big issue If you go to multiple patterning and you have on some critical layers 7 to 9 or even 10 passes, which you can replace this with is a much less much more 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, very seriously look into the application of EUV.
And this is why for certain customers depending on their roadmap and depending on their design complexity 1500 wafers per day is kind of a general statement, but for some of them it could indeed be lower.
Thank you.
The next question, Mr. Sandeep Deshpande. Please state your company name followed by your question.
Hi. Sandeep Deshpande from JPMorgan. My first is regarding EUV as well. I mean, Peter, you're upgrading some customers to the 80 watt laser at the moment. Would you say at this point, I mean, based on what you've announced on EU, your EU program seems to be running ahead of what you had previously guided the market to.
So 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? And secondly, some of your customers are doing 10 nanometers without using that it that it will require not double patterning, but multilayer patterning to be able to achieve that? And are you going to see orders for that this year or next year? Thanks.
So is this the last question that you asked? Is that focused on the 10 nanometer question? Yes. That's 10 nanometers. Yes.
To say the ADO updates we are rolling that out over the installed base because that's a promise to our customers. And 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 33 50 because the 3350 with the higher power drive laser and the in situ cleaning capability has will give our customers the ability to output more wafers and to have a higher availability or higher up time. And this is what of course if they put the machines into production is what they really want.
So the 3,350, if you can do you could argue if you can do 1,000 wafers per day on the 3,300 then you should be able to do this on the 3,350. And this is where our confidence that we will reach our 2015 targets is of course based on the 3,300 achievement and our ability to at least copy that onto the 3,350 but to the next layer of performance on top of that. So this is why we feel confident. And it is also why the intensity with which we're talking to customers has gone up. Now 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.
And the late insertion in 10 nanometer of EUV will be driven by our ability to show them that the 3350 is indeed a pilot production worthy tool. And that is the first part of my answer. I think our confidence has gone up based on the performance of the 3,300. But the default solution is multiple petting. But you have to realize that those designs were finished some time ago.
I mean 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. And at the end of last year, we were not currently we were not yet at the EUV performance levels that we are seeing today. So that means that that N10 default starts with immersion. And one of the earlier callers asked the question how much more little intensity will it give well between 40% 50%, which part of that requirement will be filled in by our upgrade business. Is that it, Suneet?
Thank you.
The next question Mr. Jerome Rommel. Please state your company name followed by your question.
Jean Rommel from Exane BNP Paribas. Thanks for taking my question. Question Peter, how big do you think the 6040 nanometer node will be in term of wafer start per month?
Yes. 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, standard customers, let's say our logic customers effectively in 3 nodes.
I've always seen that one node ends and the other node starts and then you see one they see all shipments moving from one node that ends to the next node. And then 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 nanometer and 16 nanometer thin pads and we're seeing 10 nanometer capacity being built up. For us, it is a pretty opaque picture to give you so it's very difficult for us to say how much installed capacity are we shipping to 1 node. Because of the reuse capability, the fact that we have 3 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. But the only thing that we do see is that we have stable logic business, stable logic business over the 3 nodes and gives us and that the intensity and the need for DUV Immersion Leading Edge solutions is going up because of the higher litho intensity. So difficult to answer your question, so I'm not going to guess. But I'm the only thing I'm going to say that Plastics 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.
It's RBC Capital Markets. So the question on the memory side, you talked about 1st half being stronger and 2nd later half tapering a little bit. Can you give us a sense of how the qualitatively, how the distribution is in terms of DRAM versus NAND in the first half and the second half?
Yes, I can it's weighted to what you want DRAM both first half and the second half.
Okay. And then a question on EUV. You talked about shipping the high power laser. And does this 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?
Yes. The high power laser takes us 225 watt and is in principle the architecture to take us to 250. So it's Okay. That's brilliant. Yes.
Okay. Thank you.
The next question is listed Tim McCourty. Please state your company name followed by your question.
Colin and Company. Thank you. A couple of things. First of all, Wolfgang, I guess I 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 $75,000,000 on a quarterly basis exiting the year versus where it is now or possibly even more than that. But 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?
Yes. A
little bit difficult, Tim, because I mean 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 build this business.
I mean, we said we're going to exit at $500,000,000 run rate. And then of course, it also depends on how the final orders come in for the year. I mean, 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. But second half could be a little bit weaker than the first half, I think is what you can conclude.
Yes. And it won't be not going to be as you call, you would say it's look like a drop off and that's absolutely not the case. It's like Wolfgang said, it's probably tapering. Okay. Thanks, Peter.
I guess second question and then
I had another follow-up after that. But 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?
And can you sort of
give a little more color there in terms of what the tone is from the DRAM guide? Has there been a market change in tone?
No, 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 we 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 that to take tools in Taiwan and in Japan particularly. So that will be used. I think it's a matter of timing more. So when you look at 2015 and you just chop the entire ramp up in calendar years, then 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.
But this is it is not as far as 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. 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 2 in Korea, how that ramp up is scheduled. It's not more than that.
Okay. Maybe if I can just squeeze in one more quick one on EUV. You had guided previously you shipped 10 systems this year. Now it sounds like if I add it up on the slide, you're shipping like between 810 and the change really is on the 3 systems that were going to be 3350s converted from 3300s. Why is that change given that the progress on the UVs crude better than at this time last quarter?
Thanks.
Well, it is because the progress has been better than we thought. And you have to think about this way. You have the 3,300 And then we did not we could not show the 3,300 results that we've shown in the last quarter in when we had SPAE. One of the customers said now we can do 1,000 waivers per day on the 3,300. 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 3,350.
So could you please wait with the 3,500 chip and then upgrade to a 3,050 in order to give us that capability? Now you can understand that having an 80 watt configuration at for a 3,300 and doing 1,000 wafers per day that some customers are scratching their head and saying shouldn't we then take the 3,300 start using it at 80 watts instead of waiting and then getting a shipment of the 3,050 later. It's always a matter of when are we going to do what with respect to EUV. So 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 3,350 grade and still and actually wanted to ship it earlier. Is that clear?
Peter, thanks so much. Thank you.
This will do, Mr. Corey?
Yes, I think that's it. It.
Okay. Next question, Mr. Hart Ahmad. Please state your company name followed by your question.
Thanks for taking my question. This is Farhan asking a 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. How does that change fundamentally your long term business model?
And will we be able to get to the 2020, 'seventy targets if you are having such high reuse? And also if you could shed some light on like just the 14 nanometer, 16 nanometer node, what percentage of the capacity was actually coming from reused versus new capacity additions? That would be really helpful.
Yes. No, it's we don't think it's 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, the by 2020 model and we showed you the new systems that assumed a certain percentage reuse and that's actually that is what we're seeing today. So it is going to be an integral part of our business model going forward, but it doesn't change the long term business model. So you said the 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, 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 28 nanometer node to stay in place because they are upgrading the 45 nanometer and 65 nanometer products to 28. So it's a bit different per customer. So I don't think you can give this as a standard percentage. But 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. And following up on Sandeep's question earlier, 10 nanometer was initially started with multi patterning and there was late insertion on 10 nanometer with EUV. As you look at the 7 nanometer node, I believe the decision on 7 nanometer would be later this year. What are your expectations?
Would it be started initially with EUV or multi patterning? And also like at SCIE conference, it appeared that for 7 nanometer node, if you want to do multi pack, the overlay and the edge placement error is a big issue. And do you think like from a lithography perspective, is Immersion able to handle all
the needs or is it going
to be like either it's you, we 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 that default solution is always going to be looking at what they know today, which is immersion multiple happening. And that's what every customer will tell you. Every logic customer will tell you that we will look at that.
But at the same time also at SPIE customers made the public statements default we are going there because we're going for double patterning immersion because it is what we know. But when EUV is available we will use EUV. So 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. And the fact that they're talking about 2 strategies, it simply got to do with the fact that nobody can point at an EUV production worthy tool at 85% availability doing 1500 wafers per day because it's not there yet. That is how you need to look at that. And when you go into 7 nanometer last comment, we all understand and you pointed to it also that 7 nanometer multiple patterning immersion is a web of pain and that customers are trying to avoid that.
Got it. Thank you. That's very helpful.
The next question Mr. Gerard Jenkins, please state your company name followed by your question.
Yes, it's UBS. Just a couple if I could please, gentlemen. I think this morning Wolfgang, you mentioned improving utilization times. I just wondered on the Immersion side of things whether you could give a sense of cabin times or your cycle times currently. And then just secondly on R and D, I just wonder whether you still see it sort of phasing down through the course of this year in a fairly progressive manner?
Thank you.
Yes. On capacity utilization, we obviously had more volume in Q1 than in Q4. That helps with absorption in general, but we're also making pretty good progress in general in shortening our cycle time in the factory in terms of second question was on R and D?
Yes, that's right. Yes.
R and D, we pretty much came in line with our guidance at like 2.6 $1,000,000 We have obviously 4 actually 4 sites where we incur R and D expenses in the U. S. And San Diego, of course, and holistic lithography in Santa Clara and with a center in Chandler and then we have a big base in Wilton, Connecticut. And we have literally 100 and 100 of R and D people there. And there we do have an FX impact, like I said in my prepared remarks, not fully offset for the total company by positive effects from the sale in the U.
S. Dollar. But I would just suggest there that you model it somewhere in the 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. But you'll also understand that in this time where we're firing on all cylinders in EUV holistic and EUV extension that we're not going to run the risk to cut the program prematurely just to make an artificial number to offset an FX risk.
Thanks.
The next question is Suhini Kar. Please state your company name followed by your question.
It's Pierre Ferragu speaking at Bernstein. I think there's probably been a mix of names. Thank you for taking my question. I'd like to come back to the two points you made on the fact that 3 nodes are being ramped at the same time at the moment and it's really something new for you guys and just the emphasis you put on reviews at the 10 nanometer nodes. So there is 2 way I kind of think about it.
1 is 14 nanometer node is reusing the 20 nanometer node at the moment and it's fairly tactical. It's because maybe 20 nanometer is a disappointing node for the clients of your clients. And if you consider 2016 2014 as being the same lithography node, it's almost a nonevent. But then if we start seeing a lot of reuse between 2016 201410, then it would mean that the 2016, 14 node would be phasing down faster than lagging node had been phasing down in the past. And that could in the long term have some effect on demand for lithography.
So what's 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-one node phasing down faster than what we've seen in the past?
Thanks. Yes. A couple of comments. You assume that the reuse on for 14 nanometer is out of 20 nanometer is not out of 20 nanometer it's out of 28. So and we do that by the 28 nanometer capable tool to upgrade those tools to what we call a system node enhancement package sale.
So it could be big sales. It could be €10,000,000 €20,000,000 a piece. So those are almost open heart surgeries in the field. But that of course it's cheaper than buying a new tool of €15,000,000 So what you will see and I think I have to refer back to a previous comment. I think when you look at the 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 with a large volume, yes, moves on to the next generation, which means that it almost obsoletes the current node when you go to n plus 1. And that's also where basically the capacity follows that, yes, so the reuse of that capacity, which is in fact what has happened in the industry for a very long time in microprocessors, yes. That's a well known fact. And that's what I say. It's a limited number of products with very large volume.
So 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.
So I don't think it has
a major impact in that sense other than you could argue that if everything would be new then you would sell 40% more new tools. But then you should also realize that Moore's Law is an empirical of economics. So it's also how do you deal with capital efficiency. And 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 little of the higher intensity in the lithography systems. So it's a logical way of customers dealing with the no to no transition for high volumes whereby you have a limited number of products.
And it's basically akin what we've seen in the microprocessor business.
Okay. Excellent. That's very clear. Thank you very much. And a very quick follow-up on what you've been discussing for the second half.
I assume that when we talk when you talk about like 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.
Okay. Thanks a lot.
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're making on 2016 for EUV. I think those are consistent with what you've said before in terms of having the capacity to ship 1 EUV machine a month next year and 2 EUV machines a month a year after that.
But 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. So could you just talk a little bit more about what the sensitivities are around that? What potential upsides and downsides could be for 2016?
Yes. I think what you will see if it all hinges on and I said it also in my introductory statements is that when we zoom in on our targets of 15 or let's say reaching the overall target of 1,000 waivers per day zooming in on the 1500 waivers 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. So actually it means that we think we will reach those targets.
We also think that when we reach those targets, they're not going to be 1. 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 only 2016 because those two installation times and ramp up times are quite long, but it will have an effect on 2017 in the customer fabs. And 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, they're not there.
But when I say 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 1 year or 1 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, Nikolas. 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 mass inspection side and how you believe that's 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?
Yes. 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 SBIE was the fact that we announced that we have a working prototype of what we call a removable pellicle. And a pellicle is in fact a membrane that sits in front of the photo mask.
And in fact what the membrane does it stops particles getting onto the photo mask because when they get onto a photo mask which is a reflective photo mask they will print. So we don't want that. So the fact that we have now shown that that capability is there and we can remove the pedicle and put it back on, It means that you can remove the pedicle, inspect the photo mask with traditional inspection tools and then put the pedicle back. Gives our customers at least that's also what they said at SBIE 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. So that takes away that need.
Now you could 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 palacol is good enough for customers to get confidence that they can work with a defect free mask. So this is where we are. I think this is a big step forward. And that's like I said, it removes the need for an actinic inspection tool this decade.
And that's why customers can move on with EUV. Now on photoresist, there is 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 other 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 and D effort and coming up with photoresist EUV photoresist solutions that were not available 6 months ago. And we're making very good progress there. So on the infrastructure, I don't think they're showstoppers. That is in I could have started with this or my answer would be a bit shorter. But just to give you some detailed information, I don't have no real
Right. That's helpful. And 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 3 d NAND from planar?
And then
and that is because
is there somebody else on the line?
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 2 d which is planar or 3 d head.
Yes, yes, yes. I just marching on and a few minutes.
Sorry. Hello. Well, there's somebody interfering. But let me repeat what I said. There is going to be 2 d devices, PlayNet devices living next to 3 d devices, living next to what they call the next generation memory or a cross point or reRAM.
So they're going to be in the memory space, I said it on previous calls also, the diversity in nonvolatile memory devices is going up. And that means that there will stay there's a very long life for planar, for 3 d NAND and for new type memory. And that means that the installed capacity will stay there. It's not going to be reused. It's just going to grow because 2 d planar devices will serve another and a different applications than a 3 d device than a cross point device.
So this is not applicable. Reuse is not applicable in the NAND business.
Great. 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 the question and feel the need to talk to anybody, the IR team is available this evening and tomorrow. So please give us a call. Now with that, Peter, can we have the last question?
Of course, Mr. Young. The last question is coming from Mr. Weston Twigg. Please state your company name followed by your question.
Hi, thanks. Wes 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. So just wondering if maybe you're seeing orders picking up this quarter or what really gives you that confidence?
And then secondly, my second question would be just on the stock buyback program. Why not a bit more aggressive so far?
Yes. So let me take this. So on the bookings, we were not disappointed. We're actually quite satisfied with our overall backlog. We said it in the markets, 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. So we have visibility beyond the bookings and the backlog. So 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 fuels and the rest is used for stock buybacks.
You saw us ending at €2,800,000,000 not €2,500,000,000 which is our stated objective. But that's really in preparation for the dividend that's payable in April. So we are executing the program that we announced last quarter and that again will put over $1,000,000,000 or around $1,000,000,000 in stock buybacks for the next 2 years.
All right. Thank you. Very helpful.
You're welcome. Good. Thanks, Wes, for joining the call. And on behalf of the ASML's Board of Management, I'd like to thank everybody for joining today. And with that, Peter, if you could formally conclude the call, we'd appreciate it.
Thank you.
Of course, Mr. De Jong. Ladies and gentlemen, this concludes the ASML First Quarter 2015 Results Conference Call. Thank you for participating. You may now disconnect.