ASML's CEO Presents at UBS Global Technology Conference (Transcript)

Nov.15.12 | About: ASML Holding (ASML)


UBS Global Technology Conference Call

November 15, 2012 9:00 am ET


Craig DeYoung – Vice President Investor Relations

Unidentified Analyst

Okay. We get started. My name is (inaudible), I cover ASML for UBS. It’s my great pleasure to have Craig DeYoung with us here, who doesn’t need the introduction I think, but obviously he is IR for ASML. So we’ll do a fire side chat format. Craig will start to five minute on key points in front of ASML management right now, and we move to a fire side chat and open to question.

Craig DeYoung

Thanks Nick and thanks to everybody for joining me this morning or us this morning. I think what I’ll do is, I’ll do about five minutes. I kind of review where we are today, kind of what 2012 is going to end up looking like for ASML, we have a lot of stuff going on as you recognize, we get have a reasonably good feel about what next year good look like also, there is some holes in our knowledge. So there is some certainties, I talk about the certainties, I’ll talk about the uncertainties as well for next year and then will do a Q&A.

So actually 2012 is not going to be a bad year for ASML so we’ll probably end the year about 4.7 will be our second most successful year in terms of revenues in our history. So we're very happy about that we also are happy to have announced co-investment program with the three key customers in the leaders in each of the different sectors Intel, Samsung, and TSMC. So we'll be starting to execute on incremental R&D programs actually that will help us accelerate some these three different things focus will be on existing emerging tool, performance improvements to and an attempt to mitigate some of the cost that are going to be incurred over the next couple of years as the logic guys go to very complicated complex imaging using double patterning, triple patterning, with the existing emerging tools.

So for our existing customers we are trying to accelerate programs to bring them more throughput and better alignment performance which both of which they need in order to yield, effectively with multi patch patterning again to mitigate the costs through throughput improvements.

So that's one of the focus, the other focus will be on at least maintaining the roadmap of EUV and hopefully accelerating second-generation EUV, second-generation EUV or next-generation EUV actually, is the EUV focused on the 16, 17 timeframe will bring higher throughputs, higher numerical aperture, better imaging capability et cetera.

To meet the needs of the collective customers out in the 2017, ‘18 timeframe and then specifically for one big customer goes to be starting 450 millimeter program to bring what will call debugging tools to one customer at least into the industry in the 2015 timeframe, so a lot of exciting and challenging things in front of us on the technical side for next year. In addition, you also aware recently we announced the intent to acquire cymer. We anticipate that should close within six, potentially nine months largely depend on regulatory approval process, you never quite know what you will be confronted with in those processes.

We’ve had some experience protracted regulatory approval process timing. We hope this one will be a little bit smoother, it is a vertical integration, which I think in most cases is looked very kindly upon by government regulators and that it implies efficiencies and cost savings to the end customer normally. So, and we thought about it every which way we can. We will be making applications to the committee and foreign investment in the US here shortly and then we will go through Hart-Scott-Rodino’s anti-trust stuff as well in parallel.

So, I think we are prepared for that, but we will have to see how that works out. What we are excited if you need to use a word is the opportunity again to keep the EV program, the source power generation. By the way, we are going to deliver as you know, 11 of these very sophisticated EUV tools with a higher new miracle aperture than ever before and better imaging and overlay capabilities then every before.

We are demonstrating that today and we are going to shift those 11 systems through the course of next year, recognizing the end of our 700 million in revenue on those tools in 2013. Our customers are excited or in a hurry to get those tools to investigate those in their particular applications. As you know we do have some challenges in source power development. The acquisition of Cymer will allows as to continue the development of the source in a much more efficient manner than we are today.

Just to give you some insight and some of the challenges that we have been confronted with not only technically, but in our way or working, we are two public companies trying to develop solutions and ideas relative to very leading edge technologies and source development. And when you do that, trying to do it together but again two public companies each company has its own need to protect its ideas.

The ideas are put forth co-operatively, but in the end each of our values is in least impart determined by the ideas that we have and each of us and certainly Cymer does as well has a fiduciary reasonability to shareholders to protect that value. Well in that value protection we have communication issues and we reduced the efficiency of the programs that are actually are going on and that the ideas are being generated to address.

So, what this is going to do is it is going to allow those kind of defensive barriers to be dropped and allow us to operate much more efficiently from this point forward actually. So, we expect, we know essentially what we need to do, but I have had some issues and execution. So we hope that these, again these hurdles or barriers removal will allow us to go forward towards the 70 wafer per hour, which we promise the early adaptors in 2014. So that's still the target for us and hopefully we will be able to demonstrate some near-term success and towards that and be able to share that with you in the coming months.

Next year, so we're starting to formulate a view some of the things that we know is, we know that they are likely will not be much demand for our systems in the DRAM application, the current installed capacity and the no transitions that are taking place, and the capacity that’s installed will allow bit supply growth next year, we estimate to be about 30%. So given that there are not many of any forecasts for demand above that level is anticipated that with a very nominal spend the DRAM suppliers will be able to meet their customer’s demands.

In the NAND sector, we're not in the business of course, so forecasting what bit demand is going to look like, but what we can do and I think what we can do fairly well is to create different scenarios against different demand, bit demand growth forecasts. So we can take the forecasts and we can determine how many tools that we require to meet the forecasted the bit demand or conversely we can say, if we shift X numbers tools we can grow bit, so the industry can grow bits by a certain amount.

Today again with the technology no transitions that are in place or in progress today given the installed capacities at each of the different nodes, we anticipate that the industry can grow bits by about 40% to 50%. Now, the difference between the two is an assumption about multi-bit-per-cell assumption, so depending on how much free bit-per-cell assumptions you make, you can grow 50% or 40%.

So somewhere in that range and again today there are not many forecasts currently for bit demand that are above those levels. So by the way if you look at our backlog at end of the quarter, we had about 20% of our backlog in NAND and in DRAM. So it's not as we're not shipping, we are shipping tools today and we will continue to ship against that backlog this quarter and next quarter against the demands of each of the different sectors and moving to the subsequent nodes based on where each of the customers are. So that's about a quarter of a $1 billion worth of systems across two or three customers in each sector just FYI. So it's not, as we're not shipping anything and we do expect some demand, but it will be very minimal demand based on the current forecasted demand expectations. When we look at Logic, we know some things about what's going to happen in Logic, we have a fairly clear view of one major foundry.

So just going to logic, let’s talk about foundry and then we will talk about MDU. So with one major foundry and the actually collectively within the foundries. We see that there has been a continue to grow, 28 nm capacity to what we estimate to be about 300,000 wafer starts by the middle of next year. So as we exit this year, we estimate that there will be about collectively about 220,000 wafer starts of 28 nm meter capacity installed. Again the correct foundry customers are intent on - based on their forecast to us bring that to about 300,000 starts.

In the second half of next year, at least one customer will be starting to bring equipment towards ramp of the 20nm node. So we expect they have fairly high demand from at least one large foundry customer for 20nm ramp, they've been very public about that. They haven’t indicated to us yet, or publicly you know what kind of crash it will add, but certainly they will start to put in a critical mass of capacity to meet whatever requirements they expect in 2014 , as it will take them a quarter or quarter and half to take this equipment, get it installed and get it approved out in the manufacturing process.

There is some uncertainty, significant amount of uncertainty about what one other large foundry customer will do next year. So we are uncertain about that at the moment and will just have to wait and see. We are by the way, building some level of inventories for the customer, as well as for the NAND collective customer, should there be a increase in demand in the NAND space, and let's say the second half of the year.

As we stated in our conference call, we don’t expect that there will be a need for any additional NAND within the next quarter or two. Actually, we say two quarters so probably next quarter or three through the middle of next year, but we are uncertain of again about what the real demand will be, and if there is any upside demand, we will be prepared to serve our collective NAND customers in that area.

As I mentioned, we are doing the same for the other big logic manufacturers as he contemplates his business plan for next year. So as you know, this year was largely driven by Logic although the early part of the year was driven by NAND capacity additions toward about an 80% growth this year, the demand growth will be at that level be 60%, 65% is estimated. So we have a bit of an oversupply that we have to take care of in that area as well.

In the MPU, we expect, we know that the large microprocessor manufacturers ramping a new node. in 2013, we’ll be serving a part of their needs at least and so we have a fairly clear view of what their ramp will look like in 2013 and we’re prepared to meet whatever demand or the indicated demand from that one customer today. So we have a fairly good view of a large part of the logic including microprocessor and one of the biggest foundry guys, let’s turn to new vat, one of the other foundry guys and some level of certainty although it’s not, it doesn’t provide a very optimistic view today of the memory space, but we know what they need and they don’t need and what they can do in terms of supply and not supply. So that kind of just gives you an idea of at a high level of what we know and what we can see for next year and what we don’t know and we’ll have to wait and see. So given that, I think we’ll just kind of open it to questions.

Question-and-Answer Session

Unidentified Analyst

Great, thank you very much Craig. I’ll just follow-up with the first one. So since it is UBS business to forecast NAND Flash demand, we forecast 57% above next year. let’s assume, we’re correct incrementally, could you maybe give us some idea of how many incremental tools high 50 type demand would require basically versus sort of these cargos being effectively no capacity requirement between 40% and 50%.

Craig DeYoung

Nick, unfortunately I’m not sure I can answer that question, the way you asked it. I can give you an idea based on, I don’t have that available to me now, how much investment will be for big growth above the 50%. What we do have available is the cost to put in a certain number of wafer starts, but I apologize I don’t know at this point in time, what the incremental spend would be to get to your number of 57%.

Unidentified Analyst

And that would be just as reference on let’s say for we can take whatever you think is either appropriate 100,000 wafers per month, new capacity would be from...

Craig DeYoung

That’s wafer start fab in 120,000 wafer start fab and then would cost about €700 million in this (inaudible) equipment.

Unidentified Analyst

Great, that’s useful. So I guess on the other side, the estimate you would need about 90,000 or plus per month incremental to get to this 57. Great, and moving to your comments on logic, I guess some of the recent feedback we had from foundries and that’s specifically TSMC, but 20 nanometer adoptions of customers, 20 nanometer planet adoptions is probably very limited so far to one very large customer. Because of the economics, I think ASML has backed off quite early on, that’s a potential issue, but could be (inaudible) for 28 nono meter being a longer node which also you have to do…

And that could make the requirement to put in 60 nanometer finFET or 40 nanometer finFET, so we have a big foundry i.e. 20 nanometer litho finFET effectively as being even margin. So how does these potentially change for picture when you talked about for your capacity target for 28 nanometer and when 20 nanometer set up for us?

Craig DeYoung

Yeah, again we have suggested or others have suggested and we’ve kind of repeated that suggestion that 28 nanometer node could be a larger than 300,000 wafer start. We don’t have an indication from our customer as vis-à-vis their forecasted in and that’s going to happen, but should it happen.

Again if we want to quantify the additional investment to 28 nanometers, it’s about for a 45,000 wafer starts of capacity, you’re talking about €600 million investment in the litho equipment. So you can simply use that number to see what would be required to grow wafer capacity above the 300 tons of wafer starts.

But again as I mentioned today, we don’t have any indication from our collective foundry customers that’s going to happen. In regard to 20 nanometer nodeacegoa very little intention node, so you’ll see about from the 28 nanometer to the 20 nanometer node about a 1.7, 1.8 times the investment for the same number of wafer starts at the 28 nanometer node.

So what I believe whether it is a 20 nanometer plainer or the 20 nanometer or 16 nanometer what TSMC is calling. But I think as far as I know, it’s actually 20 nanometer design rule with the finFET.

From a litho perspective, there is no real difference between the tools that required for the plainer or the finFET process. So the combined 20 nanometer and 16 nanometer again whatever it’s going to be 20 nanometer or 16 nanometer, now will drive the 1.7 time that the spend over the 28 nanometer node

So yeah, we don’t know I have an indication today on what the ramp of the 20 nanometer process will look like currently. But they’ll have to install a critical amount of capital. So actually there are some internal estimates on our part again not necessarily linked to what our customers have said, but most just looking at typical ramps of new nodes, they might suggest that there could be a fab work or about 40,000, 45,000 wafer starts to put in, which in the mid 2013 and mid 2014, and 45,000 wafer start fab at 20 nanometer is about €1 billion in little investment. Again versus the 600 or so for the 28-nanometer investment, it’s quite substantial.

Unidentified Analyst

Okay, that’s very clear. Any questions from the pool? Nothing as you grow in the quarter continue to speak on fiber, I guess one question from us would be we know about a month since the announcement. What has been the initial reaction from customers on how it can help solidify-accelerates the EUV role market particular.

Craig DeYoung

Actually, the customers reaction has been quite positive, again, they desperately need the EUV solution so anything we do to maintaining our timelines we are accelerating our timelines in supply of cost-effective EUV. You know they are quite supportive to us, so I see across-the-board their understanding of our need to do this and supportive of it.

We’ll have to wait and see a bit, how we are able to accelerate the EUV program. As you know, as I mentioned earlier, the customer co-investment program is towards – will provide funding in an attempt to accelerate the programs, both on this generation and next generation.

So it's a bit too early to talk about what the co-investment program will do to be able to accelerate those re discussions we are having with our suppliers and with our customers now. So by the end of the year we’ll determine what the deliverables are against the co-investment program, both in EUV and existing immersion tools and in 450.

But those things are being discussed, and schedules are being put in together and towards that end. But the Cymer acquisition will again hopefully allow us to keep on the targeted performance delivery of 70 wafers per hour in early 2014.

As I mentioned, we do know what we need to do at this point in time to get to that level of performance, but we‘ve been struggling against the situation I described earlier of some defensiveness, and lack of real good information flow between the companies for the reasons I suggested so.

Craig DeYoung

Right. Any other question?

Unidentified Analyst

Can you talk about – sorry it’s Hart-Scott-Rodino Antitrust, part it’s potentially – I mean – so can you just talk to in terms of the Cymer acquisition what you think some of the things that you need to go through from a regulatory perspective over the next couple of quarters, and at this stage I just kind of want to get a better (inaudible) from it?

Craig DeYoung

Yeah, so the two things are the antitrust or the HSR process and CFIUS, which is a Committee on Foreign Investment in U.S., again both of which we have to bring at least CFIUS we have…

Both actually, we have experienced with two of our prior acquisitions of SVG and Brion Software Group in the San Francisco Bay Area. So we know what the processes are about and those processes will begin shortly. We can only anticipate some of the issues that would be raised.

As I mentioned earlier in the antitrust area, most often vertical integrations are looked at more kindly than let’s say horizontal integrations where you are acquiring a competitor. We think that actually when we look at it and we compare the challenges there versus the challenges that you could have imagined in the customer co-investment program, which was allowed to go through without any kind of debate at all. We see a fairly clear runway to get through that portion.

The Committee on Foreign Investment, the U.S. applications will be made to them in the next week or so, which point in time we’ll have to go to Washington and educate the committee on our interest and the reasoning for the acquisition and to be quite honest why – but no one in the U.S. government should be threatened by this is what the discussion will really be about.

So again that’s an education process. It is a multi-disciplined committee, so you have defense, you have energy, you have commerce et cetera, et cetera. So but it is a political process. And so you can never quite anticipate what might happen. We also have to go through regulatory approvals as far as I know in Korea, In Taiwan and in Japan.

So all those processes will run in parallel and there is a well documented and understood within our organization, our legal counsel’s organizations as to how the process will proceed. But so we’ve given as much thought and consideration to all the issues that could come up and we’re prepared to address all those.

Again so we think we’ll have a fairly clear run rate, but you never know again a little cooling part process.

Unidentified Analyst

Okay. I think we are running out of time, but there is a break out session of course on that. So we can’t take the next question. Thank you very much Craig.

Craig DeYoung

Okay. Thank you.

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