ASML Holding's Management Presents at Morgan Stanley 11th Annual Technology, Media & Telecoms Conference (Transcript)

| About: ASML Holding (ASML)

ASML Holding N.V. (NASDAQ:ASML)

Morgan Stanley 11th Annual Technology, Media & Telecoms Conference

November 18, 2012 2:05 AM ET

Executives

Franki D'Hoore – Investor Relations

Peter Wennink – Executive Vice President and Chief Financial Officer

Franki D'Hoore

Good morning. Thanks for waking up early this morning. I know it’s a little bit difficult this slot on a Friday. Thanks Peter for being with. Maybe we should sum up for you a quick recap of the Q3 with us some actually, but more importantly your view on Q4 and there maybe what you think could happen in 2012 as a generic view of the litho market?

Peter Wennink

Yeah, I think on the Q3 basically, a recap on what we said about a month and a half ago. No major changes. I think it’s more relevant is what I said at the conference a couple of months ago where I was somewhat concerned between let’s say the difference what the customers were telling us and what customers were doing.

And so they gave us a quite a good, an in-depth view of what they needed for 2012. But when we said, where are the orders, then those people held back you could argue that that was Q3 so why would they and then the budgets were not set yet. We were in many instances talking to them with respect to our volume purchase agreements. So, you could also say there was no basis for them to give us the orders now, that gap that is closing.

I mean, currently now few customers indeed doing what they are telling us which is good, as also part of the order guidance that we had in Q3, we said Q4 is going to be a level up as compared to Q3 and we are standing by our guidance. Please.

Franki D'Hoore

Okay, so I think the main question in the room and outside this room is because Q3 was quite low and you are thinking there could be a small uptick in Q4, are we seeing the trough? This is a difficult question.

Peter Wennink

Yeah that’s a very difficult question. You can only say we’ve seen the trough when you look a couple of quarters back and in one quarter it’s very difficult than what we say A level up and that’s what need as we’re going through do double or triple, I mean that’s not the case. So that’s also not the expectation I believe.

No, I think, you have to look back not so much of what –whether there is a order trough or but what our customers doing for 2012, I think in all segments, whether it’s logic or memory, we see customers making their technology transitions very clearly and the major player in every segment, every major player just steps up also on capacity in that leading-edge.

So that is what they’ve told us and that’s what we see them doing, doing in terms of coming to us and also placing orders. And that’s good and that means that, as we said on the conference call a technology transition, the only technology transition really no additional capacity the leading-edge gives us a sales of €750 million per quarter.

So €3 billion, but it’s only technology transitions and on top of that, there are customers that also say well, we don’t probably want to do the absolute necessary, but we want to because of our locker position, spent more to add the capacity at leading-edge, that comes on top and on top of that about €600 million of server sales.

So that gives you an idea of where this would be going and you need to see an order trend that is going to support that and I think we are currently confident that now the way things are going to that’s what I just said is being supported by the, I’d say the order activity of our customers.

Franki D'Hoore

Because really the question is, because last chat I remember, in Q4, you had a very, very big order intake of more than €2 billion, this year about in Q3 500, so maybe six, seven whatever. Maybe you’ll saw a little bit of seasonality in Q4 as well.

Peter Wennink

No I think last year was very particular and peculiar, you could almost say and that was an outlier. Don’t forget in 2009, you had the three quarters of virtually no orders. So people were completely frozen, people meaning our customers, actually all of them were frozen in the sense that, we don’t know what’s going to happen so let’s wait.

They waited and then came to the conclusion that it wasn’t as bad as we all thought. So, they came running back and so at the end of the 2009, it was clear that the year was completely underinvested. We were struggling to keep up with our shipments throughout whole 2010 and at the moment in the time, I think in Q3 of 2010m we were under shifting customer to that demand with about three to four months within a market that is almost exploding in terms of growth, it creates a lot of anxiety at the customers.

So that in Q4, because no matter what happens and we had this going for three years and it was very buoyant. Everybody was banging their heads up, hey I was super bullish and that also shows in the order patterns, they said no matter what happens we are going to put the order out we want to get out place in line. That was really the result of let’s say decimal 2009 no orders and us under in shipping, basically undershipping the market because we cut down on everything on supply chain.

And it just takes time to get these machines back to the right level again. And I think it was just a – I wouldn’t call it a panic reaction, but it’s very bullish reaction from our customers, say no matter what happens in 2011, is not going to let’s say our orders to ASML is going to be the reason why we will not get tools.

So they gave the orders. And I mean that in 2011, we just started the year will €4 billion in system orders, add to that €600 million, €700 million of server sales so we were already at January 1 2011, above the total sales of 2010 in terms of orders and our respective server sales.

So the year started off of course fantastic and that’s also the reason why you saw orders sliding off in 2011, because they were already given. And what we are seeing now is a clear period whereby customers are ordering for the next technology transitions and for, let’s say our larger customers adding capacity at the leading-edge and that’s healthy.

Franki D'Hoore

Now they are customers.

Peter Wennink

Customers multiple.

Franki D'Hoore

Okay. Because usually actually the more that takes, a first decision for CapEx budget around this time of the year. And they will announce it to the world late January, February but usually you know but it’s now or in the next few weeks.

Peter Wennink

Everybody always talks about CapEx and it is amazing how much it is on the minds of our investors and of the financial world, because CapEx is we want them but we never look at. We actually don’t, we look at utilization rates of our tools. We look at chip prices, we look at inventory days, we look at order trends, but CapEx is what is going to be.

I mean, in this 12, 13 years, I’ve been now in this position, CapEx has been a very bad indicator, because customers will do what they need to do, when they underestimate the market they will up the CapEx, when the overestimate the market they will down the CapEx. So CapEx is, for us it’s not an indicator that we look at. In our management reporting and marketing reporting, we never look at CapEx never. So don’t ask managing our CapEx, but look at it.

Franki D'Hoore

So if we went through actually the metrics you look at because we look at the segment rates on our site, they do take inventory days companies are trying to bring them down.

Peter Wennink

Yeah they are coming down, they are coming down. If you – inventory days have been going up throughout the whole year, but last month, last six weeks have been coming down, inventory days. Also we see utilization in the - I would say in the let’s say total logic area and especially on the foundry area, also going into the right direction.

Franki D'Hoore

Okay.

Peter Wennink

So, but and memory prices are still low and still bad. It’s all that everything is green, but in any case, we do see some indictors that gives us that we should hold that.

Franki D'Hoore

So maybe in terms of client exposure, maybe we should say a bit more positive mix from the foundries, the logic guys, more from the memory guys in terms of - to spend next year?

Peter Wennink

No I think on memory, that will be litho spend. If you look at the technology transition, they are going down to next nodes, which actually needs new tools. So that’s going to happen and you can look at NAND price and say hey NAND prices were too good or going down, yeah they should go down. It’s called Moore’s law. So every 15 to 18 months, you need to see that price reduction that we are currently seeing, but we are now positioning ourselves to ship tools to customers that can do the next nodes.

So if you see a flat NAND price then basically that is in the – it’s virtually under capacity because they are buying the new tools they are bringing their cost down if prices stay at that same level and have a great time but what you are seeing now in 2011 that NAND curves are in Moore’s law.

Franki D'Hoore

So actually if we move to foundry and logic, I mean, I was asking in the last year, already we kind of see a better emerging between Intel on one side, which is legacy PCs and new type of products, smartphones, and tablets which both of them are made by foundries either mostly Samsung and TSMC and clearly there is a rate for lot of our consumption which is also helped by smaller nodes, is it something which could circle the tool spend?

Peter Wennink

I think every end device that takes – that includes semiconductor devices that needs the most leading-edge lithography is good for us and whether it’s for ABC or D it doesn’t matter that much. What we are indeed seeing that there is an increased variety of end products whether it’s PCs with SSD instead of hard disk drives, whether it’s end products like all the mobile devices, they all needs leading-edge logic, which is 32-nanometer, 28-nanometer, 22-nanometer logic when they need 2x NAND, they need 3x DRAM and that is the area where we sell our most advanced tools.

So this – who is going to win, and who is going to lose that we don’t have in that sense. I mean it’s up to our customers and the customers of our customers and they have their own problems and with their product offerings or they don’t have the problems with their products offerings great, but what you see is a wide variety is fueling the need for ASML’s litho and that’s why also this technology transition that you need to, I mean if you are in the semiconductor business and you don’t shrink, you are not competing and the way to shrink is buy the next generation litho tools, there is nothing changed.

And this is why absent of big macroeconomic events like we saw in 2008 this will happen. These technology transitions every, I’d say in NAND, 12 to 15 months, in logic, every 18 to 24 months will happen. And they all have a different heartbeat which is good for us. The heartbeat of technology transitions in DRAM, logic, NAND has a slightly different heartbeat which actually gives us a nice spread of our shipment pattern into the segment.

Franki D'Hoore

Yeah, that’s also the point from some customers, because if you can’t buy the latest generation tool and then probably some guys in Taiwan for DRAMs, then you have to stretch the market.

Peter Wennink

Well, like I said, if you don’t shrink, you walk away from 30% to 35% cost reduction per year and nobody can afford that. So you have to do it. I think we said this before in this audience also what we are seeing of course is that, if the number of end-customers that are using, that are buying let’s say leading-edge they are probably the number of customers is going down and that those customers are really bigger.

But that is as compared to ten years ago, I still remember when I joined a company back in 1998, and we were talking about the 300-millimeter factories I think we added them all up to over 32 companies that wanted to build 300-nanometer factories I think in the end, as a dozen did, or 15 so at that time. That has to do with the fact that the industry is consolidated. The bigger company seems to be getting bigger.

Franki D'Hoore

Yeah, so that’s probably actually why in DRAM maybe when this industry consolidates a bit more than CapEx – or the tool could recover.

Peter Wennink

Well, you will see this and as long as there is a need for further shrink which indeed and is also the case, then you will see that that customers will buy and whether it’s two customers or ten customers, from a needed capacity point of view they will buy what is needed. When you have ten customers, that of course do they’ll buy more, because they will optimistic on their business and they also buy.

Franki D'Hoore

Okay.

Peter Wennink

Now when you have two or three customers, then that’s probably more balanced.

Franki D'Hoore

So actually what’s your view to tell on DRAM, because one of the questions from investors is actually because we are using more and more tablets and unless PCs which consume or maybe are not very efficient using DRAM and maybe the old paradigm of the increase in DRAM is like plus 50 real something it’s not the same. So the big drop is not the same and maybe DRAM CapEx or DRAM tool is that’s for the next five years?

Peter Wennink

I mean, I’m praying that they will look at this one. Yeah, sure but if you look at the dealer price and you said fine if you want to make a bit of money then you need to shrink your cost further so that people that can afford it and absolutely do it and that will create a better competitive position.

So I think that need for cost reduction is evident when you look at the DRAM price. I mean, you would probably be right and we’d have a healthy DRAM price and people would make money, so why would I reduce cost, like its good. But this is this is absolute necessity to reducing cost.

Now whether DRAM will grow at 40% bit rate or at 40% we don’t know, but what we are seeing I think currently we don’t believe that based on the estimates of what we will ship to the DRAM market let’s say over the next 12 months or so, the wafer capacity in DRAM will go down. It will increase at the leading edge but the trailing edge it will just disappear.

So we run those stimulations and we actually see that wafer capacity is trending down. But no doubt the leading edge like I said they need the cost reductions. Those who can afford it will buy and that will reduce cost further and increase their competitive position.

Franki D'Hoore

Now if we talk about the SSD market. It’s something that you are pushing quite hard in the preview cycle. Now there is an event bit of a tragic event in Thailand which is taking quite a bit of capacity from healthy drive production. Could it force the PC guys to move to SSD first because all this production capacity has gone out? Are you seeing anything recently because I know you are …

Peter Wennink

No I think that is not as a result of that tragic event. I think it’s been a trend that many of our NAND customers actually say that they see an increasing demand for SSD type solutions. But that was even before the floods. Now, you always have to be careful because I still remember and we all remember at the beginning of the year we have a very, tragic event that happened in Japan where all these doom scenarios, all this semiconductor industry is going to a grinding hole and they found a solution.

And we hardly noticed it. Now I’m not going to say that we are going to notice this but yes, the issue is that companies are very creative in finding solutions and if one or two companies might say hey this is a good time also to look deeper into the alternative which is SSD that might happen but, to what customers told us before the flood they are already starting this. I mean, SSD you see an increased penetration rate in SSDs.

And actually you see those are in the device if you are walking through the shops, that are more and more, certainly, that also all the manufacturers that actually now come up with products that use SSD in which they did not a year ago. So it is coming.

Franki D'Hoore

If we talk about your competitive position, since I think of (inaudible) and you’ve been taking market share on the year, and every year what’s going on there, what’s going on with Nikon claimed their immersion tool is actually working quite well and taking market share, is that true or was it just marketing chat when will be able to have a UV machine?

Peter Wennink

Well, you have to look at the current competitive position and always have to be concerned about the competitor and we are. So we basically look at what we can do for our customers. Now to be precise, we have a pretty good idea where immersion tools hit a pedestal in a fab whether it’s our – whether it’s got a national brand on it or somebody else’s brand on it.

We know the pedestals and strangely enough over the last 12 months, we haven’t lost those and don’t want to look, what we didn’t want to lose. So, basically we gain everything, yeah, of course some customers have clear strategies that they want to split the business.

Fine, so we – if you take that into consideration, then I would start one spot we can think of where we actually lost something that we planned for. So that is for now I think also that can be explained by I think the performance of the machines and HD had some TV problems at the beginning.

It’s running pretty well today. We’re coming up with new versions that are going over 200 wafers per hour, starting at 200 wafers per hour shipping this quarter for the first time. But what is more important is, people always look at that productivity but what is more important for our customers these days is that next to the productivity they need more overlay an overlay is the positioning accuracy of the subsequent layers in production if you make layers three today, layer four needs to get on top on the day after tomorrow and that’s need to be position within a few nanometers accuracy.

And while you start doing double patterning, where you basically takeaway the original design on the math you print one for us and then the other. Then it needs to show as if it will spin at in one goal. So that positioning accuracy now becomes absolutely vital to goals.

Now that’s what we are seeing today that overlay which our tool has absolute stellar performance yeah it’s extremely important next to the productivity. On top of that, you have all the tricks in the books to print, let’s say 25% of the wavelength of the lines. 193-nanometer and we are doing 28. So that is done by using immersion and all the tricks in the books, you need a lot of – go through all software there.

And that is where we have solutions that our competitors don’t have. So, it is not only about productivity, which we are leading clear. But it’s also about the aspect of overlay and the process go through all those that we are supplying what we call the holistic litho tools that we are providing. And that creates a gap and I think it’s clear.

So, from that point of view we just need to keep doing what our customers' needs and if our competitors can follow, great for them, if they can’t follow, bad luck. So, that’s on the current tools. On EUV, we shipped our first EUV tool four to five years ago which was the Alpha Demo Tool prototype that’s actually still running wafers quite interesting we saw at one of the sites that we shipped in Alpha Demo Tool last week, we saw a resolution, so feature size of sub 20-nanometer on the prototype.

That was actually quite impressive. But what I want to state is that we shipped a prototype five years ago and we have shipped the R&D tools this year we are going to ship the pilot production tools next year, you can say, well I’m going to be introducing an EUV tool in 2015 or 2016, but by 2015 and 2016, we will be in volume productions with EUV. If you happen to have that eight nine years of learning curve, that’s going to be difficult, tough and then probably using an understatement.

Franki D'Hoore

Yeah, so before we go to EUV, I think what you are suggesting on the overlay question is basically if I try to make ASML tools which micron tools then the overlay is one thing that exactly got right?

Peter Wennink

It can be done, but it’s difficult. We have customers that are struggling on let’s say lower sense cost because their prices are so low. That cannot afford inefficiency they make very deliberate choice, just to say, everything that can cost and inefficient part of the process we are not going to use and those tools are different.

So you need to match one tool with the other which has all kinds of let’s say problems in your production that you don’t want and so you are absolutely right. I mean, that’s why a lot of customers say, fine at the leading-edge I take it and they only need to want to take a dual source strategy, they take the gold plated tools for the mature layers. So fewer and fewer customers are using two tools at the leading-edge because it becomes so complex.

Franki D'Hoore

So, it feels actually that micron is there because some customers what micron to sell.

Peter Wennink

Right, yeah.

Franki D'Hoore

More than.

Peter Wennink

And that’s right. So, I mean you want to have to survive you can have one as almost earlier with leading-edge developments and all of that is following. I mean, that is not a strange phenomenon that happens in almost in all of those entries also.

Franki D'Hoore

Right, let’s move to EUV. So, this year was a bit disappointing in terms of throughput.

Peter Wennink

Yeah.

Franki D'Hoore

Will it be the same next year?

Peter Wennink

I think what we are seeing today is that very clear view on what we need to do which we didn’t have at the beginning of the year. ASML is helping both suppliers would show and Sima on improving let’s say the output of their R&D, the issue is that, an EUV source is basically a tool that is orders are making it do it more complex than a DPV license. And that needs a lot of system integration capability which I mean, we are a system integrator we are a system market that this is core competency.

Our core competency is in system engineering is in program management and making sure that that all the elements in the supply chain we are get it to get to the output at the right time. And even we are struggling from time-to-time. If you are not used to do that, you don’t have that competency at your company or in your company we can provide that.

But it takes time before everything is felt out of what needs to be done. So we have pretty clear view on the where we need to go. So we believe that by the middle of next year we’ll at 50, 60 wafers power. We have a clear look and that we know what to do. So lot of engineering challenges not from the mental challenges, because we are using EUV, we are – our customers are making chips using EUV technology.

So it works but the productivity needs to go up. Now, at 50, 60 wafers per some of our leading customers have actually said that helps us a lot. Because by that time, by the second half of next year we want to move into the pilot production of at least the qualification of our leading-edge products with the next node and some of those layers and especially in the memory space, in the DRAM space, very difficult to do with double patterning.

So they say, if you would do 50 to 60 wafers per hour and we look at our use that we would get out of double patterning. We would probably use EUV for two layers. And if we do that, then we don’t have a demand problem. And we do that we have a capacity problem. Because we can only make around 18, maximum 20 units between and the end of 2013.

Franki D'Hoore

Right, it would probably to have.

Peter Wennink

Sure, but of those 18 units ten have already been sold to eight customers. There are eight left with the industry. So when we get there, I don’t think we have an issue of end-demand customers will buy EUV. We probably won’t have enough tools. Now, by 2014 we can double the output. So we go from 12, to 14 to between 25 and 30 and in 2015 we can double it again.

So by that time, 2015, 2016, you would see, we actually talk to our customers and we believe that by that time, there will be volume adoption of the EUV technology but then also we and our supply channel feel ready to provide the industry with 60 tools per year. And 60 tools per year with prices that you can have 75 million average you can calculate that for EUV and that’s only for EUV.

Because in immersion quite interesting is when people think about EUV they think about no transitions. So going from immersion immediately to EUV which is not the case when we went from 65-nanometer to 45-nanometer, we went to dry to immersion. And that meant that you actually have to go 100%.

Now what we are seeing today is that customers look at the critical layers and they determine what they can still do with double patterning whereby have an reasonable yield and they hit layers where they say, that’s now will be very difficult. So you run with your nodes to nodes transition you will see a layer to layer transition, which also means that EUV can be adopted more gradually.

Franki D'Hoore

But we’ll have to replace immersion.

Peter Wennink

We will not replace immersion, no it is in fact in addition. And that means that the immersion market will still be very large till the end of the decade at least and that means that we keep continuing improving the overlay the productivity and everything that has to do with immersion technology as we go. Our R&D spend, if you could say 60% EUV but it’s 40% immersion-related. It is still extremely important. It will not go away.

Franki D'Hoore

Okay. So if we look at the numbers, next year talking about and as a result really, really, really about recession and people really spend too lower they should spend, you are talking about €3.6, potential scenario, €3 billion of technology change to 600 of services plus maybe a bit more on EUV, what the business whether they are in terms of gross margins, EBIT and EPS?

Peter Wennink

Yeah you can take I’d say, anything of we did over the last two years that were quarters that if you have a scenario for 2012 and you can take any quarter that you have for 2012 and look back last two years and you find a proxy for that number and you can use it. There is basically, everything from €500 million, €750 million, €800 million to €1.2 billion and use it. I think that’s probably easier.

Franki D'Hoore

Right. Let’s move to the floor for questions. Slowly waking up.

Question-and-Answer-Session

Franki D'Hoore

Question in the corner, yeah, it’s a bit difficult to move, we do not expect.

Unidentified Participant

Hi, good morning. Can you talk a little bit about the cash in your balance sheet and how you plan to use, I think over €2 billion at this point?

Peter Wennink

Yeah, we have a clear policy it’s also included in our 20-F. We basically say above what we need for our business in €1.5 billion to €2 billion. We are going to give them money back to the shareholders which is going to be a combination of dividend and share buybacks. And we’ve announced €1 billion of buyback program at the beginning of the year.

We are currently planning to do the majority of the €1 billion. So we are executing as we speak. We have also paid about €85 million of dividends not next year, clearly we will continue with that policy. Now let’s take the analyst average as a proxy for next year, I’m not telling that that’s what we believe, but I mean let’s I think it’s €3.9 billion, or €4 billion close to €4 billion for next year which by the way is going to be our third best year ever.

So put into perspective if that would come true in 2010, 2011, and 2012 would be the best years of the company. Now that clearly means we are going to be profitable, nicely profitable and that means that cash generated out of that profitability is added to what we already have which is above what we need for our business. So we will keep giving it back.

So it’s just a consideration of policy and I think we have this year at least we’ll do sit with the Board another 5% of our outstanding share capital buyback. We don’t keep it in treasury. We actually cancel it. So what we buyback we cancel. So the number of outstanding shares actually goes down. Yeah that’s - there is no reason why we should change that.

Franki D'Hoore

Actually on this topic, will you buy more share on that 25 that I’d say for euro?

Peter Wennink

The way that we do this is, we are not traders. We are not investors. We don’t like to, it is very difficult to say what’s a good share price, you might have that idea but when you have a continuous program which we intend to have to keep buying back at the end of every quarter at the results day, we give a mandate to a bank and we tell them, listen, for this quarter you can buyback x 100 million and we intend to price you with a buying back at the prices lower than the average.

So that’s how they execute and then they just execute that they keep executing every quarter. I don’t need to worry about when we need to buy we need to accelerate and what they normally do is when there is weakness in the market they accelerate the buying when it’s bullish, they just tend to be sold.

That’s how they do it. I think it’s worked well. I think we’ve done about 2% lower than the average and that tends to be the case every quarter. So, and as well as you do it continuously then you don’t need to worry about timing. I don’t want to time anything, don’t want to message it’s just the fact that you have excess cash you give back.

Franki D'Hoore

I know, I thought it’s difficult for these cycles as you can use a, I’m willing to buyback.

Peter Wennink

All the time, instead of trying to teach. You are trying to pick a time, I mean even if you would have perfect insight into your business you don’t go into all the macroeconomic cycles and which is to have a bigger effect on the share prices these days than the underlying business.

Franki D'Hoore

Yeah, it’s quite difficult to quote the ASML share price.

Peter Wennink

I’d probably think we are not the only one.

Franki D'Hoore

So talking about actually outside of litho, it’s true that several years ago you looked at potentially LCD market, maybe at some point you potentially thought about the LED market. Is there anything you are looking at the government which is to get may be Eric stated

Peter Wennink

Yeah we are looking at technologies that have to do with patterning. Those were a patterning company and we have some we think very promising base technologies developed. I mean we vial 800 patents per year close to a 1000 patents. And of course some of those technologies are or could be used also in other areas. And we have an incubated group spends €30 million a year in developing those technologies and some of them are very promising.

As a matter of fact we are talking to some customers in certain areas I’m not going to go into detail because that’s too speculative right now. Why because, it is about proof-of-concepts. Some of those customers that we have approached and with patterning technology they say hey this is promising and they gave us targets basically technical targets and say if you can prove this concept and great, then we should talk and we are in that stage and we talk to several customers in several industries about potentials, to do something with our technology base.

Franki D'Hoore

Great.

Peter Wennink

And that could, if that deals something we’ll come up and we’ll tell you because probably it will show the R&D line and you want to know why R&D goes up.

Franki D'Hoore

So how much you will spend on those new technologies?

Peter Wennink

€20 million to €30 million a year just as incubators.

Franki D'Hoore

Okay.

Peter Wennink

So we search, it’s not small it’s not duty that we spend more than gross we spend, so that’s excluding some – I think we are spending this year 625 million and so it’s okay, it’s less than 10%.

Franki D'Hoore

Okay. Any other questions on the floor?

Peter Wennink

We have a question here.

Unidentified Participant

Good morning. Just as a single question on what’s the uncertainty during your third quarter results and at what time you get a better idea where the industry is heading to, well in December or….

Peter Wennink

No I think over the next few quarters. I mean, customers and when we talk about uncertainty we talked about uncertainty for the full year 2012 and of course it’s too early now to be absolutely certain about 2012 I think Franki and I had the discussion this morning and said, in all of the times that we were with the company, I think we only – we are brave enough to call it complete year, let’s say at the end of the year before which was 2006 we called 2007 and 2010, we called 2011.

But that was because there was so much clarity bullishness at the side of our customers and all these signs were on green that we dare to do this. That’s not the case today. So think we just need to – need to have a bit of patience over the next couple of quarters.

Unidentified Participant

But have customers become more cautious in recent weeks?

Peter Wennink

I think I answered that question by saying, in the third quarter it was clear that customers there was a discrepancy between what they said and what they did. And there are argues that, this will be need for next year. And so where are the orders, no.

In fact it doesn’t been signed off yet. Our volume purchase agreements have not been signed. We’re still negotiating with the guys and but I think that gap is starting to close. I mean people are more willing customers are more willing now to put their money within their office.

Unidentified Participant

How does it moved to EUV, change yourself of overall semiconductor manufacturing/

Peter Wennink

You mean, in the equipment space?

Unidentified Participant

In the equipment space?

Peter Wennink

Yeah, there has been a lot of discussion about that and some analysts but also some of our peers would have thought that bringing EUV, with what does EUV do. If you go from double or triple patterning down to EUV instead of patterning the wafers two or three times to you go back to what you used to do ten years ago you do it once.

It also means that all the intermediate steps which is a deposition plant, hatch metrologies, all they did not need to do that either. So they would say well oh my god! Then the market is going to have, one that’s not the case because we just discussed and Frits Van made the conclusion by saying but that means that immersion will stay a very important technology to go, which means double patterning will in fact stay.

But I think we will get a slightly bigger part of that wallet because the EUV tool will indeed be so cost competitive that in that at the leading-edge you will have that effect. You will have that effect that it takes layers. Now by having said that, I know our customers what they can do an EUV exposure which gives them the right result after a few years they say what can we do again, can we do double exposure with EUV and then you get that same trend back again.

So I think there will be a need to – where likely at the leading-edge, EUV will take a bigger part of the wallet, yes. But it will not replace, let’s all the other steps at the, let’s say with the size that people are feeling, because the immersion technology will be very important till the end of the decade and that is still double patterning.

Franki D'Hoore

Okay. Thank you very much Peter. Thanks a lot.

Peter Wennink

That’s my pleasure. Thank you.

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