Ladies and gentlemen, thank you for standing by. Welcome to the ASML Second Quarter Results Conference Call on July 15, 2015. Throughout today’s introduction, all participants will be in a listen-only mode. After ASML’s introduction, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Mr. Craig DeYoung. Please go ahead, sir.

Thank you, Aaron, and good afternoon and good morning, ladies and gentlemen. This is Craig DeYoung, Vice President of Investor Relations at ASML. I’d like to inform you that today we are conducting our conference call from two locations. We are participating here in San Francisco at the SemiCon West Show and with me is Peter Wennink in our headquarters and the Netherlands will be joined or are joined by Wolfgang Nickl, ASML’s CFO. I mentioned is just in case there is a technical problem when one of the call is drop we will get back to you as soon as is technically possible, although, we don’t anticipate any problems. As a remainder, the subject of today’s call is ASML’s 2015 second quarter results. Then length of the call will be 60 minutes as usual. This call is also being broadcast live over the internet at www.asml.com and a replay will be available on our website for approximately 90 days. Before we begin, I’d like to caution listeners that comments made by management during the conference call will include forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the Safe Harbor statement contained in today’s press release and presentation materials found on our website and in our annual report on Form 20-F and other documents as filed with the Securities and Exchange Commissions. Now, with that, I’d like to turn the call over to Peter for a brief introduction.

Thank you, Craig. Good morning, good afternoon, ladies and gentlemen. And thank you for joining us for our second quarter 2015 results conference call. Before we begin the call -- the question-and-answer session, Wolfgang and I would like to provide an overview and some commentary on the recent quarter and provide you our view of the coming quarters. Wolfgang will start with a review of the second quarter financial performance with some added comments on our short-term outlook and I will complete the introduction with some further comments on the current general business environment and our future business outlook. Wolfgang, if you will?

Thank you, Peter, and welcome everyone. For Q2 our net sales came in at €1.65 billion with system sales again nicely balanced between memory and logic. Memory represented 47% and logic represented 53% of systems sales. Our system sales included one EUV tool. Service and fields option sales came in at a very healthy €520 million, driven by strong demand for field options and upgrades. Gross margin for the quarter was 45.6% above our guidance and impacted by revenue recognition of one EUV tool which shipped in Q1. R&D expenses came in at €267 million and SG&A expenses came in at €88 million, both slightly above our guidance driven by accelerated product development and infrastructure projects. Our effective tax rate for the quarter was approximately 11% of pretax income. Turning to the balance sheet, quarter-over-quarter cash, cash equivalents and short-term investments dropped to €2.52 billion from €2.84 billion at the end of the prior quarter in part due to a €302 million dividend paid in Q2. We also paid €166 million during the quarter for repurchase shares. Regarding the order book, our Q2 non-EUV system bookings came in at about €1 billion. This was better than we expected in both memory and logic. With the additional booking of six EUV systems, our total system bookings during the quarter were €1.5 billion. We finished the quarter with the strong overall backlog of just over €3 billion. As it relates to our EUV backlog and our backlog in general, I do want to point out a change in our definition driven by this quarter’s EUV order, which allows us to make these orders visible to investors. Our prior definition included a timeframe of requested system deliveries within one year. That time limit has been removed at the current delivery lead time on…

Thank you, Wolfgang. As Wolfgang highlighted last quarter, we had an expectation that our strong second half of last year would continue into the first half of this year. We can now say that the strength in the first half of this year is expected to continue through the second half leading us to a record revenue year in 2015 as Wolfgang mentioned. This is clearly supported by our strong service field options and upgrade business. Our customers appear to be preparing for continued growth in their business as we see for example the two new DRAM fabs that Wolfgang mentioned continue to install capacity. In addition, we have all heard announcements of the two new NAND fabs likely to begin taking manufacturing equipments in 2016 for volume built of vertical NAND. On top of this, we see two new foundry fabs beginning to take tools in the second half of this year in support of advanced FinFET process node ramps and early development of next node logic devices. So before I move onto EUV, I’d like to share some highlights of our Deep UV and Holistic Lithography programs. Firstly, with respect to our Deep UV program, we will begin shipping this year our NXE:1980 immersion product, which is capable of 30% improved overlay accuracy versus our prior offering along with the world’s first 275 wafer per hour immersion capability. This will help our customers to deal with the increasing cost of complexity relating to multiple patterning strategies. Next to these platform improvements, we are increasingly focusing on the availability performance of our systems. I’m glad to report that this year the average availability of our worldwide installed base of more than 300 NXE tools increased to above 96%, again an important driver of affordability. Secondly, I’d like to highlight…

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

[Operator Instructions] The first question comes from Sandeep Deshpande. Please state your company name followed by your question sir.

Yeah. Hi. Sandeep Deshpande, JP Morgan. If I may ask on EUV, I mean, in terms of what you’re discussing with your customers you’ve given some indication of when the U.S. customers’ orders which are going to ship into next year, do you have any sort of visibility about the other -- other major customers and how EUV shipments would go into 2016. Clearly, you would have capacity now to do that given the opening of your new EUV factory? And secondly, my question is on OpEx, you’ve had some impact to your OpEx from euro-dollar exchange rate. Is there any further impact to the OpEx from the euro-dollar exchange rate or is the current OpEx reflecting what the current euro-dollar exchange rate is? Thank you.

Sandeep, I will answer the first question and Wolfgang will take the second one. Your question, do we have visibility on the EUV shipments in 2016, well, there is -- part of that visibility is pretty certain because we receive the orders and we know what to do. And I think they are also currently planning on the 3300s that will be upgraded to 3350 performance that have not been shipped yet. That could be part of 2016 shipment pattern. Also I would say, like I said in my introductory statements, the question of how many EUV orders we will see during the next few quarters, you should really see in the context of the progress we are making on the availability and the productivity vis-à-vis what customer’s specific roadmaps are and what their risk appetite is and their adoption drivers. Now, I think we’ve made good progress on availability and on productivity which is evidenced by our current performance after the 80 watt upgrade. So I would say if you would have a conservative view of 2016, I would say you should pencil in the same number of EUV systems that we have seen in 2015, which is a combination of the 3300s and 3350s. We’re a bit more positive and that we’ll have to show over the next two quarters as in the second half of this year. That could run up and that could run up to approximately 10 systems. So anywhere in between will be shipped today in 10 units. That is what our best estimate is today. Don’t forget that the real ramp is in logic first which is basically 2018 production for our customers which means 2017 shipment. So the real shipment ramp will be in 2017 and 2016 will be you could say an extension of the 2015 development work that our customers are currently doing.

Peter, just to clarify, you are talking about shipments and not recognition, correct. So when you say that 7 to 10 or whatever that is shipments and not recognition?

Yeah. As you know, what is important is that those tools get shipped because once they get shipped and it’s €100 million tool, customers really use them. And usage is extremely important in the learning curve and in the adoption of EUV technology. So shipment is very important. So the -- all of the priorities to shipment first and get the cash in which is part of the orders and then we do rev-rec which is you could say a discussion we will have with the accounting community, which -- and then Wolfgang can go into that -- into more detail but it just means that you need to go through the list of agreed performance criteria, you need to tick every box. So in that order, we need to ship first, that’s the most important for learning curve and for the adoption, and then we get the cash and revenue recognition will be with the orders.

Thank you.

Sandeep, I will go into OpEx question. Yeah, if you look at like where we started the year in R&D around the 260 level and then in SG&A in the low 80s or so and now we’re guiding to 275 and 90 respectively, it’s indeed true that the maturity of that jump comes from FX effect. Like if you looked at R&D alone, I think we have about 25% or so our spending in the U.S. and with the exchange rate going from the 1.30s to 1.10 that probably accounted for two-thirds of that jump from 260 to 275. But the balance is really in accelerating investments in future technology before we get some of the wind down of investments in existing technologies. SG&A very similar and FX impact of course and we’re investing in certain areas, for instance in business development teams for field options and upgrade sales. We are completely focused on the 2020 model that we published last November and we plan on being at about 13% of revenue in R&D and about 4% in revenue for SG&A. So, I think we are in good shape. I want to mention on the FX effects, that of course as a company, we also have positive effects from FX because we are selling field options and also services and particular services abroad in local currency that’s about 10% of our revenue in total and there we have a positive impact on our P&L as well. But net-net, there is probably a 1 percentage point on the net income that we are impacted with from FX. I hope that clarifies it, Sandeep.

Thank you very much.

You are welcome.

The next question comes from Mr. Korschelt. Please state your name and question. Go ahead, sir.

Yeah. Thanks for taking my question. It’s Kai Korschelt at Merrill Lynch. I had two. The first one was on EUV. So, Peter, just to make sure I understand correctly, you are saying that demand and orders will depend essentially on the performance over the next six to nine months. But my understanding is the availability is already moving up to 70% now with what is essentially an old tool and the 3350 will have, I guess, material improvements in availability in source power. So my question is by the time this tool ship, why would the major logic customers, when they see those improvements compared to the 3300 that they are using today, not all of those tools, is there anything really that you think the 3350 will not be able to deliver, let’s say in the first 12 months of shipments that your main customers need? That would be the first question. The second one would be for Wolfgang. Just on the balance sheet, so what I can tell, it’s been a -- not a great cash flow quarter because obviously the dividends been paid but you still are above that €2.5 billion threshold, I think that you have mentioned to us. So is it still right for us to assume that any cash that you generate potentially from here onwards will find its way back to the equity holders either through buybacks or the divi? Thank you.

Okay. Yeah, perhaps the shortest answer is probably on the second question, so why don’t you start?

Yeah. I will get started, Kai. Yes, the assumption is right. We haven’t changed anything on our return policy. We have established that minimum [gross] [ph] cash balance that we think that we need to run the business. It’s around €2.5 billion. Last quarter indeed, the cash balance went down by some €300 million and that was like you mentioned it was purely a function of share buybacks and dividends. There was a nice free cash flow in the quarter as well and the policy remains intact. We look first at dividends on excess cash of over €2.5 million and our goal there is a stable or preferably growing dividend and then the balance, we use for share buybacks. We have €1 billion there about program announced in Q1 and we have executed €285 million against this program in the first two quarters. So, same policy as we had before, no change.

Good. And on your question, basically, with all the pros that we have made in the introduction of the 3350, why wouldn’t customers support those tools? As it is a very good question and I think I would ask the same question. Why wouldn’t they ask and why wouldn’t they order those tools because we are making very good progress? Now, I think the answer is we’ve had -- in the past couple of years we had many expectations and promises on the reintroduction. We’ve as a company now basically over the last month after two years said we are going to tell you and to give you EUV guidance on what we actually see. Now what we are seeing is a significant improvement, I would say in availability and in productivity. So your assumption as why will they come is a very fair one. And on the 3350, we are still ready to ship the 3350. We have the expectation that the 3350 will perform better than what we have in the field today because you are correct, there will be higher productivity, with the better availability, with in-situ cleaning in there, so this is indeed our expectation. But what we do not want is to give you all our expectations. We would like to guide you on what we actually see and like I said, if you want to be conservative and think that progress is going to be slow you say well, perhaps it’s going to be 2016, an extension of what we saw in 2015. Maybe you are a bit more positive than you would translate higher numbers for next year. And if you have higher numbers for next year you also need to book the orders. Now given where we are today and you know me a bit, I’m more of an optimistic person. But we are not here yet to give you a specific numbers on orders and when orders will come and when we will ship.

Great. Thank you.

The next question comes from Ms. [Maniker] [ph]. Please state your company name followed by your question.

Yeah. Hi. This is C.J. Muse with Evercore ISI. I guess first question. You talked about potential upside in Q4 led by logic. Curios if you could provide a little more color there as to what the main driver in magnitude could look like? And I guess as a follow-on to that, as you see the 1980 layer in, presumably beginning in Q4 and then throughout calendar ’16 and beyond, how should we think about the uplift for ASPs?

Yeah. On the potential upside, logic is really driven by the fact that when you look at the announced node-to-node transitions, we make it less specific and say that’s the 10 nanometer node transition. What we have witnessed closer to on the ’14 and frankly, we see an extended period of customers take for development of qualification of those nodes as it relates to the timing of the ramp. So it just takes longer to go to the ramp of that node, which effectively means if the ramp of that node is a given then you need more development time to bring the shipment of the early development tools back in time, so you need them earlier. And this is where we see the upside. When we talk to customers and they talk about that numerous node, they just take more time to do the development and the integration work and that means that adds an upside that we are seeing for the second half of the year. So it really involves technology transitions earlier acceptance and earlier delivery of those tools because they need more time.

You wanted to cover the ASP.

I can cover the ASP. I mean, I can’t give you an exact number but you should assume C.J. that the ASP is up. You see in our press release for instance, the tool, 1980 provides for a 30% improvement in overlay and holds a better throughput of 10% to 275. That significant value to the customer and as like we always do, we share that value and so you should assume that that tool has a higher ASP, a few million than the 1970.

Great. And then I guess as a quick follow-up on EUV and I know there is a lot of timing and certainly and you guys are more focused on shipments and the ramp in 2018, but wanted to get your view on what would be sort of a low end number and a high end number in terms of revenue recognition on the EUV side in calendar ’16?

Well, I will take that. It’s Wolfgang. I won’t be able to give you a number today. I can explain to you a little bit about the complexity and what we are going to do in the future to provide you some guidance. Like we said, we expect to ship seven systems this year. Of that only, one we will recognize. So, you have the opportunity to get some revenue recognition in ’16 of these tools, less than we will ship other systems like for instance the upgraded 3300 and you can expect to get some revenue recognition there as well. Now as it relates to the 3350, as we launched this tool, the revenue recognition will actually depend on a few factors. It will of course depend on the shipment acceptance but it will also depend on certain performance milestones, plus we have the revenue and we’ve got to attribute it to the system and related services. So it’s fairly complicated and it’s actually made more complicated that every customer agreement looks different from each other. So it’s very difficult if you don’t know -- if you can’t go into the detail on all these schedules and milestones to give you a forecast and thus you can imagine, they are also not in cast in stone from a timing perspective. So what we are going to do is we are going to give you an indication as we start shipping these tools what the timing and the euro amount of the revenue recognition will be. The first one of these could go as early as this quarter. So you could expect us in Q4 to talk about this particular tool, how the revenue recognition will go and then as we ship our four tools in the fourth quarter and January, I’m certain that we will give you some specific guidance but can’t do it today. And I’d also like to mention like this temporary situation, ultimately, the objective is of course as the technology has matured that we go and recognize revenue in the same fashion as we do it for our EUV system. Sorry to not be specific about the numbers, but that’s kind of the complexity behind it, but you will see us giving you more specific guidance as these tools actually shift.

Makes sense. Thank you.

You are welcome.

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

Yes. Thanks. This is Gareth Jenkins, UBS. A couple if I could. I just wanted a bit of clarification piece on something that you talked about. Just on the 10-nanometer insertion for EUV, presumably the design window is closing for that in terms of insertion. I just wonder whether you need further -- whether you expect further orders for EUV to support 10-nanometer insertion, or should we just now expect a kind of full insertion of 7-nanometers across the three main logic customers? And then I have a follow-up.

Yes. I think it is clear that I think the insertion is not focusing on 7. However, things are a bit fluid in the sense that when you talk about 10-nanometer and you listen carefully to what customers say about 10-nanometer node, they have also been clear public statements by customers about phases in that 10-nanometer node. You have the first phase and second phase and then we will have node nomenclatures that are changing. But from our point of view, we only talk about 10-nanometer node, it is a certain picture or half picture and there could be several phases. Now I am in this particular case and given the complexities of 10-nanometer production using very complex multi-patterning strategies, I would never rule out that with progress of EUV the way this today and if we get accelerate that progress that there is a customer that says listen in the last phase of 10-nanometer node, I am going to use EUV for two reasons. One, it might be beneficial to reduce complexity at that moment in time and you have to learn, you have to learn for 7. So I am not ruling this out. There is going to be a function of the progress that we are making over the next one or two quarters.

Just on nanometers, so you presumably have the half to shrink you’re talking about, maybe something like 8-nanometers. So maybe EUVs no insert to 10 but something like half picture 8, is that sort of thinking?

Well, the half picture stays the same, whether it’s 10 or x wherever that node is going to be, 9, 8, 7, 8 and 8.5, 10 minus, 10x, I mean whatever customers are going to think of a node nomenclature. Effectively, it’s the second phase of the 10-nanometer node, but the picture, the half picture is going to be the same. But like I said, this is going to be a function of progress that we are making, the complexities and the yields that customers are experiencing in using DPP multiple patterning strategies, that is going to -- those two things together will determine a potential if you have to say the second phase introduction, and I am not going to say that that’s done. With 7-nanometer, I think it’s clear. I mean we see very clear announcements from customers that say we are going to use EUV at 7-nanometer. But it is really the performance and their complexities that they are engaging or running into that are going to determine a potential second phase introduction and that is for learning also.

Right. That’s very clear. And just on slightly shorter-term question on, you mentioned that you’re seeing earlier development in H2 '16 than maybe previously. Does that mean that you’re actually seeing some pull-in effectively -- some pull-in business from H1 '16 to H2 '15 that we might expect it a bit later? So I am asking for H1 '16 guidance, but can you help us out with this phasing through into next year?

When you look -- I think when you look at the potential upside that we are talking about, that’s really like I explained earlier, that is because of the development and the integration time for the next nodes, the 10-nanometer node is more complex and takes more time. So you see as compared to the original assessment of when that we need the early development tools which would be the first half of 2016. We see a potential of that being pulled into the fourth quarter of 2015, that is correct, but that’s technology transition. With respect to capacity, like we mentioned in the introductory statements both in DRAM NAND and logic, there are several new fabs out there that will take tools and that will tools for the most advanced nodes and that will definitely ramped the first phase. Now that first phase will happen, that’s why we are positive or we feel comfortable about the second half of this year, that will translate into 2016 ramp and the speed of that ramp we don’t know yet. But the fact that those are new fabs that there have to be ramping of first-line gives us a lot of confidence over the next couple of quarters.

Thanks.

The next question comes from Mr. Arcuri. Please state your company followed by your question.

Cowen. Thank you. I guess my first question is, Wolfgang, I want to make sure that the EUV systems that you’re putting in the backlog this quarter, these are 125 wafer per hour spec tools. So the ASP we should think about it like a €110 million and that’s about the ASP that we should think about for all of the EUV systems that you booked from here on it. Is that right?

The backlog includes some of the 3350s, but then there is also some of the next generation 3400 included there as well. And we set before the 3350 list price is somewhere in the mid-90s and 3400 would be 110. And then you got to be a little bit careful when you look at it in the backlog because what you got to do is, you got to take the ASPs and split it over several elements of things that you did live up. So there maybe a little bit that get that located to a service that you deliver with installation or a warranty. So you got to be a little bit careful with the backlog ASP, but I can tell you for the 6 tools that we took last quarter, the backlog ASP is somewhere in the low 90s.

Low 90s, okay. Great. And then I guess I also had a question on Holistic. And Peter you said that attach is now up to a 100% and I am assuming you are talking even in memory. And so I guess my question is one of the 1.9 billion in service you are going to do this year, how much of that is going to be Holistic and YieldStar and sort of what’s the right opportunity for that going forward? I guess I am thinking about what gross margins are going to be on your margin systems because it looks like in June if I assume zero gross margin that the non-EUV gross margin is sort of 47.5 and it looks like maybe if Holistic is that strong, you could get to 50% maybe next year or the year after? Thanks.

I think on the margin question, Wolfgang are you going to take that?

Yes.

I think on the Holistic business, yes, 100%, it’s 100% attach rate. That is definitely too for advanced logic but now also increasingly for advanced memory and especially DRAM. Also there you see multiple-patterning strategies. You see multiple-patterning base strategies which basically also need the control software that we can provide together with the scanner to make sure that customers can control that process and they can make a deal. So yes you see it now also in memory and that attach rates will probably expand over time to the entire product base and to well I would say across industry sectors. Wolfgang, do you want to take the margin question?

Yes. As it relates to the gross margin, it’s important to know first of all as we -- when we report revenue, we report in systems and we report in second category field options and services. For the Holistic Lithography it depends on whether the customer orders it with the original system the option, then it gets reported in the system. When it’s later on order as an upgrade option, then it will be in our field options and services. So when you hear us talking about Holistic Lithography achieving over 500 million last year and thus aiming for 1 billion by 2017, you will actually find that in the those buckets I think that’s important to know. As it relates to the gross margin we expect that before there is a strong software content in that business and there is some hardware and there with the YieldStar metrology tool, but the blended margin is somewhere in the mid 70s. So as we approach the 1 billion in 2017 and as Holistic outgrows the rest of the business, yes it’s going to be accretive to the gross margin over time. I don’t think I have an exact number to share with on what it could be scenario, but in general it’s accretive.

Okay. Thanks so much.

You are welcome.

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

Yes. Thanks for taking my question. Mehdi Hosseini, Susquehanna International. My question goes back to some clarification. You’re increasing the age of backlog for EUV system. Now it seems like going to extend more than 12 months. You can -- you -- it seems like you also have incremental confidence on seeing a double-digit EUV shipment by 2017. You have a capacity of 24 systems per year by then. Why -- can you -- in that context can you help us understand what is your base assumption for the mix of these systems that are going to be shippable in ’17? And what I mean by mix either on the logic side you can help us seven versus 10 and would there be any DRAM that will be included? And the fact that your IDM customer -- U.S. based IDM customer has a stepped up and placing order, also mix as wonder, if they have revisited insertion and attend or is it still going to be at 7-nanometer and I do have a follow-up.

Well, on the last question, we’re not going to be specific on that any customer, so that’s unfortunate Mehdi here and that’s I don’t think it is really appropriate in this call. On the split in 2017 logic, DRAM and the potential, well, like I said in my introductory statement, the majority will be logic. However, if you look at the DRAM roadmap in 2018 we will be in the mid 1x DRAM, I don’t know, which is easy territory. So we are indeed seeing a potential for a 2017 shipment which also includes advanced DRAM. But the majority will be logic as well and the next going to be, if you take 24 units is going to be significantly over 50% is going to be logic, which is microprocessors and foundry. And I would say it’s a minority, I don’t know, if you wanted to get a number to be 75% to 80% logic and the rest DRAM.

And would you expect majority be like 7-nanometer logic or would there be a mix of…

Yeah. I think it’s going to be 7-nanometer, yeah, largely, yes.

Okay. And then, my second question has to do with your core business. The bookings in Q1 declined 26% on a sequential basis in Q2 is down low single-digit. Is this the kind of a base booking that would be required for technology investment and if there is any capacity coming in later on it would help with any kind of improvement in booking? Is that a fair way of thinking about your current booking?

Yeah. I think typically, I think, we probably sound like a broken record in this sense. But we’re going to repeat how bookings are being administered in the company. We only have a handful of customers. And actually we plan our production and our shipments to customer base on an agreement that we have with the operation executives of the customers and looking at their ramp schedule and then we agree with them that we have a certain production capability there to do the shipments. And then the orders are almost there administrative follow-on part of the process. Just to give you an example, with a few customers we have volume purchase agreements that span a node that basically you have a whole node agreement, which is a lot more -- you have said under the volume purchase agreement. And they will just follow-on with orders based on the lead time that we give them and they will be very discipline on giving us the orders taking into account in the lead time. With all the customers we have annual volume purchase agreements. And with other customers we have, let say, purchase -- volume purchase agreements which span at the age of two years. So when you have an annual volume purchase agreement and you negotiate that for a three, four, five, six months and it comes in than the orders will follow, because then you only have six months left. So they get an input of orders as you could say, is a big lump of those orders in one quarter. So what I’m trying to say is, don’t put too much emphasis on the order intake, over a longer period of time you are correct, it needs to reflect our future business. But a quarterly order intake is not indicative of our business going forward and might be almost deceiving, if you understand how the ordering goes in our business. More important is, I think, our guidance on what we believe that we ship that is based on the agreements with which we have with operational executives of our customers.

Got it. Very helpful. Thank you.

The next question comes from Mr. Andrew Gardiner. Please state your company name follow by your question. Go ahead, sir.

Thank you. Good afternoon. It’s Andrew Gardiner with Barclays. Peter, are you do seeing some more optimistic now than you were earlier in the year? And it seems that despite some border concerns about the end markets and the cycle investments clearly continuing? Your optimism now seems more around capacity additions so as we come through the balance of the year rather than sort of a very high level of a technology race and we can see this is in the tool mix as well, looking at 2Q you had a high level of KrF shipments for example. But as we then move into next year, it seems that you’re talking much more about technology driven year, particularly when thinking about logic beginning the initial investment at 10-nanometer and that requiring a high-end emersion? I’m just wondering is this a fair characterization or perhaps too much of a generalization and so what your expectations of your or those of your customers in terms of capital intensity for next year? I’m just wondering why wouldn’t your product mix move more towards the higher end in 2016 relative to where we are in 2015, if indeed that technical complexity increases?

Yeah. I think this is generally, the ASPs are going up and as you have seen it that is just a reflection of the increase need for tools that can help our customers address the complexities of the next nodes and whether its on improve overlay, higher productivity and was an earlier question it will translate into a higher ASP. So I think that is -- that should be the case. Now, to your points, yes, I think, its too much of a generalization and to try to split the shipment better, I think capacity and technology, because when we look at the capacity additions, they are not is existing fabs, they are in new fabs, which all of those new fabs are addressing the most advanced nodes in those sectors. So that in fact is technology. So I would definitely say that the first phase ramp of those fabs is a technology insertion but they have to add capacity because it is a -- it is basically a new fab. So for this year this is what’s happening. We have two DRAM fabs taking those tools. We have logic fabs taking those tools. That is driving our business in the second half and that they will happen. Now we have 2016, it’s too early to give you guidance on 2016, but customers generally once they have gone through the first phase, they just look at where they are and what the end markets do and they will time the remainder of that ramp to fill up the fab. And that you could argue is then a capacity demand and I would also say, this is how we actually look at it, because 14, 16-nanometer logic is now ramping and we are now shipping. How much of that capacity will be filled in 2016 we -- that we don’t know yet. Same is for DRAM. So I would say, it probably just the other way around a bit. I mean, what we’re currently seeing is more technology capacity additions and whereby 2016 will be driven by the situation in the end demand and that for us still opaque. We don’t know that and I think our customers don’t know that either. So we’ll just have to wait and see.

Understood. Thanks for the clarification.

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

Yes. Thanks for taking my question. The first question is about the new machine, which is about to ship the 3350. So how it is going to work, I mean, you’re going to ship the machine or back the machine, plug it in, put the floppy disk, switch it on? What should we expect from this machine? Is it going to start at like 500 wafer per day, 800, 1,000, what the next data point on this new machine? Thank you.

Yeah. We basically the 3300 that we now have has an upgrade package which brings it to 80-watt. The 3350 ships with a new drive laser which brings it to 125-watt, so that is a productivity increase from 80 to 125-watt, which you could say is almost the linear impact on the productivity. So maybe 500 wafers per day on 3300 80-watt than you can calculate, you don’t either need the floppy disk for, therefore, that you can calculate on the piece of paper to, mean -- what that means for the productivity. And as you know, we have a target of 1,000 good wafers per day next year, so we need that productivity of the 3350. Now, it is not only productivity but it’s also availability. Now we have a 70% target for this year, but 3350 with all the new and -- I would say options on it, which includes a better stability of the droplet generator, which includes [indiscernible] cleaning, actually brings the targeted availability to 85%. Now, so if you go from 80 to 125, which gives you more productivity, you get a availability that goes from 75% to 85%, gives you more productivity. You can just calculate that, the 1,000 good wafers per day is a very reasonable and good target for 2016.

Right. Very good. Now a more longer term question, there has been quite a bit of news flow recently about China, even rumor of the Chinese company wanted to buy Micron this week. It’s pretty clear that the Chinese government wants to get more involvement in the semiconductor industry. Do you expect China generally to become a bigger customer of yours going forward?

Yeah. I think you just mentioned it. That could have given that -- what you just said it could have been my answer. I mean, yes, it’s clear that there is more focus in China on building semiconductor capabilities both in logic. And also I think that the statement is clear that they want to be somehow involved in advance memory. Yes, I think China is become a bigger market but don’t exaggerate it here. I mean, there is still -- when you think about logic as compare to the leading edge merchant makers, they are two generations behind and those was not slowing down. As the matter of fact, you could argue that 10 nanometer is actually a big pull in. So, yes, there is a lot of attention. It’s more attention. I spend more time in China than I did the years before. We have more interactions with our customers. 28-nanometer is now ramping in China, is our 28-nanometer logic. There is definitely more activity but the -- like I said, the generations are still two generations behind. And in terms of leading-edge memory, there is a lot of leading-edge memory in China, but that’s in NAND and in DRAM and that’s not in Chinese ownership, that’s in Korea ownership. So, yeah, China is moving. But don’t think it’s going to be a blow out. It’s going to be gradual growth over the next 5 to 10 years.

All right. Thank you very much, guys. Thank you.

Thank you.

We have five minutes left. The next question comes from Mr. Amit Harchandani. Please state your company name followed by your question.

Thanks. Amit Harchandani from Citi Group. Good morning and good afternoon. Two questions if I may. First question relates to your field options and service fields. You see an elevated level in this quarter and I’m wondering to what degree is this an outcome of increased to you by customers as we move, within the node or in a cross node? And how should we think about service and field options sales going forward versus the €2.5 billion to €3 billion target that you have in your 2020 model? And the second questions regards to EUV. We’ve talked about throughput and productivity, imaging and over we seem to under at acceptable level, could you give us an update on the defectivity aspect and where is that trending versus customer expectation? Thank you.

Okay. I will take the EUV defectivity question and the growth drivers for field options and service and I think Wolfgang can then talk about the 2020 target. Basically, I think you are referring to our model that we showed at the Investor Day last year. On the EUV defectivity, this is currently not a -- well it’s not entirely to. There was a defectivity worry, which largely had to do with mask induced defectivities. I think with the introduction of the EUV pellicle, which we talked about last quarter, basically those worries are gone. It’s now making EUV pellicle the mountable and demountable pellicle bring that to industrial state and that will take care of that now. Clearly, there are resist-induced defects, there are process-induced defects. This is why customers need those in the development tools. This is why they are running hundreds and hundreds of good wafers per day today to figure that out. Now, we do not get the feedback from our customers, that is a showstopper. This is what I would say it’s the normal development activities that customer have to do before they go into a production ramp. So we don’t have those numbers. And even if we would have those numbers, I would not give them to you because this will probably go to the customer pretty information, but it’s not a major concern and especially since we have now a mask solution. Now on the drivers for the fields option and service growth, very clearly it seems some base that grows. It is the drive of the customers to look at their installed base and say how much CapEx have we still on the balance sheet and how can we reuse that or how can we use it more efficiently by either getting more wafers out, doing productivity upgrades, doing overlay and focus improvements. So that they can use those machines for the next nodes, that is the big driver and it includes upgrades. So very advance upgrades that includes a lens swap, a new optical system, could be over €20 million to €25 million. Now those are drivers for the field options and service sales. I would call it installed base management. That is what customers are focusing on to have better capital efficiency. Wolfgang, do you want to take the target number?

Yes. First of all, also on the reuse, yes reuse is enabled by us through these packages and therefore we have also modeled that in our 2020 revenue numbers and know the assumptions have not changed as it relates to reuse in our field options and services. The 2.5 million to 3 billion that you refilled to in the different scenarios, it will depend a little bit on like as I explained early on an earlier question on whether customers order Holistic options right with the system or whether they do options later on. But again at 400 million in the first, 520 in the second, and that being stable you'll be somewhere over 1.9 billion. But still quite a bit of growth left to get to the 3 billion level. We feel very comfortable about it. It’s good business for us. It’s approximately at the average of that was margin of our systems business. So we believe that still a good target range for now.

Thanks, Wolfgang.

You’re welcome, Amit.

Ladies and gentlemen, with that, our 60 minute call time is expired. For those participants that weren't able to ask a question and have a need to do that, please feel free to contact Investor Relations Department with your question and we will get back to you as soon as we can. And with that, on behalf of ASML's Board of Management, I’d like to thank you all for joining us today on the call. Operator, if you could formally conclude the call, I’d appreciate it. Thank you very much.