Thank you for standing by. Welcome to the ASML 2020 Fourth Quarter and Full-Year Financial Results Conference Call on January 20, 2021. 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. I would now like to open the question-and-answer queue. [Operator Instructions] I would now like to turn the conference call over to Mr. Skip Miller. Please go ahead, sir.

Thank you, operator. Welcome, everyone. This is Skip Miller, Vice President of Investor Relations at ASML. Joining me today on the call is ASML’s CEO, Peter Wennink; and our CFO, Roger Dassen. The subject of today’s call is ASML’s 2020 fourth quarter and full-year results. The length of this call will be 60 minutes and questions will be taken in the order they are received. This call is also being broadcast live over the internet at asml.com. A transcript of management’s opening remarks and a replay of the call will be available on our website shortly following the conclusion of this call. Before we begin, I’d like to caution listeners that comments made by management during this 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 found on our website at asml.com and in ASML’s annual report on Form 20-F and other documents as filed with the Securities and Exchange Commission. With that, I’d like to turn the call over to Peter Wennink for a brief introduction.

Thank you, Skip. Welcome everyone, and thank you for joining us for our fourth quarter and full-year 2020 results conference call. I do hope all of you and your families are healthy and safe. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the fourth quarter and full-year 2020, as well as provide our view of the coming quarters. And Roger will start with a review of our fourth quarter and full-year 2020 financial performance with added comments on our short-term outlook. And I will complete the introduction with some additional comments on the current business environment and on our future business outlook. Roger, if you will.

Thank you, Peter. Welcome everyone. I will first review the fourth quarter and full-year financial accomplishments and then provide guidance on the first quarter of 2021. Net sales came in above guidance at €4.3 billion, primarily due to additional DUV system revenue and upgrade business opportunities. We shipped 9 EUV systems and recognized €1.1 billion revenue from 8 systems this quarter. One system was shipped with a new configuration that needs to be qualified at customer site, so revenue will be recognized after site acceptance test in early 2021. Net system sales of €3.2 billion was again more weighted towards Logic at 72%, with the remaining 28% from Memory. The strength in Logic drives both DUV and EUV revenue and the recovery in Memory business is mainly driven by DRAM. Installed Base Management sales for the quarter came in at €1.1 billion, above guidance, showing continued strength in our service and upgrade business. Gross margin for the quarter was 52% and was above guidance due to the additional DUV immersion and upgrade business. On operating expenses, R&D expenses came in at €556 million and SG&A expenses at €152 million, which was slightly above our guidance. Net income in Q4 was €1.4 billion, representing 31.7% of net sales and resulting in an EPS of $3.23. Turning to the balance sheet. We ended the fourth quarter with cash, cash equivalents, and short-term investments at a level of €7.4 billion, which is significantly higher due to customer down payments and early payments which materialized in 2020. Moving to the order book, Q4 net system bookings came in at €4.2 billion, including €1.1 billion for EUV systems, net six, and a very strong DUV demand. Order intake was largely driven by Logic with 78% of bookings and Memory the remaining 22%. For the full-year,…

Thank you, Roger. As Roger has highlighted, we had a very strong quarter resulting in another solid year of growth in both sales and profitability, driven by strong Logic, recovering Memory demand and a significant step up in our Installed Base revenue. We were able to achieve an 18% top line growth and 37% growth in profitability despite some unique challenges with having to continue to run our business through the pandemic. I think, this all thanks to our employees and partners who have done a remarkable job executing in this challenging environment. However, we continue to remain vigilant as this COVID-19 induced crisis is not behind us yet. Following a strong 2020, we currently expect another year of good growth in revenue and profitability in 2021. In Logic, we expect another very healthy year driven by a further broadening of the application space fueled by the global digital transition. Customers continue to see strong demand for advanced nodes, which includes the secular growth drivers such as 5G, AI, and HPC. In addition and also driven by the digital transformation, we are seeing a strengthening demand for the more mature nodes, across a wide variety of markets such as consumer, automotive, and industrial. While we are still very early on in the year, we think that with these demand drivers on full throttle for advanced, as well as mature nodes, we expect Logic revenue to be up at least 10%, from an already very high number of €7.4 billion in 2020. In Memory, customers have indicated that inventory levels continue to come down and expect a further tightening of supply throughout the year. As is the case with Logic, the digital transformation is also fueling Memory demand across a broadening application space. Customers continue to see healthy demand in data…

Thank you Roger and Peter. The operator will instruct you momentarily on the protocol for the Q&A session. Beforehand, I would like to ask 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, operator, could we have your final instructions and then the first question please.

Thank you, sir. [Operator Instructions] The first question is from Mr. Joe Quatrochi. Please state your company name, followed by your question.

Yeah, thanks. It's Wells Fargo. I was hoping to get some color on your Memory business and the demand you're seeing there. You know, I think last quarter, you had talked about 30% growth for this year for Memory revenue. But you came in a little bit below that. So, I guess did something change there? And then how do we think about the follow through to that into 2021?

Thanks, Joe. No, I don't think anything really materially changed there. In fact, the fact that we, kind of missed the 30% was, in essence, the reallocation of a few tools from Memory into Logics that really had to deal with where did the tools go by the end of the quarter. So really had to spread over Q4 versus Q1. So, not a systemic reason. The momentum that we saw building up in Memory, in the course of last year, we think is continuing. And that has to do with the things that Peter talked about, you know, we see the bid growth, the bid growth developments, the 20%, for DRAM, a 35% for NAND, and, of course, that's driven by demand and data centers. It's driven by, you know, what we see in terms of Memory being designed and used in consumer electronics. So, we see those underpinnings continue. We also see that the utilization of the lithography tools is at a very, very high level. So, you know, the demand momentum that we saw already in the second half of 2020, we believe sustained into 2021. And that's the reason why we, again, forecast a 20% increase there for 2021.

That's helpful. And as a quick follow up, in the prepared remarks you talked about, you know, some supply chain limitations potentially on the EUV side that you're seeing, I guess, does that change your expectations for producing 45 units to 50 units or your capacity to do that number of units this year?

I think our capacity, our capability internal in the Netherlands in Veldhoven to build 50 systems is there in terms of people and square meters, but we have to build those systems out of modules, which we don't produce, it's in the supply chain. And it's just a reflection of what happened last year in Q2 and Q3 were, you know, clearly our key foundry customer came back and said, listen, our key customer for N3 is now blacklisted. So, we cannot ship. So, we need to adjust our 2021 outlook for EUV systems, which was followed by another customer said, well, we're going to delay the roadmap, which also means that this will be pushed back one year, which actually led to a situation where we actually reduced the number of planned system 2021 for EUV because customer said, these are the two reasons. And they were two big customers. So what we did, we went to the supply chain and said, sorry, we need those lenses and lasers, very expensive pieces of equipment. We then, actually, you know, [laid them], you need to realize that the integral lead time between the installation of EUV tool and the start of a module production is 20 months. So, when you [have seven, eight months], yeah, you know, and then finally, customers come to the realization that is not as bad as they thought, and they want those machines. And we have an issue with getting the modules on time. And that's the only issue. The only issue is – it’s just a he result. It's a function of the fact that our customers change their mind, well in Q2, and Q3, and then we change their mind back in Q4. And, you know, today. But there is nothing we can do about it, which actually means that we're all prepared to do 50 units next year. And as I said, 2022, it will just shift to 2022. Yeah, so it's there – so, as you could say, it's supply chain limitations by design, because you know, it's because the customers told us, we don't need them, and then coming back, oops, we might have been wrong.

That's helpful. Thank you.

Next question is from Mr. Alex Duval. Please state your company name, followed by your question.

Yes. Hi, it's Alex from Goldman Sachs, and congratulations on the very strong results. Quick question on the CapEx spending backdrop, and how that feeds into your guidance. Obviously, TSMC is a very large CapEx vendor, and they've guided over 30% CapEx growth this year, yet your guidance, although very strong is for closer to 12% on revenues. Clearly, you also have other verticals, you also have other customers in the mix, but I wondered if you could give a little bit more color as to any areas where at the moment, you're being more prudent on your guidance, but where you could be a bit more positive over time and what you need to see, to get more constructive?

Yeah, you know, I think TSMC gave a range, 25 billion to 28 billion, hey great. We plan our business based on what they ask us, and as you know, you know, TSMC has been asking us, you know, in 2020, on several occasions to ship very different numbers for 2021. So, this is what I'm saying is it's in constant flux. So what they are asking us and telling us that they would, you know, like, from their point of view, has a, you know, range, and we need to be able to respond to that. So, I don't think you can draw any direct conclusion from the TSMC CapEx numbers. Directionally, yes, but not in absolute terms. Now, having said that, I also said that I do believe that we see upsides to the Euro calculated 12%. And an upside is clearly there. But I think that upside that comes out of the Logic space in China. And of course, you know, that will happen if the current export control regulations stay as is. Now, you could argue, so why do you – why are you so conservative? Well, simply because what we've seen over the last two months in terms of regulations that we had to deal with, and that basically were issued, rather suddenly, you know, there is a level of conservatism on our side, I said, we're not going to add that upside yet to your 12%. Because, you know, we've been – we've got hurt but I mean, we've been surprised on a regular basis by all these new regulations that do have an impact on our business. So, nothing changes and stays as is. There's a significant upside to what we told you today. But then everything needs to stay as is, and I think we made it clear in our prepared remarks.

Right. Many thanks.

Next question is from Mr. Mehdi Hosseini. Please state your company name followed by your question.

Thank you. It’s Mehdi Hosseini from Susquehanna International. Two questions. Peter, when you look in the longer-term, looking at 3 nanometer transition, I understand the opportunities in the near-term, but I want to hear more about what you think in as we migrate to the second generation of [N3]? And I want to better understand how change of trends is to architecture like Samsung migrating to get all around? And also introduction of High-NA is going to impact your overall system shipment. And I'm putting this in the context of what happened in during 2014 through 2016, when we migrated from [plainer transistor] to [indiscernible], and there was some slowdown and I want to see if you see the same kind of pattern happening? And I have a follow up.

Yeah, I have a lot of follow-up of four questions. So, on the transistor architecture, yeah, I think what we know today on the patterning side, and especially, I would say on the, you know, geometric side, I don't think it has a major impact. That's not what we expect. So, whether it's the [indiscernible] around it is in the 3 nanometer realm and customers need that lithographic capability. And it's an architectural choice, as you pointed out. We don't think it has a major impact on our business. You know, the longer-term 3 nanometer transition, I think you were probably referring to the transistor architecture change, we'll just have to see how that pans out. You know, an architect to change, even when we had [indiscernible] you also know that wasn't completely flawless, because it is new. Yeah. And if there is a slowdown, it probably could be a slowdown, because the technology is indeed new, and that the ramp is potentially slower. That's speculation at this moment in time. From a, let's say, lithographic point of view there’s not much difference. How does that impact High-NA system shipments? Well, High-NA is not slated for the entry node. It starts to be used at [N2 and N2 plus, I would say N2 plus] and beyond. So, for 3 nanometer node it doesn’t have a major impact.

I have a very short follow-up. China as a mix of your overall revenue has been going up 12% 2019; 17% 2020, how do you see that trending 2021 and I understand this could be a source of upset, but what is your current projection?

Yeah, I think what we see and we see that trend keep going up. It has to do with the fact that there is a significant amount of investment planned in China. Memory and Logic, in our – what we gave you in terms of growth for 2021, 10% Logic, 20% Memory, 10% Installed Base, our assumption there is that the Indigenous Chinese business has about the same Euro level. Yeah. But it's a different type of customer. I mean, as we told you also [a few] months ago, that we expect 2021 China business to grow, but largely in Memory. So, it's a 3D NAND and DRAM. Those are the big drivers. And that's in what I would call what we get you to calculate that's already calculated to a 12% growth number. On top of that, there is a significant upside in Logic. How big can that be? It's significant. But like I said, you know, we're a conservative company, we've experienced the unpredictability of the legislation over the last couple of months. We don't want to put that into your forecast right now, but when things don't change in the state, as is, there is some significant Logic upside in China.

Thank you.

Next question is from Mr. C.J. Muse. Please state your company name followed by your question.

Yeah, hi, thank you. Good morning. Good afternoon, C.J. with Evercore ISI. I guess first question on gross margins, you gave a pretty solid outlook for the march quarter. And as we move into the second half of the year, you're going to start shipping the DUV tools, I would assume the Installed Base would start to come off forward in [indiscernible], so how should we think about the trajectory of gross margins and, you know is 52% plus or minus doable for the full-year now?

Thank you, C.J. So, you might recall in the last call, in the Q3 call that we had, we talked about a bandwidth for the year between 48% and 50%. We also reminded people at that stage that in comparison to 2019, we also start a year with a 1% negative, as far as that is concerned on High-NA. So that was one of the reasons why, you know, before doing your bridge between 2019 and 2020, you first need to dub that 1% out there. I think bearing that in mind, but also bearing in mind how sales seems to be firming up in this year. My expectation would be that we're going to see gross margin trend towards the upper limit of the bandwidth. So, the bandwidth of 48% to 50% that I gave in Q3, my current expectation based on the composition of sales would be that that’s going to trend up towards the upper limit of that bandwidth.

Okay, that's, that's helpful. And then I guess a quick follow-up on a prior question around EUV supply constraints. You know, it looks like implied plan revenue units is 40, your backlog is 42, you know, curious if you think your supply chain can offer any upside to that 40? And then if not, you know, what, what does that tell you around EUV tool demand in 2022? And do you need to start thinking about having sufficient capacity above 50 units?

Yeah, okay. Good question. I think, of course, we’ll push the supply chain, but don't expect miracles there. I mean, if you get, at the end of the year, you get one or two tools extra [like] fine, you know, but it is not going to give you 5 or 10 tools extra, it’s simply not possible. I mean, so what actually means is that the demand that we cannot fulfill this year, we will fulfill next year. And now to your point on the 50 capacity, I think it's efficient. The 50 capacity has to do with the fact that although customers are buying units, they are buying basically wafer capacity. And don't forget, we have a higher productivity tool coming out of the 3,600 D in the second half of this year, which has a [15%] higher productivity. So, with 2022 only being Ds, you already get a 15% higher waiver capacity out there. So, with the 50 that we feel comfortable with. Also from a supply chain point-of-view, we'll be able to manage that for next year. Yeah. And the 15% higher productivity on the tools, compared to the C, you know, you actually see that we have quite some – we have ample opportunity to help our customers build way for capacity. Yeah. So, I think it's enough.

Thank you.

Next question is from Mr. Adithya Metuku. Please state your company name followed by your question.

Yes, good afternoon both. It’s Bank of America. So, my first question is just on your IBM customer, there's been a lot of discussion around whether, you know, the foundries are including something from them or whether they're not, I just wonder if you could give us some color on what you have factored in into your fiscal year 2021 outlook from your IBM and customers? And secondly, you know, I had a follow-up, so if you can answer that, I’ll come to the follow-up.

Yeah. I think you know, we're not going to be specific on the – any customer, as you can, you know, imagine because of the fact that we only have very few. So, the issue is, is that when we look at 2021, two things are impacting our shipment schedule, to our leading edge customers is, one is, what you refer to is effectively has there been a transition from tools that we originally planned for customer a, potentially to customer b and c, I think yes, that has happened. But on top of that, I think there is the increased demand for advanced nodes. So, it's the combination of the two that actually, you know, caters for maximizing the shipments out of our shipping capability and it's the redistribution that has happened. So, yeah, I think we're in essence sold out for this year, but perhaps with one of two upside. We are referring to the previous question. But I think, no impact on this foreseen in our 2021 numbers.

Understood. And just as a follow up, just on the metrology side, I just wondered if you could give us some color on how you're thinking about revenues in metrology in fiscal year 2021?

Yeah, I think you're probably referring to the Multibeam tools.

Yeah.

Yeah. I think those tools three have been shipped to our ID centers, they need to be qualified. So that is going to be the key. You know, the decision points of customers are putting them into their metrology, architecture and basic needs to be qualified with – there's not only the tool itself, but it's, of course, the software that actually drives the tools. So, when that's done, we will recognize revenue. That's how it works. So, it's this year for those three tools.

Understood. I just meant, you know, if you could give us some color on the growth in that, but given these Multibeam tools in our shipping, if possible?

So, what we expect for 2021 is that we will have positive evaluations. And as positive evaluation will be followed by orders. So, orders for HVM shipments. When that will happen is still a bit unclear, because it depends on where we get the sign offs. But we could be able to – we expect sign off in the first half of 2021. So this year. Then we could see orders for shipment towards the end of 2022. Yeah. But I think – so end of 2021. But I think that we will see an acceleration of that in the year 2022. So, I think 2021 will be characterized by the qualification and the decision of the customers to put Multibeam tools in their metrology strategy, which then will probably lead to first shipments towards the end of this year, and then accelerating in 2022.

Understood, thank you.

Next question is from Mr. Sandeep Deshpande. Please state your company name followed by your question.

Yeah. Hi. JP Morgan. I'd like to just go back to that question on the Memory market, you had guided to 30% growth last year, you did around 20, this year, you're guiding to 20% growth, there is also the added, you know, there is going to be the shift to EUV based DRAM at some point, end of this year or into 2022. So, how should we be looking at the overall Memory outlook for ASML here? I mean, are we going to see an even more [accurate outlook] because of what we saw last year, in terms of what you reported or is this that is just goes along? And it's just something shifted? And that is why it has happened. And I have one quick follow-up on EUV Memory.

Yeah, I think you know, Memory outlook essentially is developing the way that we expected and the way that we told you. You know, you may remember that since the middle of last year, we told you that we see utilizations going up. And there will be a point where if we are at the theoretical maximum utilization that, you know, our customers will want more capacity. That's actually happening. So, now on the – and I think Roger explained that, that on the [2020 to 30%] the only reason why the 30% isn't – not 30%, but 20% is because some of those shipments that were earmarked Memory actually went to Logic. Why? Because Logic was on fire and Memory was getting into fire in, you know, 2021. So, just the choice of the customer's, you know, don't ship them to A, but ship them to B. Because that's why I have more business. So, this was the only reason, which actually means that we are seeing – maybe just coming in, especially DRAM. I mean, we need to distinguish with DRAM and we don't – as strong as a recovery in 3D NAND. You could argue because, you know, we're not that sensitive to it, but we should we don't see it. We see in DRAM stronger. So, this is really – this a DRAM game in 2021, whereby 20% bid growth, which is the expectation of today, it's simply too much to be dealt with in the current installed base. That's why we see the orders coming in. So yes, EUV will be used in DRAM, especially in 1 alpha, but that is going to be limited, as we also mentioned last time. This is not going to be a node of node, let's say full transition from DUV to EUV, don't forget that EUV has a – doesn't have a maturity level of DUV. So there will be -- a part of the wafer capacity will be allocated to EUV with a limited number of layers, which will grow over time. We'll see the first application of it, end of the year and moving into 2022. So, it's going to be a gradual adoption of EUV in DRAM.

Thanks, Peter. I mean, just following up on that DRAM and EUV, how do you, I mean, you know, you've had a very strong year last year in DUV and even this year looks very good in that technology. I mean, do you expect this even as EUV ramps up in Memory, et cetera, in DRAM, whenever it does, however, slowly it does or however fast, does this level of this baseline effect of DUV remain as part of your revenues? And then we just add-on EUV over time, as we've seen over the last couple of years?

Yeah. I think the number of EUV layers will be relatively limited as compared to Logic. So DUV will be the bulk of the layers, and will stay the bulk of the layers, needing, better lithographic performance and productivity. So, this is why we have these extensive R&D programs still in DUV. I think DUV in general, will be a bigger part of our business going forward than we anticipated a few years ago. And it's not only, you know, Memory, it's like we said in the prepared remarks, it's very much also the mature markets, whereby 90 nanometers, 65, 45, 28 are all growing in terms of wafer capacity, for the simple reason that there are applications or devices for applications in that technology realm that are basically supporting an IoT solutions. And that's a trend that we underestimated a couple of years ago. I think this has been a big driver for our DUV business. So, it's not only Memory, where it will stay strong, is very much also the broadening application space in DUV.

Thank you very much Peter.

Next question is from Mr. Pierre Ferragu. Please state your company name, followed by your question.

New Street Research. Thanks for taking my question. Peter, a question for you maybe, you know, like long side forward-looking, but also looking back maybe two, three years ago. So, TSMC is going to spend between $25 billion and $28 billion in CapEx this year, and they expect to grow revenues in the back of that in mid-teens, which means to me that that's the new normal for CapEx, like it's probably going to be a number that keeps growing from here. And I can't imagine a world in which that many leading edge Logic chip get into data centers, into PCs, into phones without, you know, volumes of DRAM following. And so that feels very, very good in the long run for the industry. And my question is first slide, in 2025, so like two, three years ago you gave us a 2025 outlook, with a fairly wide margin, did that kind of world in which TSMC spend so much in 2021? Was that part of your range or does that exceed what you were looking? And then for instance, so and then yes, of course. So, my question behind that is your 2025, like kind of guide, do you think there is today a chance we go above the higher end of that range?

Well, Pierre you're basically asking me to give you a peek review of our capital markets today. But let's take it from a 30,000 feet level. Three years ago, what you're basically asking is, Peter, how do you think about the industry today as compared to three years ago?

Yeah.

My answer is, I'm more positive for all kinds of reasons. Because, like I said in an answer to a previous question, I did not expect DUV to be as strong as it is today. And everything that we know talking to our customers will stay strong. Yeah. And that is a – could call it a surprise. But that's something that we didn't understand well. Yeah, we understand that better today. There’s some other thing that we assumed, as you know, when we talk about as a base case or a mid-market scenario, starting from the 60- nanometer node, we say basically, every node has 10% lower wafer capacity. So, it's minus 10, minus 10, minus 10. So by the time that you're at five, you've had almost four times a minus 10 reduction of that wafer capacity needed for that node. That seems very conservative at this moment in time if we listen to our customers. Because, you know, as a customer like TSMC doesn't tell us that they're going to spend 25 billion to 28 billion, if they believe that their wafer capacity that they need for those nodes is going to be minus 10, minus 10, minus 10. So they obviously have a now different view as to the size of that market. And I think we all understand drivers. Perhaps not all, but most of them. Yeah. So, I think overall, I think there is a bit of basis for our assessment, I think of where we can be in 2025, 2026, or 2027, for that matter. Yes. And I think it hasn't worsened. I think it has gotten better. Yeah.

Definitely on the Logic side, right.

Definitely on the Logic. But also to, you know, Peter’s comment, you know Memory is a derivative of, you know Logic. It’s the Logic that we need in all these applications, Memory will follow. So, yes, do we have a more positive basic view as to the growth perspective of the industry? Yes, I think we have. Yeah.

Excellent. Thanks for the comments. And I look forward to the next CMD of course.

So do we.

Thanks. Bye guys.

Bye.

Our next question is from Mr. Krish Sankar. Please state your company name, followed by your question.

Hi, it’s Krish from Cowen. Thanks for taking my question. And congrats on the strong results. First question I have for you Peter, you know, I think you did answer this question in many ways, so sorry for beating it up again. The upside to calendar 2021 numbers, is there a way you can simplify and say do you think it comes from either Logic or Memory? Do you think it comes from DUV or EUV? And then I have a follow up?

Yeah, I think it comes from DUV in Logic.

Got it.

That is a very short answer for Peter. That is what it is.

Short and sweet. Thanks, Peter. And then a follow up for Roger. On the EUV service gross margins, you know, two quarters ago in September, you turned positive, is it fair to assume from here onwards those margins should start to keep improving because, you know, all the 2019 tools coming of warranty keeps adding to the service gross margin?

Yeah, correct. I think that's a fair assumption. So, we – indeed we did turn positive during Q3. We were positive for the entire year. And as I mentioned, also on the video, I believe that within about a four-year timeframe, we should see the EUV service margin sort of approach to corporate gross margin. And that's a trajectory that we’re on and it’s a matter of on the one hand, you know, to your point, seeing tools getting out of warranty, seeing tools produce more and more wafers, so the throughputs going up. And as a result of that, the number of wafers and therefore the [indiscernible] wafer going up for us, on the other hand of being better able to control the cost. So that's the trajectory that we're on. That's the goal in for your assignment, and we'll continue to develop towards that goal.

Thanks Roger, thanks Peter.

Next question is from Mr. Aleksander Peterc. Please state your company name, followed by your question.

Yes, hi good afternoon. Thanks for taking the question. This is Alex from Societe Generale. I just have two. One is on, if you could comment a little bit on EUV average selling prices, it was quite firm over the past couple of quarters, so, should we expect this firmness going forward as well in the first half? I suppose you have seen an uptick in the second half with the new model shipping. So, if you could maybe comment on that a little bit? And then just secondly, the [R&D to sales] is a bit higher than your longer-term target. So what point in time do you think we should [indiscernible] is that going to decline maybe once pone client A] is shipping or even before, just so that we know in whatever timeframe that could decline a little bit? Thanks.

Yeah, that's fine. So you are right. I mean, the ASP this quarter, but also in Q3 was a little higher than what you typically have in your models. But it is as we also explained on Q3 to a very, it is really driven by configuration. So what options are on the tool already when they leave the factory on specific customer requirements. So that's what drives it and the composition that we have for the EUV sales both in Q3 and Q4 we're kind of the richer configurations as a result of which you saw the higher number, you saw the higher number in there. On a go forward basis, for the 3600D, I think we mentioned there that you should look at the mid-teens in terms of increase over the ASP for in comparison to the C model. In terms of your question on R&D, you're right. I think R&D as a percentage of sales is comparable to where we were last year, actually, so it's high 15, approaching 16. It's a little lower actually than what we had in [2019]. You know, as Peter and I already mentioned in the earlier comments, there is so much opportunity that we see in the roadmap, and this is both Low-NA, high-NA, but also, you know, and Peter made reference to that. A number of developments that we're having in terms of DUV and the throughput imaging and overlay potential that we still see there. There’s a lot of potential that we see. And that's why we keep it a little bit higher than the 13%, then some of you might have in your mind that is still clearly the goal for 2025. So, we're working our way towards that. But you know, at this stage, we believe the company's value is increased by spending this amount. So, I think the approaching 16% that we solve for this year, and maybe also for next year would still be appropriate. But then from that point onwards, gradually model it towards the 13% for 2025. I think that's the way I would do it.

Yeah, it also needs to remember that we do this R&D investments as, you know, I think for DUV where we have underestimated the size of that market, and also, the need for DUV tools, bring them on to the NXP platform, which is quite a significant R&D program, but once we do that, and we see a significant increase in DUV demand, which we think will last Yeah. Then we give our customers the capability to actually have a very productive tool with a lower cost per wafer [indiscernible], which of course, you know, higher sales price. So, these are investments to actually go back to an earlier question on the 2025 model where we doing things today because we see upside to that model, and especially in a DUV for instance and to give you one example.

Thank you very much.

Next question is from Mr. David Mulholland. Please state your company name followed by your question.

Hi. My name is David from UBS. I just wanted to come back on the change that happened in terms of your plans and your build through the supply chain for this year or for 2021. Because my understanding previously was you're willing to essentially bear the cost on your own balance sheet, this demand didn’t end up reaching the 45 to 50, so, I'd love to understand what changed, because it seems like that's potentially like constraining the outlook for this year? And then secondly, on cash flow, very strong quarter, obviously in cash generation in Q4, was that all just pure cash coming in the door from customers, or was there any [indiscernible] like we saw a few years ago?

Well, to answer the first question, David, as you might go back to the conference call script, but we never said that we were going to commit ourselves in the supply chain to 45 to 50 units, actually we said we were not going to do that. We said, we are taking – it is a bit of a buffer above what our customers at that time, the end of Q3 said that they would need for 2021, which is a lower number than we're currently planning to ship. Yeah. So, we did take that buffer into consideration, as can we squeeze out another one or two? Probably. Yeah. But we never indicated or we never met to indicate that we would cover our customers for our full capacity. That’s not what we said. And that's not what we did. Yeah. So, what we actually – we’re probably ending up somewhere in between. Yeah, which is good, because you know, we wouldn't have done that. Then there would not be a 30% increase in our DUV or in our EUV plant revenue for this year. We are able to do that because we built this buffer capacity in the supply chain, but not everything.

David on the on the free cash flow, as we mentioned on the previous calls, this is the year where you see a two effects in that regard. So on the one hand, you see the effect of extend payments that some customers were entitled to based on older contracts, and you see the effects under the new contracts of down payments that are coming in, and they balance out nicely. Although in Q4, you know we saw most of the effects of the down payments, and then in the earlier quarters, you saw the effect of the standard payments, but for the year, it's nicely equaled out. So that's in fact what you see. So very, very strong, free cash flow in Q4 making up with some of the things in the previous quarters. So your question, is there an anomaly in there – not really an anomaly, just as we had it in previous year, there was some customers choose a factoring solution for some of the payments and some of the down payment, [indiscernible], but that's their discretion in there and their request doesn't impact us whatsoever. But that hasn't really changed, I would say, as a policy from last year. And I think the anomaly if you like that I just talked about, I think it's really something that we had in 2020. For 2021, I would expect a more regular buildup of the free cash flow also over the quarters.

Sounds great. Thanks very much.

Next question is from Janardan Menon. Go ahead please. State your company name followed by your question.

Hi, good afternoon. It's Janardan from Liberum. I just wanted to go to your gross margin guidance where you said that you are likely to be hitting the high-end of your 40% to 50% range, but since you're doing a mid-point of 50.5% in Q1, and you will have the 3600D shipping in the second half of the year, which is a corporate average gross margin, which presumably is close to 50%, I'm just wondering what is holding you back from getting to north of 50% margin for the full-year? Is there something specifically in Q2, which could lower that? And also I would put it in the mix, presumably DUV shipments are going to be quite strong this year, we should also have a positive effect on that.

Well, first of all, we shouldn't forget that there is a very strong improvement over gross margin if you compare it to year-on-year, right. So let's not forget that. As I mentioned to you of the 48.6, you should start by deducting 1%, you get to 47.6. That's really the starting point for the year. So, you know even if I say that we're approaching the 50%. I think that's a very strong improvement over last year. If you then say what is going to be different in the next quarters to a very large extent it's mix, right? So in Q1, we have quite some immersion sales. And as you know, immersion has a very strong gross margin. We have more immersion sales in there, relatively speaking, we have relatively low EUV sales in there. So, while you're right, that the gross margin for tool in the second half on the 3600D is going to be a bit bigger. I think it's also fair to say that, you know, in the second half, we'll see more EUV sales, relatively speaking, then you have in Q1. So in that way it kind of, it kind of, you know, it kind of creates an equilibrium there. I think it's also fair to say when I say approaching the upper limits, approaching the 50%, when Peter talks about potential, you know, the potential over the 15.7, I think it is fair to say that the potential that we see there, as Peter mentioned, is in DUV and in Logic. So that would lead to a further uplift of the gross margin. So the 50% that I was – that I think we're approaching is for the 15.7 indication that we gave or expectation that we articulated in terms of sales. If we're going to see sales uptick, I think there should also be an uptick in the gross margin percentage.

Understood. Can I can I just – brief follow-up on that. Just on the potential upside for this year that you talked about? You said it's all coming from, if it does come into DUV, and from Logic, is that entirely the China, sort of geopolitical upside that you're talking about? Or is there potential upside outside of that? And you know, normally, when Memory prices are going up in past cycles, we've seen that the Memory vendor, the DRAM vendors tend to increase their orders as well. If they were to come out with additional DUV orders, DUV orders, would you have the capacity to meet that demand? Do you have sufficient buffer there if that would happen?

Yeah, I think we would be able to deal with some of the additional amount in Memory and you are right. I mean, you've been around, Janardan, even longer than I am, so I mean, you know how that goes. Yeah. So yes, that – we would be able to do that. How much it would be difficult this moment in time with January 20, we're talking about that we’re trying to guess the entire year. So yes, I think we'll be able to do that. The upside that we were referring to is DUV Logic. That is for the very large part is [upside in China], which, you know, like I said, if we can ship under the current rules, then that upside would materialize. And then which would have the impact on the top line and on the gross margin as Roger mentioned? So yes, I think we will be able to do that. So there’s some upside on Memory, if they would come, and it will be SUV to your point.

Understood, thank you very much.

All right. Okay, thank you. We have run out of time. So, if you were unable to get through on this call and still have questions, please feel free to contact ASML Investor Relations Department with your question. Before we sign off, I'd like to remind you that – I remind everyone that we are targeting to host our Investor Day on June 23 this year in London. Now, we hope we can have a face-to-face meeting, but of course, this will depend on the progress against the virus. We will provide more details in due time, and we hope you'll be able to join us. Now on behalf of ASML, I would like to thank you all for joining us today. Operator, if you could formally conclude the call, I would appreciate it. Thank you.

Thank you, sir. This concludes the ASML 2020 fourth quarter and full-year financial results conference call. Thank you for your participation. You may now disconnect your line.