ASML Holdings NV CEO Discusses Q4 2010 Results - Earnings Conference Call

Mar. 6.11 | About: ASML Holding (ASML)

ASML Holdings NV (NASDAQ:ASML)

Q4 2010 Earnings Call

January 19, 2011, 09:00 am ET

Executives

Craig DeYoung - IR

Eric Meurice - President, CEO & Chairman

Peter Wennink - EVP and CFO

Analysts

Gunnar Plagge - Nomura Asset Management

Nick Gaudois - UBS

Odon de Laporte - Cheuvreux

Francois Meunier - Morgan Stanley

Janardan Menon - Liberum Capital

Satya Kumar - Credit Suisse

Tim Arcuri - Citigroup

Mehdi Hosseini - Susquehanna Financial Group

Kai Korschelt - Duetsche Bank

Weston Twigg - Pacific Crest Securities

Andrew Gardiner - Barclays Capital

Peter Testa - One Investments

Craig DeYoung

Thank you, Operator, and good morning and good afternoon, ladies and gentlemen. This is Craig DeYoung, Vice President of Investor Relations at ASML and I'd like to welcome you to our investor call and webcast.

As the operator mentioned, the subject of today's call is ASML's 2010 fourth quarter and annual results. Co-hosting today's call from our headquarters here in Veldhoven, the Netherlands are Mr. Eric Meurice, ASML CEO and he is joined by Mr. Peter Wennink, ASMLS's CFO.

At this time, I'd like to draw your attention to the Safe Harbor statement contained in today's press release and in our fourth quarter results presentation, both of which you can find on our website at www.asml.com. This Safe Harbor statement will apply to this call and all associated presentation materials. The length of the call will be 60 minutes.

Now, I'd like to turn the call over to Mr. Meurice for a brief introduction.

Eric Meurice

Good afternoon, good morning. Thank you for attending our fourth quarter and full year 2010 results conference call. Before we begin the Q&A session, Pete and I would like to provide an overview and some commentary on the fourth quarter and our view on the total year, as usual.

Peter will start with a review of the financial performance with comments on the short-term outlook. I will complete the introduction with some further details on our current position as we look back on 2010 and look forward to 2011. So please, Peter.

Peter Wennink

Thank you, Eric, and welcome to everyone. Our fourth quarter and full year numbers provided us with several financial records, including record sales profits, cash flow and system bookings. I would like to take a moment to highlight some of these along with some other details and observations on the fourth quarter and on the full year.

Our fourth quarter sales came in above our guidance and set a record EUR1.5 billion. Sales versus the third quarter grew in favor of NAND memory and foundry customers as they began to add further wafer capacity in these sectors.

The number of dry shipments, mostly KrF, represented well over 50% of the total. As a result of this, the system mix new system ASP dropped slightly from around ERU24 million in the third quarter to around EUR22.4 million in the fourth quarter.

Our service and field option sales came in just over EUR200 million, driven in part by further adoption of several of our new holistic lithography products and continued demand for various other system performance, enhancement products and service products.

Q4 net bookings came in at a remarkably strong 117 systems valued at EUR2.3 billion. Let me mention here a slight change in a definition of our book systems and backlog. Over the course of the last several quarters we have been closing an increasing number of long-term contracts that involve not only the lithography systems but other sales-related items such as system options and certain services that will create sales after the tool ships.

Through the third quarter of 2010 we did not include these additional items in our systems bookings. However, due to the growing size of these additional purchases and the growing importance of our holistic products and in order to better represent the future sales potential, we have started to do so in Q4 and will continue to do so in the future.

In reviewing the impact of this new bookings definition on the previous five quarters, we see a high-single digit percentage as a positive difference.

I'd like to refer to slide 15 of our Q4 results presentation to see where the strength on our Q4 bookings came from. We see significant increased demand from NAND manufacturers, representing an increase of over 200% in booked value versus the third quarter.

Foundry customers showed even greater strength with a 300% increase in the booked value Q4 versus Q3. Our IDM customers reduced their order values versus Q3 by approximately 50%. But notably is also that the DRAM sector that reduced their orders versus Q3 by 40%, likely a reaction to a current supply demand imbalance in the DRAM devices.

Strength in NAND, foundry and IDM should be considered largely in support of new fab projects as identified on slide 18 of our fourth quarter presentation. It's important to realize that customers often commit purchase orders for critical lithography systems for new and major fab projects as early as possible in order to ensure timely system deliveries against factory expansion plans.

Notably, for the first time in many years, total memory backlog, which is DRAM and NAND, represents less than 50% of our total backlog. Our near-term demand outlook firmly indicates support for another strong year.

Our existing backlog plus our normal annual [server] sales and our expected bookings in Q1, while, of course, less than Q4, justifies the expectations of net sales above EUR5 billion in 2011.

As a quick final comment on cash, as reported, we are building a strong gross cash balance and expect to grow our cash balance further in the coming quarters. Therefore, we announce the implementation of a share buyback program whereby we will purchase up to an equivalent of EUR1 billion of our own shares within a maximum period of 24 months.

In addition, and thanks to also our strong financial position and operating cash flows, we intend to propose to the AGM a doubling of the current dividend of EUR0.20 per share to EUR0.40 per share for 2010 and this dividend increase reflects our confidence in our prospects for a sustained, long-term profitability and growth.

With that, I'd like to turn it back over to Eric for more on our view of the coming year.

Eric Meurice

Thank you, Peter. We look back on a year of sales growth and financial performance for ASML that confirms our earlier view that the semiconductor recovery cycle was, in fact, strong and sustained.

I think it's good to recognize that we had a good understanding of our drivers a year ago and that we managed to this expectation.

We now have a backlog of orders to be delivered in 2011, which, with the expected bookings to be received in Q1, justifies expectations of further revenue growth in 2011 versus 2010. The fundamental question is whether these orders will remain if the end demand suddenly collapses or whether the current demand trend will continue into 2012.

It is fairly common in the history of semiconductors to see two to three years of an up cycle. This time, we are encouraged by the following factors: first, the memory lithography capacity buildup in NAND and DRAM at this moment is fairly measured and the backlog that we have, that we showed you, does not yet support the analyst expected end product growth for 2011. Namely, the analysts are expecting 59% bit growth for DRAM and 84% bit growth for NAND.

The second factor, which is positive for the future after 2011, is that the logic capacity buildup, which occurs currently at foundries, is certainly ahead of pure semiconductor market unit demand. But as we noted in the past, it is needed in order to put strategic capacity in place for the new 40 nanometer nodes.

We estimate that the overall capacity built will sustain about 40% logic unit growth versus an expected 8% unit demand growth expected by analysts for 2011, so 14^ capacity built versus 8% demand growth. So in a sense, if the analysts are correct, the foundries are building ahead of the need by some six to nine months, which is real but measurable.

The third positive aspect about the trend is that all semiconductor segments are accelerating the technology transition with all transition being more lithography intensive. We mentioned two or three times about the numbers of lithography layers, in particular immersion. Of course, this is continuing.

DRAM vendors are targeting one new node per year now like the NAND manufacturers from 18 months per year -- 18 months every generation, leading respectively to 30 nanometer and 20 nanometer RAMs in 2011.

Logic transitions to 40 nanometer in volume and 30 nanometer in prototyping and processors ramping 20 nanometer in 2011 and 2012. So this is a third positive trend.

The fourth positive trend is that none of these favorable litho forecasts include assumptions of potential lower yield and process control difficulties that will likely accompany these technology transitions. This has formed a potential upside for us if the industry takes a bit more time to reach the same level of field maturity and stability that they have been accustomed to with less aggressive technologies.

So these are all the positive trends that we see and all this capacity being built is also supported by a very rich, leading-edge technology content in the end products themselves. The drive for affordability and power thriftiness device are certainly not awaiting.

But additionally, there isa wide area of new internet connected device like the tablets, e-readers, the high-end smartphone connected TVs and also the solid state hard disk drive, which are biasing the demand for high volume, high-end, high-content semiconductor device.

Assuming the continuation of this technology trend into 2012, we will have to support another huge technology transition as the new technology nodes by then will require EUV development to start in earnest with significant investment in lithography capability only to support, not manufacturing, but only to support R&D development and qualification.

We will have shipped six NXE.3100, our second generation extreme EUV system, by the end of 2011 with revenue recognition earliest in 2012. We have received, as you know, nine orders to date for our third generation EUV tool NXE.3300 and this system will start being delivered in 2012.

The industry still requires a number of months, of course, to confirm the EUV performance, the plans and the roadmaps, but it is encouraging to think, to envision, this as another engine of growth for 2012 and beyond.

In addition and in parallel to all this, we are continuously expanding our product differentiation and immersion in particular with our continuously evolving NXT performance and the addition of Holistic Lithography suite of products.

We're also improving our KrF product lines with unique throughput and overlay performance, all this necessary for sustaining the new node specification and for maintaining our market share.

With all this, Peter and I would be very pleased to take your questions.

Question-and-Answer Session

Craig DeYoung

Ladies and gentlemen, the operator will instruct you momentarily on the protocol for the Q&A session but, beforehand, I would like to ask that you kindly limit yourself to one question and one follow-up if necessary. This will allow us to get as many callers on as possible.

With that, Operator, may we have your instructions and then the first question, please?

Operator

(Operator Instructions). Your first question comes from the line of Gunnar Plagge - Nomura Asset Management.

Gunnar Plagge - Nomura Asset Management

Eric, you mentioned the drivers maybe for 2012 that could provide upside to estimates. O the other hand, if you look at industry tool productivity, that should also substantially go up in 2011 and 2012 with the new product cycle being launched.

Could you maybe talk a little bit about what you expect on the overall installed base? What are the increases that we can expect in terms of tool productivity over the next two years?

Eric Meurice

Everything we simulate, in other terms, we look at the demand forecast of semiconductors, then we calculate back how many machines that are necessary to do this, are always simulated with the latest and greatest performance of our machines as well as the installed base upgraded.

So, clearly, what we always do not mention to you is that we are selling a lot of options which are served at upgrading installed base and they are, in fact, usually upside. But they are clearly used to calculate the numbers of machine necessary to build the given numbers of wafers and of dyes.

Gunnar Plagge - Nomura Asset Management

Could you give us an indication about percentage changes over the next two years?

Eric Meurice

So you could -- at this moment, I would say we would have a family of immersion tools in the field that runs at about 150 wafer per hour and we are planning to convert this to a family of tools doing 175.

This is not going to happen immediately into 2011. It will go well into 2012 ad even 2013. But, of course, when we bring EUV back in, we are going to bring machines which goes towards 120 or 125 wafer per hour. So we will restart from this type of level, although there will be less layers processed [on EUV].

Gunnar Plagge - Nomura Asset Management

As a follow-up, you haven't given us a quantitative number for the Q1 orders. Clearly you have discussed before whether it actually makes sense to give guidance on orders. But could you give us some broad color what you expect going into Q1? What are ranges maybe that you are seeing at the moment?

Peter Wennink

Clearly, Q4 was an extraordinary quarter in terms of our bookings; it was clear. Many of those bookings were focused on fulfilling the needs of our customers, looking at their fab expansion requirements for 2011.

Now, clearly, we were surprised. Hence, we gave the pre-warning on the orders early December. But it also creates a situation where we think Q1 will just be a bookings quarter which will enable us to, let's say, fill up 2011 from a, let's say, shipment point of view. The rest of the year we'll really be looking at order momentum, which will be focused on 2012.

I can hear you thinking of the next question, which we'll probably not allow because it will be question number three but I'll give you the answer anyway. On 2012, really, the way that we look at it, we don't see any negatives for the year 2012. We do see positives. WE do see measured investments in NAND in 2011.

We definitely see Logic. There's a lot of people think there's a lot of Logic budget there but the speed with which this Logic ramp-up will take place in 2011 will be measured also and will be largely towards the second half of 2011 and will extend into 2012. That's number one.

Number two, as Eric talked about in his introduction, there is a technology trend that is continuing continuously which will drive the need for technology upgrades at our customers. Last, but not least, that is also driven by EUV. So in 2012 we will see the EUV introduction with very high price tools. We'll be starting the new generation.

So in short, Q1 will see a finalization of our shipment pattern and our shipment expectation for the year 2011. The rest of the year will be in the eye of 2012 and, like I said, we see a lot of positives.

Operator

Your next question comes from the line of Nick Gaudois - UBS.

Nick Gaudois - UBS

Just wanted to kick off with where you just left things, Peter. Effectively we're seeing a standoff between Intel and TSMC, Globalfoundries, Samsung (inaudible) on CapEx and we're seeing capital intensity for Logic and Foundries combing going up for first time in ages.

Do you actually think there is a transfer of psychic risk away from memory potentially [to that are we now] and how much does this concern you potentially for 2012?

Peter Wennink

Well, I think, like I said earlier, when we look at the shipment pattern for projects that you just mentioned for those customers, that's going to be a second half 2011 phenomena, which will actually lead into 2012.

Also, if you look at the spend pattern for the Foundries, don't forget that everything that is leading edge investments today and built out of any capacity, which is 65 nanometers, is only by a very, very few customers, only three. So those customers are the Logic industry with the exception of the big microprocessor maker.

So in that sense, to look at that number in the context of what happened 10 years ago is a bit difficult and, at least, we are not looking at it in that way.

Eric Meurice

But also, Nicholas, we discussed the statistics, this large CapEx investment by the foundry is, in fact, to be relativized. We only think that it will create, if you add 2010, 2011, just 14% capacity growth.

Remember that in this Logic business, when you go to a 40 nanometer or so you go towards the very large numbers of critical layers, so you need a lot of machine to do not so many wafers. So this capital intensity in dollars doesn't mean that we create a lot of capacity.

So our calculation is indeed that this 14% unit growth is higher than what analysts talk about, 8%, but, as you know, difference between 14% and 8% is a six months or nine months digestion time, which in the environment where things have significant yield issues and timing capacity management difficulties, et cetera, is not abnormal.

So in other terms, yes, indeed, there is on paper an over investment but it is not material such at this moment and that it will be eaten up into 2012 by the ramp of these new products which will happen even if the volume of the total macro economy is not there, the mix will be there to pick them up.

Nick Gaudois - UBS

You said for NXE.3100 no revenue recognition before 2012. Did I hear you correctly, so shipments this year but all revenue recognition in 2012 basically?

Peter Wennink

Yes, that's what we expect. When it's sooner it's sooner and it's great and then we'll let you know.

Operator

Your next question comes from the line of Odon de Laporte - Cheuvreux.

Odon de Laporte - Cheuvreux

I have a question relating to sales guidance in Q1. I was wondering why you looked a bit cautious. Your guidance for Q1 is weaker than actual sales in Q4, so could you clarify the reason behind this conservative statement?

Peter Wennink

It's not that conservative and it's because of the following reason. We did EUR1.5 billion in sales in Q4. There is about EUR50 million, EUR60 million in there on billable service, which was in the fourth quarter also bit of a surprise to us. It was really customers making up their budget for that year, which included system refurbishments at customer sites, which we normally did here in Veldhoven. Now we did it at the customer site.

Customers are trying to monetize some of their assets that they had. They used to sell those tools to us and then we would refurbish and we would resell. That's not what we do now. So basically we do those refurbishments at their site and we can charge a nice and good price rate.

We had system relocations. Customers are shifting around systems because they need to make place for their new leading edge tools and we had a lot of fast installs. Customers want those tools to be working fast and they are willing to pay nice service sums to get those tools installed. So we had, you could say, windfall sales of EUR50 million, EUR60 million in Q4.

On top of that, there are about EUR75 million worth of system sales that were actually a few evaluation tools that we shipped to customers in previous quarters that we agreed with them they could use for a few months or one or two quarters and then they would buy them and that happened in Q4.

So you could say that the shipment was, in fact, if you peel it all off, it was about EUR130 million worth of business, EUR125 million, EUR130 million worth of business. It was a bit of a windfall business. If you take that out then the guidance of EUR1.4 billion is not conservative. It's actually, you could say, equal but even a bit up.

Operator

Your next question comes from the line of Francois Meunier - Morgan Stanley.

Francois Meunier - Morgan Stanley

Just if you could give us a bit more details about what's going on with EUV. I’m sure you're working very hard to get it production ready with your partners on this one. What are the key milestones that you keep for the next few quarters and when will you communicate on this, if you can share this with us?

Eric Meurice

Well, of course, this is a very important question for the future, so positive milestones is that we have shipped next generation tools, the 3100. Positive milestone is that the customer themselves have been able to make an exposure that we've published at 27 nanometer. Positive milestone is this exposure looks good.

There is a line roughness and the process parameters, in fact, looks very, very encouraging that the process issues or a lot of process issues are, in fact, going to be acceptable. In fact, it's pretty good that immediately after the machine is delivered that they can even show such good line roughness capability and exposure. So all this is good.

Next items is, we do have, indeed, five more of those machines and you can see them, touch them, et cetera. All of them are being qualified at this very moment and they are reaching a level of overlay, which is now near the target spec and this is, again, difficult because this is in vacuum, so this is -- we've passed another test at the level of the machine.

So on the machine side, it now seems to be fairly much under control. The negative part is we're still late in proving 60 wafer per hour. At this moment we are nearer to 10 to 15 wafer per hour than we would be to 60. This is not yet concerning level because the customers do not need 60 wafer per hour clearly to do R&D. But it would be better if we were to prove as fast as possible that we could reach this.

So the positive news there is that there is now a much more detailed action plan to resolve every problem of the stage of a laser basically to get it to the power necessary. So there are issues on the pre-laser -- sorry, not issues. There are solutions on the pre-laser. There is solution on the droplet performance and stability. There are solutions about debris mitigations. There are solutions about catching some of rays, which are -- how should I call this -- negative influence power rays.

So all this is well defined and there is work to be done. So I would estimate that we could probably open a bottle of champagne in the Q3 timeframe, by which we would say this I now past the proving time and going into just executing time.

Francois Meunier - Morgan Stanley

So it's more a question of actually executing in the next three, four, five months more than issues which are technically difficult to solve?

Eric Meurice

With this statement the engineers are going to crucify me. I have a different -- the point is I would say there are four conceptual things that have to be proven but everything else is very difficult, of course. It's not easy to make the machine.

So making one machine is a complex task. But it is a task that you can -- that are deterministic. So all the deterministic tasks will take time and energy and cost. The one which are less deterministic is -- what we've done here to improve, for instance, stability of droplet -- is it going to improve it by 50%, by 755 or by 40% only and these are things you have to prove.

So I would guess there is another six months of work on two or three things that have to be proven to know exactly where you are on the specification.

Operator

Your next question comes from the line of Janardan Menon - Liberum Capital.

Janardan Menon - Liberum Capital

One is, Eric, can I just have your views on M&A What kind of things would ASML be looking for and what kind of timeframe can you give us for when some of that could be implemented?

The second question is actually if you go back seven, eight years when your order book was quite foundry intensive and then it became more memory intensive in the latter part of -- in subsequent years but foundries had a propensity to cancel orders once their capacity utilization level fell much more so than IDMs or the memory companies did.

Today your foundry orders have gone up quite sharply. Would you say that is such a risk as we come to the second half of the year when some of these tools are due for delivery and if something happens in the demand cycle and the utilization levels fall?

Would you say that there is a bigger risk that some of these orders may not materialize or is that more contained because of the competitive environment and the requirement for technology transition?

Eric Meurice

On the first aprt of merger and acquisitions, the first order of business is lithography. Clearly, at this moment, you've noticed that we have reached nearly our target of 5 billion sales which we set our selves for over five years ago or so and it is now time to set ourselves another target for the future 2015 and at this very moment we are still calculating exactly what that number could do because, again, we have now a success of meeting our target. We'd like to do this again.

So in other terms, the way I say it is to say lithography is still our fundamental market and we still think there is growth to it. I just will not be able to say it today whether it's 6 billion, 7 billion, 8 billion, nine billion or whatever. But it is still the area of privilege for ASML because there is growth opportunity.

But it is in parallel. We are always looking at potential expansion to a second leg which is a leg which will create growth opportunities and, yes, it has to be in the area that we are good at, which is equipment, precision, high R&D, long lead time, et cetera, and we have been on a regular basis looking at different options and we're continuing. I think nothing has changed on this.

The acquisitions themselves will not be large in the sense that we don't think we can buy a company that exists today and we can easily create growth out of it. But we think we can probably buy a smaller entity which has a leg in technology or a leg into an application that our size and expertise could multiply by a factor. But, again, it's not a short-term item at this moment. We're continuing to invest.

Regarding the Foundry behavior, well, every segment would cancel orders if they didn't have needs for the machines. We all know that. It's a fact of life. So I would not say the Foundry's worse or better than others. So if there is business, it will use it; if there is no business, it will ask us to delay deliveries and everybody will do it.

What has changed from seven years ago is that at the time the industry was more I need a fab and I will find a customer later or this is what year 2000 or year 2001 or 2002, they are years of people got crazy about there is no limit to applications and we just need the fabs. We don't know where it is but we need the capacity.

I think this you don't see anywhere at all in this industry, so where we've got the point about Globalfoundries, TSMC and Samsung, Logic who are trying to set themselves as space in this business, so they have to have critical mass size. But I would say the smallest possible critical mass so that they can have customer.

So that's what they do today. None of them have come up and said we think the market is going to be triple what its historical trend is. In fact, when I was able to articulate 14% growth versus 8%, it's also based on mix and it's, of course, based on technology and I know exactly each products, et cetera, in which technology and they are all based on the, I would say, historical ramp of new products.

You add to this my famous 14% versus 8% and this is the overspend. So I didn't say that if there is a major catastrophe in the macroeconomic environment all those customers including DRAM and NAND would not come back to us and say you have a nice backlog. We are contractually -- we have to keep it of course but could you please delay deliveries?

This will always happen, could happen, in any circumstances where the economy would push it. But at this moment, again, I do not see significant over-investing compared to the end product needs.

Operator

Your next question comes from the line of Satya Kumar - Credit Suisse.

Satya Kumar - Credit Suisse

Eric, I was wondering if you could remind us what your capacity plans are for the year. In Q4 it looks like the system shipments were close to EUR1.3 billion. How do you expect that to ramp through 2011?

Eric Meurice

I think the capacity is now reaching towards EUR1.5 billion, EUR1.6 billion of system per year. So you add EUR150 million, EUR200 million service to it. So it would be EUR1.6 billion, EUR1.7 billion capacity shipment in this quarter -- sales capacity between now and in June.

Satya Kumar - Credit Suisse

Are you looking to ramp that level or is that a sustainable level you think?

Eric Meurice

Yes, we will ramp through efficiency. So if you say you reach by hard word EUR1.7 billion, we could probably reach EUR1.9 billion to EUR2 billion by December by quarter just through efficiency.

Satya Kumar - Credit Suisse

In terms of your Q4 orders, I noticed that the IDM orders were actually down sequentially, which looks a little bit odd relative to some of the large IDM CapEx announcements we heard last week. I was wondering if you could help reconcile the apparent disconnect that some might think there is between CapEx guidance versus the orders, specifically as well if you could talk to market share trends at these IDMs?

Eric Meurice

I don't know how you make conclusions. It is very difficult with the statistics we give you about trying to understand what the big IDM does versus the other smaller ones. Remember, in the statistics we give you, we put in IDMs at least three companies and each of them could have impact to each other.

Secondly, one of the big IDM you talk about have already booked a lot with a very long lead time. So it is absolutely reasonable for them not to have overdone it further.

Operator

Your next question comes from the line of Tim Arcuri - Citigroup.

Tim Arcuri - Citigroup

First of all, just on that last question, can you talk about lead times? I went back to my notes and we were talking last fall about lead times shrinking to the maybe three to six month range by now. So I'm wondering where lead times stand right now.

Eric Meurice

Anytim you ask that question, Tim, I confuse the whole market, so I'll do another one trail at it. There is a difference of probably your question, which is PO lead time, which is a sort of administrative decision about when you put legal requirements and when you want the machine, and then there is a lead time, which is a manufacturing lead time, how much time does it really take to make machines.

With the new machines, like NXT, we are getting into a lead time of assembly and test which is more in the three months timeframe as we go now. So we are getting our manufacturing systems under control with this type of activity on the assumption, of course, that you have all the spare parts available so that you can assemble the machine.

So if you are smart and you have been able to accumulate enough spare parts you can do three months of manufacturing lead time. PO lead time absolutely depends on the structure of the company.

You have some very large IDMs who know so much about their business and control it very well that they would put a PO lead time of nine months and they will continue -- even nine months to a year -- and it will continue like clockwork and you have PO lead times more in the memory of this nice particular DRAM where the PO lead time could be less than a month.

Tim Arcuri - Citigroup

Could you talk about the integral lead time, which includes a supply chain -- your nine to 10 months?

Eric Meurice

If you put the lens and things like that -- .

Tim Arcuri - Citigroup

Lens and stuff in -- ?

Peter Wennink

That's for leading edge stuff.

Tim Arcuri - Citigroup

So if I wanted to get a tool today -- so if I came to you and I was one of your biggest customers, your biggest, most important customers, could you move things around to get me a tool inside of Q2?

Eric Meurice

Yes.

Tim Arcuri - Citigroup

You could? Second thing from me, of the shipments -- of the more than EUR5 billion that you will ship this year or revenue this year, can you segment how much of that is for technology?

Eric Meurice

This is interesting because we used to have a clear understanding of that. At the moment we knew what was a critical size of a technology buy so that you just do a conversion. But in there you have technology and volume and this whole mix. So I'm going to shoot -- I can't answer that question.

Peter Wennink

Yes, we'll just have to look at that and perhaps Craig and Franki can come back to you on that.

Operator

Your next question comes from the line of Mehdi Hosseini - Susquehanna Financial Group.

Mehdi Hosseini - Susquehanna Financial Group

Eric, if I were to look at your commentary on 2011, if I were just to look at the EUR5 billion, that would give low double digit year-over-year growth. What I wanted to better understand is how much of it is driven by share gain and ASP changes especially with more immersion shipped? Also, how does the mix of litho as overall double year fee is changing?

Eric Meurice

The EUR5 billion would be based on share loss, to be honest at this moment. We suppose that our competitor will be able to place certain numbers of immersion machine to certain numbers of customers, I would say, which would make it a natural place to be. So we assume that the EUR5 billion includes this possibility. So it's a share loss compared to 2010.

In terms of volume and ASP, at this moment, the EUR5 billion is based on higher ASP than 2010 because in 2010 there was, in Foundry, a certain number of 65 nanometer capacity built, which required less expensive machinery.

We shipped this mainly in Q2 and Q3 2010. This is not planned in 2011 at this moment. So, therefore, you are going to -- at this moment, the plan for the EUR5 billion is higher immersion mix than in 2010.

In addition, the NXT will represent a higher share of the immersion. As you know, NXT was above 50% in Q4 but used to be 20% of immersion in Q2 and Q3 and lower. I think it will be more like 70%-ish in 2011.

Mehdi Hosseini - Susquehanna Financial Group

Did you say that because your competitor is going to get some business your overall share is going to be impacted? Did I understand you correctly?

Eric Meurice

Yes, the point we are making we don't make a surprise of it. We are early with the NXT compared to our competition. The competition will have a certain number of machines shipped into their traditional customers in certain numbers of layers, which are not ours, which are less critical layers and this is expected. So this is not something new but this year in 2010 -- no, I meant last year in 2010, the machine was not ready.

Peter Wennink

So we basically had virtually nothing this year. There will be something -- sorry, virtually nothing in 2010. There will be a few tools in 2011. We don't believe there's going to be anything significant in terms of -- yes, going from zero to something.

Mehdi Hosseini - Susquehanna Financial Group

Then we list out the litho mix as overall double year fee, but I'm going to save my follow-up for this question. Are you worried that foundries are competing for the same customer for the same order, for the same square inches of silicon?

Then, to that extent, how does the technology change the Globalfoundry trying to implement a new architecture and the probability of any success or failure would impact business for you? Are those risk factors or are you not concerned at all?

Eric Meurice

No, remember that when we do a forecast for you and we say what we think we are going to ship it's based on this overall number of chips or square meters of silicon of different processes and then we say that's what we will ship and then we compare to the POs from the customer and this is why we told you you're correct.

In the foundry world at this moment there is an over investment, probably to your point because most of these players are trying to go after the same account but the amount of overspend is only make the difference between 14% capacity growth to an 8% capacity growth. So, in other terms, 14% minus 8% equals 6%. 6% is this capacity which is double counted or whatever actually that is for quoting our customers.

So two things can happen. One, they all succeed and the industry may have to live with 6% too much capacity. So you start hearing this [on the wall] that is that the customers themselves are so keen in having multiple sources for reasons of technology and for reasons of price that they may have to sustain two partners and this may make the two partners less efficient than they used to be and you could discuss with those people whether that means they will have less profitability or the prices will be higher because at the end it's a higher service.

This could happen and it could be that, in fact, the industry goes towards a less efficient model in using capacity and that less efficient model will allow them, in fact, to manage peaks, which today they don't.

In the newspaper you see TSMC at this moment is at capacity on critical nodes and I think it is public in the newspapers that some of their customers are looking for other areas to have their chips made and this is a bit of a scramble at this moment, which I am sure the industry of foundry will have to address. So this famous 6% of spend may, in fact, be here to stay as a new feature.

To your next question, last question, is are we going to be impacted if one of the key players have a higher market share than the other or succeed more than the other. No, I repeat, we are going to make machines for the square meters of silicon by the end products and by the NVIDIAs, by the TIs, by the STs, so we're not fundamentally impacted by who wins.

Operator

Your next question comes from the line of Kai Korschelt - Deutsche Bank.

Kai Korschelt - Duetsche Bank

I have two questions. The first one was, you alluded to pretty strong orders already from one of your larger microprocessor makers already early in 2010. So I was just wondering were you implying that most of the CapEx raise for 2011 was essentially reflected in your order book in 2010? That would be my first question.

Then my second was on EUV, also just a clarification. I think you also mentioned the quite different throughput rates in terms of wafers power for EUV, which will be even at target 60 is probably materially below the current 150 to 200 range of most fab lines. So I'm just wondering. Does that mean that EUV will really only be deployed in brand new fab extensions or lines or can they actually be used with the existing installed capacity?

Eric Meurice

So I will not comment on the CapEx question of one customer. It's their data, so I will not say anything on that. Regarding the EUV, now, don't misunderstand me. The generation two, which is used for R&D, is targeted for 60 wafer per hour. Generation number three, which is the 3300, which is the targeted for production, is targeted at 125 wafer per hour, which is still lower than the 150, which is the current standard of immersion.

But it is irrelevant. The question is that in the buildup of a new chip -- and I'm going to take, how we guess an obvious example -- in the 2, low 2X DRAM, you will need a certain number of EUV layers, probably four, five.

These layers will be done by EUV because they probably -- the customer my not cost effectively -- the customer may not achieve the criticality of the designs. So no matter what the cost or the speed is of EUV, they may be forced to make a 20 nanometer DRAM using an EUV machine, no matter what the speed is, the throughput.

Then the next layers, layer six, seven, eight, nine, 10, et cetera, will be done by immersion and next layer by KrF and probably some layers by i-Line and that's [natural]. So that's how it would work.

However, on some other segments, we need to take an example of NAND. IN the NAND, say sub 20 nanometer, if EUV is cheap, meaning if EUV is at 125 wafer per hour, then they will all run into it and say this is good stuff and they will put probably four layers on EUV.

If EUV doesn't run at 125 but runs at lower than 60, they probably will not use EUV in NAND for the (1XI) and it will go on EUV on probably 1X like 15 nanometer or under. So, in other terms, there are some areas of the world which is cost effectively impacted by EUV. EUV gets in when it's cost effective.

Then in some parts of the world, some layers, where you have no choice. So in order to know how big EUV will be, we have to be sure that we achieve 125. If we achieve 125 per wafer, it's going to be enormous.

If we achieve 120, it's going to be also enormous. But if we achieve 60 it would be smaller. But 60 is still okay. So we're going to have to manage the introduction of this technology in different years and catch the different layers in this one.

Operator

Your next question comes from the line of Weston Twigg - Pacific Crest Securities.

Weston Twigg - Pacific Crest Securities

I'm just wondering. You said the immersion mix should be larger this year and I'm wondering on a unit basis how many immersion tools can you make per quarter and what do you think that might be by the end of the year?

Eric Meurice

We can do per quarter between 33 and 36 immersion tools per quarter and by the end of the year we could go about 40 because by then we would have enough spare parts to do [parallelization] that we need to. At this moment we don't have enough spare part to just do more than one at a time.

Weston Twigg - Pacific Crest Securities

Then on the KrF side, 25 units in Q4, do you expect that to trend roughly flat through 2011 or be higher or lower?

Eric Meurice

At this moment, we expect KrF to be lower, but this is now, I would say, [on the side] opportunity. But we haven't called any of that at this moment. Remember, since summer the whole environment basically is pessimistic as to what I would call volume sales, the 65 nano, the Chinese business, et cetera. So we haven't got5 significant requests by customers to be ready with this. So at this moment, we are, I would say, at the low level of the equation.

Operator

Your next question will come from the line of Andrew Gardiner - Barclays Capital.

Andrew Gardiner - Barclays Capital

I just wanted to see if you could answer a capacity and lead time question maybe a slightly different way. Clearly you've seen very strong orders in the fourth quarter but outside the official order book I'm just wondering what level of visibility some of your key customers are giving you and perhaps what that means for lead times, in particular, given that you have been capacity constrained for the last few quarters and we've seen bookings well ahead of shipments.

Are some of these key customers coming to you even earlier than before in terms of providing visibility through 2011 and maybe even beyond that?

Eric Meurice

Yes, well, the ultimate visibility is the order and we announced basically that we booked 2011. We expect some more bookings in Q1 but basically EUR5 billion is clearly identified and virtually booked.

So you can -- if you are cynical you'll say, well, that means we are worried about you and they put some orders and they plan to cancel or push out in case because these are all machines which you need to reserve. But, fortunately for us, that's not the case for multiple reasons.

The first reason is that I think we hinted this at the beginning and Peter hinted it also. The NAND and DRAM business, which usually would do this with reserve and then to be sure and, in fact, we, at this moment, know that they are under booking. They are under booking compared to what analysts expect them to deliver in terms of RAMs, DRAMs and Flash.

So if we expect something is not a cancellation or a push out of these machines, it's more the opposite just because they need the machines to do the chips.

On the Logic side, we expect -- we told you that it was more of a building up of a fab with critical mass, so normally a line, a typical line in the logic arena should have eight immersion tool or -- I don't remember -- it depends on the technology, so immersion eight tool.

They will not go for six because it's not a critical mass; it's not efficient. So they will go for a limited critical mass and all this is well understood by our engineers and being installed.

The third piece of data that I think is important to know is, at this moment, all of our customers are negotiating specifications and slotting priorities per quarter. So it is a normal thing we do and it means you have an order and you say we're going to ship in July. Do you need this machine or that machine; do you need this in first week or the second week or the third week; when do you have the pedestal prepared; when is the truck coming; what sort of plane we put it in?

All of this is being discussed with the blood and sweat in a very normal way where you can imagine that this is not the purchasing guy discussing; it's a production guy building up his logistics to it.

So we're talking about real activities. We're not talking about paper work. So for this reason we have the highest visibility, I think, ever that this company has ever had.

Craig DeYoung

We are going to try to squeeze in one last question and I'll ask the operator just in here in a moment. But if you're unable to get through on the call and still have questions, please feel free to contact us, ASML investor guys, with your question and we'll help you out. Operator, can we have the final question, please?

Operator

Your next question comes from the line of Peter Testa - One Investments.

Peter Testa - One Investments

I was wondering if you could help us on slide 18, the new fab litho opportunity, to understand what view and assumptions you put into those spend figures in the different categories?

Peter Wennink

We're not going into the detail because that would be revealing some of the customer issues. But we are very much aware -- these are perfectly announced projects. We are aware of the size of the project whether it's a new build, whether it's a refurb, whether it's an existing facility.

We are aware of what they are doing there, the product that they want to make, so we know the mix of the leading edge stuff, mature KrF, dry ArF, i-Line and based on that mix we basically say then they need to support that particular output that they want because all those fabs have a requirement of so many thousand wafer starts per month.

We can calculate the little need and we know the prices of the tools, os then the end result is relatively easy. That's the way that we do it, Peter.

Peter Testa - One Investments

But are you assuming, for example, that these fabs are built out? Are you assuming they're just built to minimal critical mass?

Peter Wennink

No, they are built out and [it will] take this period 2011, 2012.

Peter Testa - One Investments

So you're assuming they're built out during 2011, 2012 at this pace?

Peter Wennink

Yes.

Craig DeYoung

Well, thank you, everybody, on behalf of ASML's Board of Management, as well. I'd like to thank you for joining our call today and, Operator, if you could formally conclude the call we would appreciate it. Thank you very much.

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