ASML Holding N.V. (ASML) Q2 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for holding and welcome to the ASML 2012 second quarter results conference call on July 18, 2012. For our today's introduction all participants will be in a listen-only mode. After ASML’s introduction there will be an opportunity to ask questions. (Operator Instructions) I would now like to turn the conference over to Mr. Craig DeYoung. Please go ahead sir.

Thank you, Peter. Good afternoon and good morning ladies and gentlemen. This is Craig DeYoung, Vice President of Investor Relations here at ASML. I would like to welcome to our investor call and webcast. Joining me from our headquarters here in Veldhoven, the Netherlands is Mr. Eric Meurice, ASML’s CEO and Mr. Peter Wennink, ASML’s CFO. As the operator mentioned, the subject of today’s call is ASML’s second quarter 2012 results. However, on July 9th, ASML announced a co-investment program in which customers will potentially contribute up to €1.4 billion over the next five years to accelerate development of 450 millimeter wafer platform and the next-generation of EUV systems; both expected to enter volume production in the second half of this decade. So we would welcome any remaining questions you might have about this program in addition to those questions you might have about our Q2 results. At this time, I would like to draw your attention to the Safe Harbor statement contained in today's press release and in our second 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 as normal. Now I would like to turn the call over to Eric Meurice for a brief introduction.

Thank you, Craig. Good afternoon. Good morning. Thank you for attending our conference call. As usual, before we begin the Q&A session Peter and I would like to provide an overview and commentary on the second quarter result and provide an outlook for the year. I will myself complete the introduction with some further comments on market view longer-term and about our strategy. So Peter please if you will.

Thank you Eric and welcome to everyone. Summarizing our second quarter; sales came in just about €1.2 billion which is essentially the same as in the previous quarter. This quarter sales remained largely skewed towards the foundry IDM sector which was about 73% including non critical Kaloyeros systems which are supporting the capacity additions. As in the first quarter only 9% of second quarter sales went to the DRAM sector with just under 20% going to NAND customers. The average selling price of all systems recognized in the second quarter was €22.4 million reflecting a bit higher Immersion shipments than the first quarter. Service and field option sales came in at a record of €243 million which is again driven by a significant adoption of system performance enhancing field options. Updating our previously announced share buyback program, as of July 10, 2012 last week, ASML has repurchased 33.2 million shares of which 7.5 million shares in 2012 for a total amount of €970 million of which €270 million in 2012 giving an average buyback price of €29. For regulatory reasons in connection with the customer co-investment program which we announced last week ASML has suspended its share buyback program from July 10, 2012 until further notice and we are then to resume share buybacks when permitted under applicable regulations. The second quarter net bookings came in at 43 systems valued at €949 million, excluding EUV. Our booked average selling price came in at €22 million with the quarter’s booking profile seeing a significant moderation and Foundry orders at 36% of total orders, half of that, slightly half of what they were in the previous quarter. The balance of orders was almost evenly split between IDM’s NAND and DRAM. Our order backlog at the end of the second quarter was €1.5…

Thank you, Peter. The words confirmed by Peter the balance of 2012 looks like steady. This should lead to nine consecutive quarters of about €1.2 billion or more of sales. They are just pretty good in a non-fully supportive economy worldwide. Further, our developing views on 2013 suggests that it will be supported by NAND and DRAM at the beginning of the year assuming a good pick-up of the PC ultra book business and the continuation of the high end mobile unit growth along with a steady shipment to IDM’s which is also driven by PC’s and start-up of 20 nanometer Foundry Logic by mid year 2013. The reason for the acceleration of the logic business in 2013 is a shortened node transition period between the current 28 nanometer node and future 22 nanometer node which will be about only one year driven by the current race for best integration, best feature set, best power consumption in the mobile arena, where Intel architecture, the Intel architecture and the ARM architecture will boost play. This transition is also very, very lithography intensive as we expect between 1.7 and two times more Immersion systems used for wafer start in 22 nanometer compared to 28 nanometer. EUV for R&D use will also contribute to 2013 sales as we will ship up to 11 systems of 3300 as we planned now for a long time. These will not contribute to production by customers. They will be only used for recipe engineering; but this will create nearly €800 million of revenue for ASML which add to the base sales for 2013. Technically, to keep our Immersion leadership we continue to enhance the overlay throughput performance of our TWINSCAN NXT:1950 system; one of the system by the way has exceeded productivity milestone and almost one of…

Thanks, Eric and thanks Peter. Ladies and gentlemen the operator will instruct you momentarily on the protocol for the Q&A session but before I hand in as always I would like to ask you to kindly limit yourself to one question with one short follow-up if necessary. This will allow us to get as many callers in as possible. Now operator could we have your instructions and the first caller please.

Thank you. (Operator Instructions) The first question comes from Mr. Sumant Wahi. Please state your company name followed by your question.

This is Sumant here from Redburn Partners. Good afternoon, guys and thanks for taking my call. My question is actually more to do with the announcement last week and your R&D expense. Given the last week’s announcement you obviously intend to increase your R&D budget by 25% I suppose starting from next year and I was just wondering how you will be recording this on you P&L and how will you be recording the cash from your customers which is being paid for this extra R&D. I mean should we be anticipating a contraction in yours operating margin next year and hence EPS as well as a real revenue benefit from this higher R&D will only be coming in a few years time? So that’s my first question and I have a follow-up.

No, I don’t think you should simulate at this moment any reduction of profitability short-term through that deal. The accounting is going to be a bit different per customer in case of a significant party, the accounting of these funding will be done below or above the gross margin line so there will be a bit of difficulty to trace all these numbers. But in as a generality we intend to manage the P&L as we have always been doing which is providing to the market a steady increase of profitability. We expect the steady increase to come through this funding a bit but also through the fact that this acceleration of new products is going to deliver higher top line. So we are going to have a higher top line, we are probably are going to have a higher gross margin because of these accounting situations. We are going to have a higher R&D gross expense because in fact we will invest more in R&D for these accelerations and a part of that will be compensated by the R&D funding but in any case we do expect a steady increase of our profitability.

Obviously on higher revenues for next year I suppose, which is

I did not guide 2013 yet etcetera, but we expect higher profitability.

Okay, and my follow-up quick question very quickly is on the demand from the NAND sector which is coming towards the second half. Is this more capacity expansion, new factories or mostly just technology upgrade and kind of within that, I mean, the bit growth you’re expecting for DRAM and NAND this year and next year will be really helpful. Thank you.

So, on NAND it will --- the pickup we’re expecting is a pickup that the customers will in fact see in their own shipment of semiconductors by the beginning of 2013. So we’re going to have to ship lithography tool and then six months or so later, you will see the chips. So, we’re talking about chips out in 2013, lithography in starting Q4, Q1, Q2 of 2013. This pickup will be new factories, yes absolutely and requirement for more machines because of the technology transitions. So, you’re going to have the two drivers, more factories, more wafers and more machines per wafer to adapt to the new technology. Your other question was?

So, in bits growth in DRAM and NAND for next year I suppose.

So, in bit growth we’re not just forecasting those. We just follow what [Gartner] says and at this moment I think Gartner, the kind of it says 40ish -45% gross for DRAM I guess and about 60% gross on NAND. If these numbers are realized, we will grow as we said. We also believe from what we heard from the importance of the new FormFactor PC and new drive and the [Gartner] numbers may be conservative. So in other terms [Gartner] number as what they are, they will sustain gross for us and it is possible that the [Gartner] numbers are conservative.

The next question comes from Mr. Janardan Menon. Please state your company name followed by your question.

Hi, it's Janardan from Liberum Capital. Just to follow-up a little bit on the memory side, you said that in the first half of next year your sales will be more to the DRAM and NAND segment and then with the foundries picking up around the middle of the year. So what kind of visibility do you have on that memory spending for the first half of next year? Do you have sort of commitments which are not yet reflected in your purchase orders and therefore not shown in your backlog or is it that you are expecting those orders to come through to you all those commitments that come to you over the next couple of quarters? And a follow-up is on EUV, you said you will hit 70 wafers in an hour by 2014 and 120 wafers a couple of years later. So what kind of throughput do expect to get to when you'll start shipping the units at the end of this year or early next year for the NXE:3300?

So regarding the commitment backlog etcetera the answer is yes and yes we have startup of orders, bookings which came driven by these goals curve so we have a bit, we have received a numbers of orders for that but most of the orders haven’t come yet. There are more commitments/production expectations. So they will come into the backlog through new bookings in Q3 and Q4. Regarding the speed of EUV so the reason why we still don't have factual data on the speed itself of EUV machine is because the lab experiments are driven in lab as well as in on the 3100 architecture which is not similar architecture than the 330 machine which is planned to be available to experiment by October-November timeframe. So only by then we will know exactly how all these technologies as you say get installed on to the “final machine”. The minimum performance from what we can see at this moment would be I would say a 30ish wafer per hour if we get unlucky on the first machine with more work to stabilize the control mechanism potentially taking three months, six months or so to get to a point where 30 wafer per hour will transform itself in 70.

So if you get to 30 by the end of this year would that be enough to convince your customers to move EUV into volume production in 2014?

We already got the orders before. We are negotiating the number, additional number; the data today is good enough to suggest that you should start investing into production in 2014. I would even say to you with the data that we have today if we were to stop any development we would get to the 30, 40 wafer per hour so without anymore development based on the new machine 3300 which is much more effective I mean energy effective and that already would not be a bad number for production. So the level of customer risk for 2014 at this moment has reduced significantly. Now don’t get me to say that 40 wafer per hour is a good number and it’s my new commitment is it’s not what I mean, but it says that the worst case situation in case a terrible situation happen by which we can’t do even any progress is already not a catastrophe.

The next question comes from Mr. Stephane Houri. Please state your company name followed by your question.

Yes, good afternoon Stephane Houri, Natixis. Two questions if I may, the first one is that you are talking already of the 22 nanometer or 20, 22 nanometer transition and you are saying there is some weakness in 28 to 32. Can you tell us where we are exactly in the current transition and you also said that 20, 22 was twice as much litho intensive that the produce generation, can you remind us how much more intensive is the 32 for the 28? And also second question on the bunch of orders for EUV can you specify if it’s for memory, if it’s only for one customer and I heard you say that you had you are negotiating currently, are you currently negotiating the new bunch of order?

Okay. So a good set of questions. So, I didn’t say that 28 was weak, I said that we are getting to the end of the buildup of 28 nanometer capacity. So if we ship all the plans upto the end of Q4, then we would have reached about 200,000 wafers per month, 200,000 to 220,000. There is a set of customers who tell us that 28 will continue well in to 2013 and there are plans at this moment to get from this 200, 220 to about 350,000 wafers per month capacity. So if I were to listen to customers at this moment, I would in fact tell you that 28 nanometer is only 70% done and you need another 30% or whatever capacity to be built on, even with upside possibility by Q4 and clearly significant shipment in Q1 and Q2 2013. So call it a potential upside for 2013. So 2028 in our press release is like we would have expected this to stabilize at 220,000 to 230,000 wafers but people are talking about more. The 20-nanometer, 22-nanometer is usually would have started in 2014 but in view of the huge drive by the mobile environment in which you have the big fight between the ARM architecture and the Intel architecture, whose architecture driving to excellence and excellence being very far away, let me try to explain. When you get to an application where you still have multiple chips, you have a chipset into a smartphone, you know that you’re forced to try to get the chipset to be integrated on to one chip. Until that continues, there will be a huge incentive to customers to try to make that leap and get to the next technology, which allows you to have the famous one-chip solution. So…

Yeah and just on your question what the difference was between the 28 and the 20-nanometer nodes in terms of lithography usage. On the 28 nanometer node, the average that we've looked at is about one or two double patterning layers for a 28-nanometer node going to about 10 at 20. So that is quite a significant increase in double patterning. Of course some of that we will compensate by giving customers access to new technology that gives them higher throughput and better yield, so some of it will be compensated through the new technology that we are shipping.

The next question comes from Mr. Simon Schafer. Please state your company name followed by your question.

Actually I had a similar question about the layer intensity, but I was wondering whether maybe you could help us understand how we should translate that sort of layer intensity into a percentage of sales computation. I think the one thing that is obvious that is that lithography has clearly been the one area in Semi CapEx overall or we just have equipment in this to a capital intensity is not falling, but the historical average I think is sort of in the 15% range, any sense as to whether that 15% is now slightly 20% or 18% or any sort of measure to the top of increase that you may expect would be very helpful. Thanks.

No, we think we will be reaching more and more towards 2022 mainly also because I think we are more intensive in lithography in logic arena, so in this and logic may represent a bigger share than it used to. So that's also a factor that tells us that we can get into a higher percentage of the total CapEx, semiconductor CapEx.

And my second question actually is on the capital structure, obviously great to see the announcements from last week and a big underpinning of your positioning, but the one thing of course that doesn't really change is the fact that when all is said and done your capital structure arguably is still relatively cash rich, if you are in a good environment technically. So any update as to what you may look to do then once the transaction is complete? Thanks.

Yes, I think, this is going to be a repeat of what we said last quarter. Basically we have the policy to return cash that we don't need and we do that through share buybacks and through dividends, whereby the latter we intend to let it grow, but when once we have decided to let it grow, it at least has to be stable at that level. Clearly what we have decided internally that we will use the full period to reassess every one or two years, we are going to reassess the policy, the capital policy of the company and we are going to review whether the ratio between (inaudible) difference as we have seen in the past whether that should remain or whether we should adapt that to different use. So that is more let’s say a further detailing of our overall policy which is the money that we don’t need, we will get back. As I said in my introductory comments we have temporarily suspended the share buyback program because of regulatory reasons. Once those have been resolved and they result from the transaction that we mentioned last week, then we will just resume share buybacks as we did before.

The next question comes from Mr. Mahesh Sanganeria. Please state your company name followed by your question.

Thank you, Mahesh Sanganeria, RBC Capital Markets. Eric, I have question on the four new EUV tools; are their commercial agreements and margins and throughput commitment and all those are they similar to the first 11 tools and these four have a different arrangement?

Good news, they are arrangement, bad news they are different (inaudible). As some of you know the 11 original tools are as is because the customers accepted to participate to this project as a R&D project; as we know this is beyond commercial relationship. This is a development of new technology so they accepted to take the 3D 11 tools as is so we can ship at the best specification we can get and that’s it; which is why we believe that we are going to recognize revenue in the next year no matter what the exact performance of the tool is. However, we mentioned clearly to the customers that we now are ready to take firm commitment on the specification. We did not get feedback from the customers; indeed they understand that we have that responsibility which solely defies in fact the fact that we are serious for production in 2014. So the specification indeed says you’ve got pay this price for a machine capable of 70 wafer per hour upgradable within two years to 125.

Okay, and then a question on the near term; as you look in the second half in terms of your order profile, will it be similar to Q1 that memory and Logic split almost 50-50 or you are saying more memory in the second half in terms of orders?

Difficult to call the bookings; as usual and as we said to you 10 times it’s a bit difficult to time the bookings depends on the customers sometimes the book was mostly sometimes the book was six, sometime the book was nine; if its Logic its sometimes longer recycle times. So your question is nearly impossible to answer. I could say that I should, we should get in Q3 more memory bookings than we should get Logic. But I would not even be sure of that. So sorry I was talking about comment, it can be anything, but the billings will be what I said which is a decrease of Logic and IDM and increase of memory.

The next question comes from Mr. Sandeep Deshpande. Please state your company name followed by your question.

Yeah, JPMorgan, thanks for letting me on. Eric, I have just a question I mean overall in the comments you made in the release this morning; ASML seems to be much more (inaudible) or bullish than the peers in semi-cap. So I mean can you make a comment on why you think you are different with your peer group; I mean is it because of your long lead times; is it your market share, so what do you think internally is the reason for that and I have one follow up?

Yeah it is difficult for me judge how our peers are seeing and what they are seeing in the specifics of the technologies, but I can guess that the lead time is a key point that we are starting to see what they haven’t yet seen.

And then just moving in terms of your existing product, it seem that lithography has been increasing as a percentage of sales for your customers, but also your customers are seeing a lot of concentration. You have seen DRAM has concentrated quite significantly over the last couple of years. Do you see that as a risk-free or ASP say two years from now, despite your own a very strong market position?

No, in fact I see the opposite. The consolidation has two values. One it creates an opportunity for customers to have R&D capability and the fear factor for us remains only whether customers can shrink. If customers can shrink and as you know, design to take the shrink, lithography will be a huge growth businesses for the future. So the fundamental is we need customers capable of shrinking; we need customers capable of R&D and therefore we are very, very happy with consolidation. This is huge compared to any commercial short term situation. The second bit about consolidation is what happened last week is in fact due to the fact that the consolidation of large customers allows us to make a point that lithography becomes a nature or it’s a weapon required by the whole industry, for the whole industry’s benefit.

The next question comes from Mr. Didier Scemama. Please state your company name followed by your question.

Yeah good afternoon it’s Merrill Lynch. Thanks for taking question my question. My first question if I may is that gross margins; can you maybe talk about the end of line gross margin assumption we should have for 2013 on the EUV machines and whether you also have maybe slightly higher or improved gross margin for the non EUV part of the business and I have got a quick follow-up? Thanks.

Yes. We've at the danger of repeating myself at last quarter I also said that the gross margin target for 2013 is the high 20s that is what we are focusing at on EUV; yes, thank you Eric just to make that sure. And we are here about two years it appears to get to the corporate average, that's what we've said before, this is still our target. Now on the gross margin of the non EUV tools, you can always if you re-look deeper into our current results and you look at our gross margins that we are currently showing that gross margin currently includes running EUV cost that we have in EUV factory that we currently have. So the gross margins stay where they are from a corporate point of view. So from a corporate average point of view they stay flat while our costs have gone up, so you can deduce from that that the underlying gross margins of our non EUV tools have actually gone up, which is true and that is being driven by the increase of the system enhancements which we sell on top of the bad tool. That has given a positive side or what I would say a positive boost to the gross margin profile of the non EUV tools and has helped us cover the current EUV running cost that are not part of cost of goods.

And then a quick follow-up to one of your statement Eric earlier; you said that a 28 nanometer for Logic the build up is more or less finished in your view, but one wireless -- some of your customers want to increase that to 350,000 wafer per month. So I am just trying to understand what exactly you are trying to say there, is this one of your customers trying to substantially increase capacity and you don’t believe them or how should we understand that?

No, I think what I tried to say is that in the current press release we are not taking care of the possibility of an upside.

And is that one particular customer or is it multiple foundries?

It’s all of the foundries.

Brilliant. Thank you very much.

The question asked and it’s not our opinion sorry that I missed it; I did not communicate our opinion. We did not want in the press release to say the €2.2 billion to €2.4 billion guidance reflect an upside; it doesn’t. Now there is always a possibility of an upside. Why would they go for an upside; what’s the rationale? The rationale is that they have under invested in 45 nanometer, 40, 45 nanometer, the 65 was a big node, 28 could be a very big node to compensate for the fact that they didn’t transfer too many things on 45 nanometer. So there is a business model out there that says in fact 28 should be bigger and we don’t have an opinion on that. We have to see whether they are right and whether in fact there is going to be so many mobile systems etcetera. If you talk to the fabless guys and they talk about the potential numbers for smartphones at 2 billion, they are going from 1.2 or so to 1.3 to 2 billion if that’s a case, yeah you can imagine that they will need much more wafers.

Just to understand, your guidance for Q4 whether what you are talking about the moment does not include this potential upside and what you are concerned about is what the macro side and in fact that the yields of 28 are going to get better?

Well, no, because we usually don’t guide just on rumors, so that’s all it is. Don’t read anything that we don’t believe in anything. We just tell you that there is a debate in the market as to how many wafers more are needed in 28 and we have not put this into our forecast.

Yeah, just to be clear, in 2.2 to 2.4 does not include any upside to this 350,000. You know we start, that’s what I’ve said.

The next question comes from Mr. Gareth Jenkins. Please state your company name followed by your question.

Just a quick question on 20 nanometer lithography requirements. I think you are now saying that the requirements as of 28 will be 70% to 100% higher. I think previously you said somewhere around 60% higher. I just wondered what the increment that you’ve learned in the last few months has warranted that increase in intensity as you look forward and then just secondly I guess, I want to may be in terms of hiring the additional R&D staff that you need, the 25% to 30% additional R&D engineers. What, I guess, problems that poses and what do you feel you can get the available labor for [450 mm] and the second phase of the EUV. Thanks.

So I can answer the 20 nano. You talked about our ratio 1.7 to 2 times litho. You know I think we’ve always said that I do not remember having said less than that. In fact, we were waiting a bit to know, exact ratio is based on the same yield and the same utilization rate than 28 because you don’t want to be biased by a difficult start and two times to 1.7 to two times is based on a good start. So if 20, 22 is a big issue where they have trouble to do yield and to do utilization, then we will have to ship even more than what we’ve planned. So this number that we have is acceptable economic target. Regarding the R&D built up may be?

Like we said we need between 1000 and 1500 engineers we don’t intend to put all those people on the payroll. As you know we have a flex model, we have dozens of companies that actually help us find those people, those are specialized engineering companies which basically [tempt] labor companies so there they are already gearing up. I think I mentioned them on the previous call that over the last 12 to 18 months about 50% of the people that we hired were non-Dutch so we basically kept them out of the European zone and so we were not confined to the Netherlands only. So it is thus end our supply chain whether it mean the flex labor supply chain that have to deal with this particular challenge but also some of that work and I think its significant part of that work, we will go into the supply chain with our knowledge and research institute partners which of course have also people available now and especially in this macroeconomic circumstances and they are glad to take up the challenge to provide us with additional engineers. So yes it is going to be and also it's going to take a bit of time until we ramp till the peak of the program with two, three years down the road probably two years which also gives us a bit of time to actually hire those engineers and hiring 750 or 800 engineers per year we have done that before. So yeah, it will be a challenge for our HR organization but in these times that’s a nice challenge.

The next question comes from Mr. Francois Meunier. Please state your company name followed by your question.

Yeah, hello it's Francois, Morgan Stanley, thanks for taking my question. I have got a very simple question and actually because as the announcement that week was also about 450 mm. Is 450 mm a good thing for ASML?

It's not a bad thing I think it's a good thing for the industry so it’s going to be a good thing for us. As you know you may be asking the question because some of our peers are concerned about 450, if you are chamber type business 450 mm is a big problem because the same chamber in the same time would process twice as many dice. So theoretically if your price is about the same because the chamber has the same price. You would cut your business by a factor two. So 450 mm would be a very negative point for a chamber type business. We are not a chamber type business, we are printing business. The printer has a big [lens] and it prints almost centimeter by centimeter or nanometer by nanometer and therefore if you had on the same wafer more nanometer where the printer will spend more time. So the machine itself you will need as many machine per square centimeter on the 300 mm base or 450 mm, it doesn’t change at all our economics. We were a bit concerned that we would have to do this work without the industry completely aligned on the specification and the timing and we would have to over invest in R&D and wait and see it attitude then as usual weight and then have the machine ready, nobody takes it and then two, three years later somebody takes it, that would have been a cost inefficient way. Now with this consortium that we built we are now pretty happy that the execution is an execution between consolidated customers, consolidated the suppliers and we can align the dates, align the money and therefore do this in a most efficient way.

So a bit of referral on this one. Will you say I mean that you probably have to redesign it because obviously it will be quite big enough as it happened before when you switched from 200 in millimeter; is (inaudible) going to change much basically for a given machine?

The price will go up by a factor about 10% if we execute correctly between the 300 mm machine and the 450 mm machine of the equivalence spec but in 2018 when those machines will be in production, the 300 machine will cost X times more than what we are doing today. So the NXT machine of 3300 mm machine of 2018 will cost I don’t want to give you a number but in the 70 million anyway. So and the 450 equivalent would cause 77 or something of this nature. So the ASP gross comes through the resolution and the performance of the machine. And not so much of the die size I mean the wafer size, the wafer size will get us an additional inflation of 10% roughly.

Okay, so we agreed to push from the biggest maker of chips today, do you think the results will follow or you are still discussing and feeling a bit scared about actually moving to 450?

Since you are asking two questions, are they joining the consortium or are they joining for 450 or both?

Well 450.

450. On 450 it is not abnormal than a leader leads and you need one to build up momentum in the industry and I think Intel has been clear that they wanted to do so and they believe that it's good for the industry, for them to sponsor that technology and that will be useful for the others to get in when in fact this infrastructure would exist again helped by Intel. At this moment, we suppose that the best date for EUV production and I don't mean [recipe], R&D and all that stuff will be 2018 or so.

The next question comes from Mr. Mehdi Hosseini. Please state your company name followed by your question.

Two questions, first on EUV, how should we think about the booking and revenue recognition, when would you start to actually include it and to get the revenue recognition, one of the key milestones and would it take more than one quarter and I do have a follow-up.

Yeah, on the revenue recognition, Eric said I think at the beginning of this call when somebody asked a similar question, we have for the first 11 or 12 units we have an agreement with our customers that they accept the tools as is because it's more an R&D project and that we basically share the risk of the introduction of that tool. So that will be when we ship the tool, we book the revenue but also we will book the order, I mean you know how many orders we have. So if you want to see when it flows into the backlog and when it goes out, it will be a turns business when we ship, so we gave you separate number of units that we have on the order. Beyond that we said the tools that we are booking today, they will -- they are currently being booked with a certain performance you know the criteria that we need to meet at shipment which will be for 2014 which will basically mean that we will have revenue recognition as we have it today. And also we will have bookings as we have it today. But for the first 12, so that’s for the next 12 months, you will see turns when we book the revenue for the first 11, 12 units.

Great and just one very quick follow up on the foundry-related booking and how the capital intensity could go up by two times and in terms of the dollar value of booking, should we expect similar trends like last year where foundries took a pause, it did have an adverse impact on overall booking, but then it came back very strong in Q4 of last year with shipment for 2012, should we assume the same kind of trend especially given the higher dollar of booking because of the increased capital intensity?

We don’t know, again bookings timing is an impossible question. We just don’t know everything is possible.

The next question comes from Mr. Jagadish Iyer. Please state your company name followed by your question.

Yeah, Piper Jaffray. Two questions, first Eric you had called out the color in terms of DRAM and NAND for the first half of 2013 and also foundry for the second half. I was just wondering, how should we think about overall immersion tool shipments in 2013 directionally given that you are concurrently going to be shipping several EUV systems? And then I have a follow up.

You want me to guide on 2013 but I will resist, so I am not going to help you. No, no, no, it’s too early. It's too early. What we said at the beginning of the call is we have a number of positive drivers. The biggest one is 20, 22 nanometer ramp. It could be a big one. As I said, it’s a multiplier by 1.7 to two times the run rate of 28-nanometer. So if it starts early enough in 2013 and you will have a run rate which is 17 double time, what will happen in 2012, then of course it will only be six months. But then in the first six months if you have NAND and DRAM, as we said we’re going to have and if the upside on 28-nanometer comes in, 2013 is a fairly good year and therefore there is growth of immersion tools. Then you add to this, the famous 800 million of EUV and then 2013 is a pretty good year. But it is too early, six months, 22-nanometer maybe delayed because of a technology issue. Qualcomm may say the price is too high. So I am not going to convert my 28 to 22 so quickly. You may have some impacts. So it’s too early to build up your firm [semi].

Okay, just a follow up on the EUV. I was just wondering how are you going to be de-risking yourself in terms of the laser source vendors. It looks like one of them is ahead of the pack. I was just wondering that given that there could be so many challenges ahead, so how are you de-risking yourself and how are you pushing the other vendors to come up to certain level in terms of the source power so that you can kind of pick and chose between those vendors. Any color on that will be great. Thank you.

Yeah, absolutely. So indeed this moment one of the vendor is ahead of the package. You know and as you also know, we are investing significantly in to this relationship for them to succeed. On the other hand it is our responsibility to derisk the situation. So there are numbers of ways of derisking, one is we are still working with Ushio and with Gigaphoton on their own business model. Clearly one of them has a business model of insertion of EUV in due time, so this is not a race of only one horse. The timing is not immediate, however it does help in the production on that because production as we said is only starting in 2014, 2015, but then in 2016, 2017, 2018 is when the unit comes in. So if you have a second player coming for production, it's a derisking situation. On the other hand also, we are building as you know a knowledge of the sources and so for us it will be easier also to know what to do in case we need to be even more involved into source developments.

Ladies and gentlemen, I am afraid, we've run out of time for this call. If you were unable to get through on the call and still have questions, feel free to contact the Investor Relations department here at ASM. We will be happy to answer your questions. Now operator if you can close the call for us, I'd really appreciate it. Thank you.

Of course Mr. DeYoung, thank you. Ladies and gentlemen this concludes the ASML 2012 second quarter results conference call. Thank you for participating, you may disconnect now.