ASML Holding N.V. (ASML) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by. Welcome to the ASML 2012 Fourth Quarter and Annual Results Conference Call on January 17, 2013. 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. Go ahead please, sir.

Thank you, Peter and good afternoon and good morning ladies and gentlemen. This is Craig DeYoung, Vice President of Investor Relations at ASML. Joining me today 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 suggested, the subject of today's call is ASML's fourth quarter and annual 2012 results. This call is also being broadcast live over the Internet at www.asml.com and a replay of the call will be available on our website for approximately 90 days. Before we would 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 security 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 www.asml.com and in ASML's annual report on Form 20-F and other documents as filed with the Securities and Exchange Commission. The length of the call will be 60 minutes and before we begin the Q&A, I'd like to turn it over for a brief introduction by Mr. Eric Meurice.

Thank you, Craig. Before we begin the Q&A session, Peter and I would like to provide an overview and some commentary as usual. Peter will start with a review of our Q4 financial performance, with added comment on the short-term outlook. I will complete the introduction with a brief status update on EUV. So Peter, please.

Thank you, Eric and welcome to everyone. Our fourth-quarter results are very much in line with expectations that we set at the end of the third quarter. Our fourth-quarter sales results came in just above our guidance. This quarter sales again remained largely skewed towards the foundry IDM sectors which was 87% of total and that included non-critical KrF systems which supported the capacity additions. The combined memory represented the balance of 13%. By the way, we are now reporting memory sales bookings and backlog as one total value due to decrease in transparency around system allocations between DRAM and NAND. The ASP of all systems recognized in Q4 was €22.5 million, a decrease of about 10% from the previous quarter affected by an increased percentage of used systems. Service and field option sales hit a record level of €257 million this quarter, which I will come back to in a moment. Fourth quarter net bookings came in at €667 million for 32 systems excluding EUV. With booked ASPs of €20.9 million versus €25 million in the third quarter. The quarter’s bookings ASP was impacted by higher percentage of KrF and used systems, clearly not indicative for future bookings which will reflect the secular trend of higher value technology buys. Our order backlog at the end of Q4 was €1.2 billion including 46 systems but excluding EUV. And the backlog profile at quarter’s end remained very similar to that at the end of the prior quarter with a slight further movement in favor of foundry and IDM. Regarding our fourth quarter and total 2012 income tax charge, I’d like to point out that we released almost €120 million of our accrued tax liability during the fourth quarter as a result of the favorable conclusion of tax audits in various tax…

Thank you, Peter. So let me talk a bit about EUV, but first about Cymer. In Q4, we announced our intent to acquire the light source supplier Cymer in a cash and stock deal. We are currently awaiting several international regulatory authority approvals, while the clearance has been granted by CFIUS, The Committee on Foreign Investment in the United States and the German Antitrust Authority. In addition, a vote on approval of the deal by the Cymer shareholders will take place on February 5. We expect that this acquisition will therefore be completed in the first half of this year after having obtained the necessary approval in the U.S., the antitrust authorities and in the different remaining foreign jurisdictions. In the mean time, we are continuing our long-term close recognition with Cymer and of course working on EUV. Both on the source and on the scanner, we moved ahead significantly in Q4 towards our 2014 production ramp goal. Firstly, progress has been made towards confirming what we call the source proof of performance as we were able to double the source power in test simulation up to 60 watt with no indication of performance degradation. We of course need to reach our long set target of 105 watt which is equivalent to about 69 wafer per hour, but we are very encouraged of course by the data produced this quarter on 60 watts. Secondly, we have operated the first integrated EUV source with a stable exposure power up to 40 watt with good dose control enabling full field exposure over an extended period of time. Again, a fairly good piece of information here. Thirdly, we have completed the integration of our first scanner machine, the NXE:3300 and have now met a number of significant overlay and imaging performance milestones. We…

Thanks Eric. 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 that you kindly limit yourself to one question with one short follow up if necessary. This will allow us to get in as many callers as possible. Now operator, could we have your instructions and then first question please.

Of course Mr. Wennink, thank you. (Operator Instructions) The first question comes from Jerome Ramel. Please state your company name followed by your question. Jerome A. Ramel – Exane BNP Paribas: Yeah. Good afternoon, Jerome Ramel from Exane BNP Paribas. And one question, Eric. How do you see the installed capacity for the 28 nanometer node and going forward, how do you see the size potentially in terms of wafer starts per month for the 20 nanometer node?

Okay, this is a very good question. So we estimate that we’ll see a shipment that we are supposed to do up to Q3 2013. The total customers will reach about 320,000-ish wafer install base of the 28 nanometer to 32 nanometer node, which 320,000 – 340,000 wafer per month type capacity is a good node on the high side but not exception. What surprised us and the reason why we’ve been bullish this year and this is the first year in eight years or so, nine year, we’ve guided the full-year is indeed to your question, we are now seeing the buildup of capacity for 20 nanometer, 22 nanometer in the same environment in the foundry, logic environment. And this is starting earlier than we would have expected in the first place. We can discuss later about the drivers of that. Jerome A. Ramel – Exane BNP Paribas: Okay. And just maybe a follow-up on EUV, what can be the maximum capacity of shipment you will have by 2015? Are we talking about 24 units?

So 2015, our simulation say that the market will probably need about 30 to 36. So we will have the capacity for 30 to 36. We could always do a bit more. But we don’t think it would be necessary to overheat on that one. And then we will go towards a capacity of about 60, 66 in the 2016, 2017 range. Jerome A. Ramel – Exane BNP Paribas: Okay. Thank you very much.

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

Yes, good afternoon. Stephane Houri, Natixis. The first question I would have is on the visibility that you have on the order because you have rebound in sales starting in Q2, if I understand well and an acceleration in H2 because of the 20 nanometer, 14 nanometer transition. Given your lead time, is it fair to assume that the orders should rebound as early as in Q1? Thank you.

Yes, good afternoon. Stephane Houri, Natixis. The first question I would have is on the visibility that you have on the order because you have rebound in sales starting in Q2, if I understand well and an acceleration in H2 because of the 20 nanometer, 14 nanometer transition. Given your lead time, is it fair to assume that the orders should rebound as early as in Q1? Thank you.

Absolutely, the orders will pick up in Q1. In our opinion which Peter - we don’t think the orders will pick up as much as they should. In other terms, the customers who we know of course will be somehow putting the orders within lead time. This project that we’re talking about is such huge strategic project that we are building on commitment and on request to POs buildup is a more of an administrative process that will go with it. So indeed, there is going to be a pick up in Q1. And we expect this to continue. But again, you will not be able to easily use a standard lead time of six to nine months to guide to know what the revenue is going to be – are the POs will be coming in fact late to the ramp and because the ramp is so obviously discussed, committed, planned, agreed that PO has become a bit irrelevant on these one or two fundamental projects.

Okay. And you’ve been talking about eight to 12 EUV tools in 2014. Can you help us with the price they will be sold or they might be sold?

Okay. And you’ve been talking about eight to 12 EUV tools in 2014. Can you help us with the price they will be sold or they might be sold?

Bit early because these tools will have a huge amount of options because you are talking about first production tools. And in this situation usually, the customers will be very customizing the content of them. I would say €80 million to €100 million could probably be an acceptable range. But unfortunately I won't be more precise at this moment.

And it could vary from customers to customers.

Okay. Okay, thank you very much.

Okay. Okay, thank you very much.

The next question comes from Mr. Gareth Jenkins. Please state your company name followed by your question. Gareth Jenkins – UBS: Yeah, it’s Gareth Jenkins, UBS. So just a quick one on EUV again, coming back to the 8 to 12 tools for next year. I just wondered if you’ve seen any changes in terms of logic adoption of EUV, whether we should still expect the vast majority to be DRAM and if so what's changed for logic? Thank you.

In fact, we may have started to hint the last quarter if I remembered that DRAM was also keen with EUV because there is no choice. They absolutely have to have at least one layer on EUV just as a feasibility statement. So DRAM is always hot. However, logic has over passed I would say, DRAM in the sense that first, they also have now a need which we have realized, which is a minimum of, as we said five layers to seven. They all know – so see that they have an economic issue. So there is now another incentive to go from five, seven to 17 and they have also a huge business attraction, meaning logic is in fact doing good at this moment. And they see themselves going in another node after the famous, what we call 20 nanometer but which will be called 14-20. That node will then be followed quickly by a node which will be called something like 10-11 or something. And that is EUV node and there is going to be at this moment, the customers believe that there is an economic wave that will drive this. So logic are becoming hugely interested, putting most of our attention now on logic. But DRAM will get in and if DRAMs business becomes more attractive the PC business basically gets back and put some attraction there. We could see DRAM trying to still be in 3 months, 6 months ahead of logic because they do have a need indeed. Gareth Jenkins – UBS: And so Eric, I’ll just follow up on that and for production on the 10 nanometer, 11 nanometers node for EUV, is that a 2015 production?

Well, so you will see the chips, the dye, the wafers in 2016. The buildup of the capacity of the factory will happen a year before. Gareth Jenkins – UBS: All right, thank you.

The next question comes from Mr. Sandeep Deshpande. Please state your company name followed by your question. Sandeep S. Deshpande – JPMorgan: Hi, JPMorgan. Quick question for you Eric, would you say at this point that you are now more confident about doing the 69 wafers per hour production tools by the middle of next year compared to say six months ago and what has essentially changed in terms of what you've seen in terms of the R&D done or development done internally to make you feel that way?

Yes, absolutely. So in fact we did miss the targets of the summer. If you remember, I said in the summer we will have some factual data that puts us in comfort zone. We didn't and we didn't not because we hit a science problem, we didn’t because we hit the engineering problem. The different setups did not work, so it took a bit of time to put them to work. So what should have happened in the summer has happened in the winter, and we now have three fundamental set of data. The first set of data which we expected anyways not a big surprise, is the 3300 machine works and it works very well. So in fact if today you wanted to be in production with a EUV machine without a source, we would put you into production now. And so if anyone of you is interested by the way, we’ll take some orders. The second bit is the – what the piece of data, that was successful this last three months, in fact that excites the engineers more than me as a businessman and you will understand why, is now they are getting stability of exposure at 40 wafer per hour. So in other terms now…

41

41, yeah 41. 41 means, 28 wafer, 30 wafer per hour or something. And that is a big deal. That means the machine can be put into production and work at 20 to 30 wafers per hour in a stable way. That's a very important statement. Now if not great economically wise but it starts to be interested and useable.

Six month ago…

Yeah, and it was not stable, we had difficulty. During the day each of the wafers had irregularities, et cetera. So we have done a significant amount of engineering. The third aspect now that’s what excites me as a businessman and not so much the engineers but this is a difference between a good engineer and bad engineer, I guess is we have some 60 watt capability data. What is a capability data? It says that, theoretically we needed to be sure that we would not discover a problem by putting more power into system. More power means more heat, more stress, more et cetera. By doing this, you kind off shoot a bit (inaudible) which is why EUV is in fact dangerous because you will learn something and what you learn may take time to repair. And the way that we’ve moved to 60 watts, we’ve been able to justify and comfort our simulation systems. And our simulation system models now are comforted up to 60 watts. And in fact, it can be easily now projected to what we handled in 5 watts. Even if we can’t approve it yet, the models are proven, checked at 60 watts. So first, 60 watts is nearer to 105 watts and secondly, it is very good theoretically. It has proven the model. So therefore, we absolutely strengthen our point that 2014 production should now be – much higher probability than ever indeed enough that the customers are in fact continuing to discuss without this order placing for 2014 which are meant to be between 8 and 12 in total which by the way is a good number. We don’t need more because customers don’t need more anyway. That would be the normal ramp of that technology. Sandeep S. Deshpande – JPMorgan: Thanks, Eric. I mean, just one to follow on to that. I mean, you were talking about the 60 watts to be having been shown in your labs. Is there a substantial technical difference between the 60 watt laser and the 105 watts laser, I mean based on gas or what power has to be – I mean power clearly in different. But any other elements which are substantially different which could cause a risk from moving from 60 watts to 105 watts?

Absolutely not. The concept is now going to remain the same up to 210 watt, which is that architecture that we just talked about. From 60 to 210, we should not change the concept. Sandeep S. Deshpande – JPMorgan: Thank you very much.

The next question comes from Mr. Mahesh Sanganeria. Please state your company name followed by your question. Mahesh Sanganeria – RBC Capital Markets:

Mahesh Sanganeria – RBC Capital Markets: So it's multiple customers you would say…

Mahesh Sanganeria – RBC Capital Markets: Okay. And then one question for Peter, in terms of R&D expenses and modeling, for Q1 you said you’re getting €16 million recovery in other income.

Yeah. Mahesh Sanganeria – RBC Capital Markets: Can you give us some sense of what we will see that in the rest of the quarters for 2013?

About similar. It’s about the same number. Mahesh Sanganeria – RBC Capital Markets: Similar.

Mahesh Sanganeria – RBC Capital Markets: And would you say that the gross margin contribution comes a little late more in the second half and next year?

No, it fully depends on the timing of when the shipments happen. So basically it's – because that particular customer is also a very large, is a larger shareholder than the others and that means that the accounting requirements state that you have to allocate that contribution to the business that we have with them. So if we start shipping tools, that mean that those tools will get a, let’s say a lift-up of the contribution that was intended to be the coverage for the R&D cost. And so per system, you will have an extra margin. And then that is the way it is going to be accounted for. So it means that depending on the business volume that we have with the customer, we are going to now recognize the accounting wise, we are going to recognize the contribution of the customers. Cash wise, it's not going to be an issue. Cash wise, it's going to be matched. So you will have, you could say for some time, you could have a deferred accrual account, a deferred revenue account on the balance sheet which will then be released to income in the next quarter when the shipments happen. Mahesh Sanganeria – RBC Capital Markets: Okay. Thank you very much.

Thank you.

The next question comes from Jagadish Iyer. Please state your company name followed by your question. Your line is open sir. Go ahead please.

Peter, you want to go to the next one?

Yes, okay. The next question will then come from Mr. Simon Schäfer. Please state your company name, followed by your question.

One more try, Simon.

Mr. Schäfer, maybe you have muted your own line.

Well go to the next one.

Okay. Mr. (inaudible). Please state your company name followed by your question.

Yes, thank you for taking my question. The first one would be regarding EUV shipments for this year. I think the plan since last year was to ship 11 machines. This year if I read the statements right, it sounds a bit shaky that it’s going to be 11 at best. Does this mean that there is some risk of delay into 2014 and also if you could confirm that some of those shipments – some of those shipments, although revenues will then be recognized this year, that’s my first question. I’ve got a follow up.

So Peter will address the revenue recognition because I don’t understand anything on this. So I will address the shipment part. So the machine itself, as I said has been purchased ordered on a as-is-basis. So we will ship when they are ready, finished, assembled as I said in the speech. The machine will change themselves, the scanners, the certainty of being available for next year is very high. I mean, we don’t see a problem achieving that. But matching the scanner to the proper source could be still the risk of execution whether we ship all of them or we miss two or three or four depends in fact, what we’re going to choose to do with the sources. We can ship them here and test them and qualify them, but then that takes more time to ship later to the customer. We can decide to what we say drop ship the machine to the customer meaning you ship the machine, the scanner on one hand and the laser on the other. But then you have to recognize, if I can find something to answer your question, the machine when they are tested at the customer. So that may take more time. So we are a bit less in control of what we want it to be in the first place as to the logistic of this. And then Peter, we’ll have to put the economic view to this which is a recognition of revenue to the logistic nightmare as I just discussed.

Yeah and it's what – I accept. Shipments for us is defined as the shipment of the – you could say the metal that could be in two ways. It could be like Eric said, being the integrated metal from Veldhoven from the Netherlands because we are late. Customers could say, please save time. Don't ship everything to Veldhoven, integrate it there, test it and then take it apart and ship it to us. So please ship the scanner separate from the EUV source which we would call a drop shipment of the source, which then means that the integration and showing that it works can only happen at the customer side, which then also means that the revenue recognition takes place at the moment in time. And since we are not completely sure as to what customers want and what particular configuration of the source that they want, there is a risk from a revenue recognition point that some of those shipments may end up in the first quarter of 2014 and that might happen. So there is a bit of caution there. So you notice that. And as a matter of fact, in our guidance we took an account of that. So we took a conservative number for the EUV shipments to be recognized in 2013 because it will always be a possibility that while we have shipped it that we’re still in a process of putting it all together and quantifying at the customer side which might then happen in Q1 instead of Q4.

(inaudible)(00:54) :

Let me answer the real question you have. Is it going to be gross for us when we ship EUV because the immersion will still remain important? The answer is yes. I think we said two or three quarters ago, that when EUV is introduced within these normal activities, there will so that will be EUV, there will be immersion, they will be dry. And in this environment, we think we are going to have to go to another plateau of sales. And I said, by the way, I would give you the new plateau when we are solid on EUV; we know for sure what we ship. But yes, it would be bigger than the plateau that we have already touched which is the 5.5-ish. We think we’ll get to another level of sales because yes, immersion will remain.

And when we ramp EUV, I think we also said it before, in 2015, 2016 that EUV is definitely in 2010, 16 years ago to be significantly over half of our sales in terms of the value and in 2015, it could easily be up to that half level. So yes, EUV shipments when we are ramping are going to be the most significant part of our sales numbers.

So immersion goes down basically compared to…

What Eric said is that the total sales will go up. So yes, we will cannibalize some of the leading edge, layers clearly. But don't forget, we also say that if complexity increases which it does, the number of layers also goes up.

And so totally increase.

Yeah.

Yeah, I got it.

So it’s yes. It could be low, but that it would be very strange if it went more than half as compared to where we are today. So it will be lower but it’s going to be manageable and on top of that, we see the EUV sales.

Okay, that was very clear. Thank you very much.

The next question comes from Mr. Andrew Gardiner. Please state your company name followed by your question. Andrew M. Gardiner – Barclays Capital: Thank you, it’s Barclays. I was interested in, if you could provide a bit more detail around the visibility being provided by some of the foundry customers at the moment. You’ve clearly indicated that your expectation for revenue there to ramp in the back half of the year given the 20 nanometer build-out, I think looking at the way the foundries are communicating at the moment, one thing particularly vocal, the other slightly less, so given the customer shift. But how much of your expectation for that second half ramp being driven by that one who is being more vocal relative to the other one or are you assuming within your guidance that there is a strong ramp across those two leaders?

We are in our current guidance where we said we are at this moment identifying about the same level of sales in the year, we are only inserting one large 20 nanometer build up and the rest will be very, very, very small. So in other terms, our point is, it has always been to be conservative. So if the other players were to try to move to their natural market share versus the current one who is driving, we will sell much more units. Andrew Gardiner – Barclays Capital: Understood. Also just a quick follow up, Peter, regarding tax. We’ve seen in the past when your sales dropped to these kinds of levels that the tax rate increases. I was just wondering if you can give us any, sort of steer us to how we should be modeling that for 2013, in particular the early quarters when revenue is lower.

Well, as a matter of fact, at these sales levels, you are referring to times when sales were really dire. If you talk about the first six months of 2009 and then you could argue that the effective tax rate had no relevance at all which at the levels that we are talking about in Q1 is not the case. I think the fact that we have currently a resolution on the tax issues that are outstanding in particularly Asia means that we can now confidently recognize taxes in that area on a lower level which means that going forward for 2013, we guided you at around 12% tax. You could take two percentage points off, so around 10%. 9% to 10% would be a good number for the total year. Andrew M. Gardiner – Barclays Capital:

The next question comes from Satya Kumar. Please state your company name followed by your question. Satya Kumar – Credit Suisse: Yeah, hi. From Credit Suisse, thanks for taking my question. A couple of them, I guess one of the customers that have indicated this very strong ramp of 20 nanometer has also indicated that the capital spending will be heavily first half weighted that two-thirds of their spending in the first half. From your commentary, it’s clear that you’re expecting a second half that is stronger than the first half. Could you perhaps explain why there might be a bit of a difference in terms of what happens to you versus what they are saying for their CapEx?

We are a conservative bunch. Maybe that’s what I can tell you. We are – know it’s difficult to – maybe also remember we do not represent 100% of the CapEx. And if I’m not mistaken, there is some brick-and-mortar into the pie, which means there is potentially a prompting that is done before we start shipping machines. But now I would not say – I’ll also be realistic. We just finished, we’re going to finish to – not even finished. The work is in process of finishing 28 nanometer. It would be a bit aggressive for me to say that we now ship hundreds of millions of 20 nanometer today. That would not be natural. But for the customer in question, they may have to have significant CapEx to prepare the situation before the machine comes. Satya Kumar – Credit Suisse: Okay. I was intrigued by one of the slides you showed on the presentation which talked about the integrated metrology that they used. Could you talk a little bit about what they’re doing to – if you could quantify, that will be great, to the ASPs of the immersion systems as we go from 28 nanometer to 20 nanometer. And from a process flow standpoint, it is – what exactly is that metrology doing? Is it replacing an optical 3-D metrology that your company would have bought from another equipment supplier or is it an addition to other equipment that the chip companies are going to be buying for metrology?

Okay, let me answer the first question first and Peter will discuss the margin impact of these types of products. Now we would not say that it directly replaces metrology. Metrology, the segment which already as it is known in the industries, diagnostic metrology segment – everyday or so you take a wafer, you make an extremely deep and that is as you understand what the recipe’s impact are. You change the recipe, so it’s an involved diagnostic, long lead time, deep in both process capabilities. We don’t have that. What we insert are machines which are able on the fly to correct a process failure by resetting the numbers of knobs into a scanner.

Yeah, I think when you talk about the ASPs, there are not so much margin because there are higher margin products. When you look at the slide that you are referring to where you see these two machines, the scanner on one side and the what we call the Yieldstar metrology to the other side, you have to remember that is not one single tool that we are selling. It is hardware, plus a lot of software. And so it’s a combination of products that we are selling. But if you would have a fully loaded 28 nanometer machine compared to a fully loaded 20 nanometer machine which would include this Yieldstar and the feedback loops that arrogate, you would look at depending on the customer and the application, a difference in list price of between €7 million and €10 million between the two. Now of course, then it depends on the customer contract, that you have the volumes, that they’re taking what discounts that they’re getting. But that is the kind of the difference that you need to think of. Satya Kumar – Credit Suisse: Okay. Thank you very much.

The next question comes from (inaudible). Please state your company name followed by your question.

Hi sure, just a quick follow on to the last line of questioning. On the holistic lithography and the upgrade and the revenue contribution, I think you said that you expect to stay at this €257 million level in terms of service and field options. But wouldn’t it make sense that that would increase as you get this 20 nanometer RAM coming in to the back half of the year? In other words why would you expect that line of revenue to be flat or does it just come into the system sales revenue?

Well, you have weather it in the context of that, that the fourth quarter was the highest ever. Yeah, so I mean this indeed in the fourth quarter show some incidental extra revenue, but well it would be when you take the average from 2011 and 2012, we are significantly lower. Now I think that average will go up. So that is basically what we are saying and yes we are conservative in a sense because like I said earlier, €7 million to €10 million addition to the sales price from a list price point of view is also something that customers need to get their hands around and basically need to realize that they need it. We think that they need it, but we feel we can on an average keep the €250 million level per quarter which is a record.

Okay. And then just staying on these features, is there something that your competitor, your main competitor in the space has available or is this entirely different than what they can offer?

Well, as far as we know that is not available.

Okay, and then just finally. When you talked about the 11 EUV tools that are expected to ship this year and the contribution of €700 million, you also mentioned that perhaps you slipped some of that €700 million into 2014. Can you tell us how much you’re expecting for 2013 and how much for 2014?

Good question. We have – what we told you as sales specs for 2013, we took a conservative amount about €250 million of the €700 million to come to the sales levels of 2013 similar to 2012.

Very helpful. Thank you so much.

The next question comes from Mr. Jagadish Iyer. Please state your company name followed by your question. Jagadish Iyer – Piper Jaffray, Inc.: Yeah, Piper Jaffray, thanks. Thanks for taking my question. Sorry about the previous one. Two questions, Eric. So first, if you look at your sales guidance for 2013 and given the foundry war which is ongoing and the capital intensity that is happening given that that is going to be at least 1.7 times more intensive compared to the prior nodes, your guidance seems to be little bit kind of soft. Is it a fair assessment that you’re being very conservative here? Can you talk about the puts and takes? And then I have a follow up.

Yeah. Well, our philosophy and style is not to bet and have an opinion and then say, it’s a gutsy opinion or it’s not. We’re trying to guide you only on factual data that we have. And the factual data is we have one segment and a half, which one segment is, you’ve all guessed it, in the 20 nanometer leading company. And then you have a percentage of our 11 machine until it was nice enough to tell you exactly which percentage we talked about. So you take these big account of 20 nanometer, it was our own understanding of how many units you really need to do to do this 40K wafers. You add this X percent of the EUV machine. You add the standard business that we have and you come up with about the same sales level. So that’s what we guided. When we saw that number, we said we have to guide you because it’s a true statement, it’s a true number. So you can translate my point by saying there is indeed upside opportunities. The first upside opportunity is that the elder logic people will not consider this acceptable to leave only one and one of them to take over the majority share of 20 nanometer so early in the game. So that’s an upside. The second upside which we mentioned in the press release is that if the PC business does pick up a bit due to the new form factors, you will see immediately a reaction in every people who do microprocessors, you know who will benefit from that and memory. DRAM will start benefiting. But then you are going to have a multiplayer in the NAND business for the people doing and successful at solid state drive because solid state drive…

I guess DRAM business or the memory business because it is more and more merging somehow and is looking for a differentiative activity. So they have resolved probably their – as you call this, the consolidation. I guess that they have numbers of players which have reached some kind of an equilibrium, so none of them would want to continue losing money. Why they continue losing money and the prices took time to get up because if – by the way the DRAM prices are getting up in the last three, four weeks, so there is an upside coming on. Something is happening at this moment. The reason why they however had another bad six months or so is because the PC business in fact was surprisingly weak. If you remember we started the year after where everybody used to thinking that the PC business would grow by 5% or 10%. And then it happened to be flat or freaking. So that created problem that they are trying to resolve. So what is happening now is one will not continue driving the business with the same method which is over investing, so that they try to take the other guy out of business. I don’t think that we’ll do this any longer. But I start seeing more interest to differentiate themselves with the way they do the chips, which also include a bit of process. This is very visible in the NAND business, you've noticed that in NAND business they've gone now to trying to differentiate on the design of the chips, on the numbers of bits per cell, on the software driver et cetera and you can start seeing this in the DRAM. So if you have a DRAM idea, and EUV shrink capability is not only cost, but it's also an enabler of something like power consumption, speed of access, et cetera, then you could show some huge interest. And we have started to see some of that, but I must say I don't have specific to tell you that you should consider that I mean I have something in there, I don't know, I see questions but I would – which leads to this idea. Jagadish Iyer – Piper Jaffray, Inc.: Thank you so much for the commentary, really helpful.

I think we – ladies and gentlemen, have time for one more quick question. We'll try to squeeze in other one in. If we didn't get through and you have remaining questions of course feel free to call the investor relations department and we'll be glad to get back to you as soon as we possibly can. So operator can we have the last call please or last question.

Of course, Mr. Wennink. The last question comes from Mr. Lee Simpson. Please state your company name followed by your question. Lee J. Simpson – Jefferies: Hi thanks so much. It's Lee Simpson at Jefferies. Really just wanted to trying to ask a question around DSM risk, I mean if you look to a lot of the EDA suppliers, they are talking about increasing DSM risks around advanced node development, such as that 20 nanometers, 22 nanometers and more so at 14 nanometers. Things increasing like DRC rules and the complication with cell slot for new features like thin fabs, I suppose the history tells you there's always the speed of design progression for new nodes, but I wonder if you could shed some light in what might be different this time and how this if at all really transfers the slowdown in development of chips at each node and whether or not that has a onward impact to the ramp of the 20 nanometers node up to, let's say 320,000 wafer starts per month similar to 28 nanometer node?

Well, you’ve put a tough responsibility on me because usually when you close a call you want to close on good news and you’ve come up with the possibility for me to say something negative. Now, I'll try my best. The negative part of your question is really at the end of the day, it could create an inflation of cost. You mentioned issues, design manufacturing issues, which require in fact investment. So there is indeed a pressure on cost and all of us, our customers, but to us are trying to solve the problem by bringing solutions to the market which do not add an inflation of cost. So that clearly is a pressure. But let's conclude with positive news. We see this as a huge business opportunity. The discussion that we just had on this metrology group is exactly your point. It has triggered the possibility for us to go from €100 million to €200 million to €400 million potential sales of these high-valued product. Secondly, that's the moment when the war is too big, EUV comes up and EUV does reduce the need for these complicated situations. So ASML is hugely well positioned to resolve the complexity that you just mentioned. Lee J. Simpson – Jefferies: So I mean if this goes back to an earlier question I think you got that, holistic lithography should probably increase, bearing aside that perhaps Q4 was the high tide so far in that sales level.

Absolutely.

,: Lee J. Simpson – Jefferies: Great. All right, gentlemen. Thanks very much.

On behalf of the Board and management here today at ASML, I’d like to thank you for joining us today on the call. And operator, if you would formally conclude the call for me that we would appreciate it, thanks.

Ladies and gentlemen, this concludes the ASML 2012 Fourth quarter and Annual Results conference call. Thank you for participating. You may now disconnect.