Ladies and gentlemen, thank you for standing by. Welcome to ASML 2017 Fourth Quarter and Annual Financial Results Conference Call on January 17, 2018. 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. Go ahead, please sir.

Thank you, Operator. Good afternoon, good morning ladies and gentlemen. This is Skip Miller, Vice President of Investor Relations at ASML. Joining me today from ASML headquarters in Veldhoven, in Netherlands, is ASML's CEO, Peter Wennink; and CFO, Wolfgang Nickl. The subject of today's call is ASML's 2017 fourth quarter and annual results. The length of this call will be 60 minutes and questions will be taken in the order that 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 Web site shortly following the conclusion of the 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 Web site 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. Good morning, and good afternoon ladies and gentlemen, and thank you for joining us for our fourth quarter and 2017 annual results conference call. Before we begin the question-and-answer session, Wolfgang and I would like to provide you with an overview and some commentary on the fourth quarter and the full year 2017, as well as provide our view of the coming quarters. Wolfgang will start with a review of our fourth quarter financial performance with some added comments on our short-term outlook, and I will complete the introduction with some additional comments on the current business environment and our future business outlook. Wolfgang, if you will.

Thank you, Peter, and welcome everyone. I will first highlight some of the fourth quarter and full-year financial accomplishments and then provide our guidance for the first quarter of 2018. Q4 net sales came in at €2.56 billion, exceeding our guidance by over €400 million. Due to demand strengths, some customers requested earlier shipments of lithography systems, which we were able to accommodate late in the quarter. This accounted for almost half of the €400 million, and the other half came from earlier-than-expected acceptance of the performance of two previously shipped EUV systems by a customer, which led to recognition of deferred revenue in Q4. Net systems sales of €1.95 billion was driven by memory, which contributed 53% of sales, foundry accounted for 29%, and IDM was 18% of system sales. Installed base management sales for the quarter came in at €606 million which was in line with our guidance. Gross margin for the quarter came in at 45.2%, which was 120 basis points higher than our guidance. This was the result of much stronger than expected DUV sales more than offsetting the dilutive effect from incremental EUV revenue that was recognized during the quarter. Overall, OpEx came in slightly above guidance with R&D expenses at €317 million and SG&A expenses at €113 million. Turning to the balance sheet, quarter-over-quarter cash, cash equivalents, and short-term investments came in at €3.29 billion. During the quarter, we purchased approximately €331 million worth of shares. Since January 2016, we have purchased a total of approximately 8.2 million shares with a value of €900 million against our 2016-2017 authorization of €1.5 billion. Moving on to the order book, Q4 systems bookings came in at a strong €2.93 billion. This is almost an €800 million increase compared to Q3 bookings. The older intake was driven…

Thank you, Wolfgang. As Wolfgang highlighted, we had another record year in 2017. The demand for our full product portfolio was very strong, and our business continues to perform very well. The strong demand in both logic and memory set new revenue records across both sectors in 2017, expanding end-market applications, IC device content growth, increasing litho intensity, all evidenced by our strong backlog, provide a good basis for this positive momentum to continue in 2018. Amongst others, but certainly due to high demand from the server market, DRAM system demand remains strong as our customers continue to migrate to sub-20-nanometer nodes. Advanced nodes are more litho intensive and thus drive increased litho demand. In 3D NAND, litho demand is also strong as a number of customers continue to ramp new greenfield fabs as scaled vertically which all fall stack-of-stacks. Additionally lithography is required to connect these stacks which further drives up litho intensity. When adding the net opportunity to the DRAM business outlook for next year we see another strong memory year ahead. Logic demand continues to be solid as customers ramp 10-nanometer and start transition to the seven-nanometer node. Litho intensity continues to increase with migration to more advanced nodes, and further grows with the adoption of EUV at 7-nanometer. EUV production ramp will accelerate in 2018 as customers are eager to realize the benefits of process simplification, cycle time reduction, a yield improvement, and ultimately resulting in cost benefits. With regards to China, we set the new record from this region in 2017, with over €700 million in revenue. In addition to strong demand from existing customers in the region, we're also planning to ship to five domestic Chinese customers in 2018 for both memory and logic applications. With continued ramp of fabs in China, both from…

Thank you, Peter. Ladies and gentlemen, 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 the first question please?

Thank you, sir. [Operator Instructions] The first question comes from Mr. Farhan Ahmad. Please state your company name followed by your question.

Hi, this is Farhan Ahmad from Credit Suisse. Thanks for taking my question, and congrats on great set of [ph] results. My question is on EUV booked in system orders, can you talk about the mix of customers within that? Is it coming from memory or foundry, and are there multiple customers within that?

Yes, there are multiple customers. It was dominated by the logic side of our business. And that is also when we look at next year we see sales increase in logic really driven by EUV and memory sales increase is driven by DUV.

Got it. And then in terms of the linearity for the year, is there much change between memory and logic mix in the year, first-half more memory-driven and second more foundry logic as some of the other companies have said?

Not on the DUV side, on the EUV side. And on the EUV side as mentioned in the prepared, it will be more back-end loaded.

Got it. Thank you. That's all.

The next question comes from Mr. C.J. Muse. Please state your company name followed by your question.

Yes, good afternoon; C.J. Muse with Evercore ISI. Thank you for taking my question. First question, I guess, was hoping you could discuss, Peter, what you're seeing in the supply chain on the EUV side. Would love to get an update in terms of optics, things like that and whether you're feeling better, same, worse in terms of hitting that 30 tool target into the 2019 timeframe?

Yes, I think with respect to my feeling, no changes. I think it's the same as we said last quarter. It has to do with the fact that the step-ups in capacity are really long lead time items. And so this is not something that you can change one quarter to the other. So, the supply situation is what it is, and I think the 30-plus is limited, as we said before, by the supply chain, and the 40-plus is really when the supply chain can kick into the next step, so no real change.

Okay. And I guess as my follow-up, you guided gross margin higher year-over-year despite the nice tick higher in EUV shipments. So curious, if you think about non-EUV and growth in inspection and an uptick on the DUV side, is it fair to say that, overall, that part of your business can do roughly 53%-54% gross margin through the year?

I wouldn't like to nail it down to an exact percentage. But if you look at both other businesses, so the holistic lithography business and the DUV business you will see an increased mix towards the more powerful machines, and that has a positive affect on gross margins. Also, we're continuing to do a lot of very profitable upgrades. And then from a mix between DUV and holistic lithography you will see also over the next two or three years a continued mix towards holistic lithography, which will have a slightly higher mix in our overall revenue. And since this is very software driven it structurally also contributes to the non-EUV business being up. So both effects, both of these businesses go up based on the products that we offer, and then you also have a mixed base effect. And that of course comes together with us making significant progress on EUV, and that's why we feel confident that from the 45% we can advance in 2018, and then get to our 50%-plus in 2020.

Very helpful, thank you.

And C.J., if I just may add one general comment on this, is going forward, I mean we guiding. And as we did, we're guiding a corporate gross margin. And going forward we will do that, because if you look at what our customers really want from us is node-to-node transitions. And node-to-node transitions going forward are really a combination of the entire set of products and services that we are offering. So you will see agreements with our customers that involve EUV, DUV, holistic, and application in one goal, and we will make one VPA which effectively gives us one gross margin. So, going forward we will guide you more and more on the overall corporate gross margin because it doesn't make sense to give you, and I don't want to do that either, to give you any specific gross margin guidance for those products because we have VPAs for the entire product portfolio of ASML.

The next question comes from Mr. Sandeep Deshpande. Please state your company name and your question, please.

Hi, Sandeep Deshpande, J.P. Morgan. My first question is on EUV, could you possibly help us understand in terms of the recognition on EUV into 2018. Are you going to be recognizing then all the tools on shipments by the second-half of this year as well as the past deferred revenue on EUV will be fully recognized in 2018? And I have a quick follow-up on EUV as well.

Okay, let me see whether I can structure this for you because there's a lot of moving parts here. The first comment is, by the end of the year we should be able to recognize the majority of the revenue of a system as we ship it. At the beginning of the year we still have shipments, as you have heard from my prepared remarks. Q1, for instance, we're planning to ship four systems recognizing only €150 million. There are still shipments of tools that have changes in them that require us to wait with revenue recognition for an acceptance of the tool at the customer side. So these Q1 shipments will however recognize in the second-half of the year. On top of that, we are carrying a deferred revenue balance of around €500 million on our balance sheet from prior shipments. And they're both short-term and long-term, so some of them will come into the P&L in 2018, and some will even carry a little bit into 2019. If you put it all together we expect the revenue for the EUV business to be somewhere in the €2.3 billion range for the year. And as a reminder, just for clarification, we said €2.5 billion in the last call, but of course we achieved the acceptance of €2.2 billion already in 2017, and of course they moved into 2017, where we overachieved by €200 million. I hope that helps, Sandeep.

Thank you, Wolfgang. And then following up to your earlier response, Peter, regarding EUV for 2019. I mean, some of those very strong orders you took in the fourth quarter are clearly 2019 related. How do you see the order billed for 2019? Do you expect that because of your lead time you'll get almost all the 2019-related EUV orders in this year itself or this is going to continue right through next year in terms of getting orders? And will you also start seeing a 2020 level of indications from customers for EUV? Thank you.

Yes, I think what we are working on, because there's also a customer request, is clearly a reduction of the cycle time of our EUV tools. I mean, it has to come down by 2020. We would really like to be at the cycle time anywhere between 12 and 15 months. That means also customers will take account of that, and that means that they will actually postpone issuing the orders to reflect that reduced cycle time. Now, the first cycle time reductions we will probably see somewhere towards the end of 2018. But I would suspect that the majority -- I think the significant majority of everything that we will ship in 2019 will be booked in 2018, because the cycle time reductions will really take effect later, and that will then have an affect on the order lead time of our customers, so vast majority should be in this year.

Thank you, Peter.

The next question comes from Mr. Amit Harchandani. Please state your company name followed by your question.

Good afternoon everyone; Amit Harchandani, from Citigroup, and thanks for taking my questions. My first question would be with regards to the current traction you are seeing on the high NA EUV side. If you could please update us on the same, and I say so in the context of your 2020 ambition, where clearly the market is looking for some color or trajectory in terms of how revenues are likely to shape up beyond 2020 and high NA is a critical ingredient of the same. So it would be great to know your thoughts on the same, and then I have a follow-up.

Yes, it's a good question. I think we have had extensive discussion with our customers on our high NA concept. And I mean how the machine looks like and the performance specifications. And we started it already way into 2017. I think we got conformation from our major customers that high NA makes complete sense from a technical point of view and from an economical point of view, so they want us to execute on this. Now, currently we are in discussion with our customers under what terms and conditions we should start shipping the first R&D tools, and how quickly after the R&D tools we should start ramping up for volume. Having said that, you need to realize that the high NA tool is really a new scanner, it's not so much a new EUV source. As you know, the EUV source being the main reason why there was a delay with EUV introduction, we were using the same source as for the current EUV generation. So that means that we would be able to actually see a high volume high NA EUV tools shipping somewhere in the middle of the next decade, starting to be used in your high-volume production, and then ramping in the second-half of the next decade. Now, those would be tools that we're currently looking at pricing significantly over €200 million. And that means that if you then look beyond the 2020 target number in terms of sales, then you don't need a lot of imagination to foresee our top line growing significantly beyond 2020, and it will be driven by EUV in the next generation.

Thank you, Peter. And as an unrelated follow-up, if I could get some clarity around China, you've given us an idea of shipment to domestic customers in 2018. In the past you've talked about the cumulative litho opportunity, if I remember correctly, of around €3 billion. Could you give us a sense on has -- is your sentiment more positive, more negative, and how are you thinking about China over the next two to three years.

Yes, I think we actually mentioned that €3 billion mark, but that takes into account, I think, our view as to the speed -- the realistic speed with which our domestic Chinese customers will be able to ramp their fabs and to get their products qualified. Now, if they can do this faster then you would probably see an uptick on that €3 billion. And if you would do it, let's say, at a speed with which we would normally see in memory and in logic you could probably get to a number that's almost twice as high as the €3 billion. But is given the fact that may of these are not only green field fabs, but also green field companies. And that's why we take a more conservative view. But I would say let's stick to the €3 billion, and let's work very closely together with those customers to see whether they can accelerate.

Thank you, Peter.

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

Yes, Summit Redstone. Thanks for taking my question. Two questions, Peter. If you look at foundry logic -- if you look at calendar '17, there has not been a significant uptick in your revenue in foundry logic segment, whereas if you compare it to the memory there has been a significant uptick there. So how should we think about growth in memory revenues in calendar '18, and is there a potential risk that if customers decide to scale back on capital spending if the pricing environment does not support such a situation? And I have a follow-up.

Yes, I think with both for memory and logic we see similar patterns in 2018, with here and there some potential upside which is customer driven. I think the second-half of your question is probably a more relevant one because it comes up time and time again. The way we look at this is, are we creating an overcapacity in terms of the bit supply into the memory market, both DRAM and on NAND. Now, if we look at what our customers are currently asking us and the forecast that they gave us for what they want in 2018, which of course is not fully yet in the backlog. If we take that, and we take into account that the nodes that they want to use [indiscernible], the effect it will have on the bit density, then we can calculate what the capacity addition will be in terms of bits. And in DRAM, where we'll be probably anywhere -- I'd say, mid-20s max, so anywhere between 22% to 25%. And in NAND the capacity addition of what we can see based on litho will be around mid-40s. Now these are the way currently our customers are talking about and the analysts are talking about it. And it's about the same as the demand bit growth looks like. So when we take those two together and we look at the capability of the lithography machines to add bits, it seems that it's pretty much imbalanced. So is there a risk? There's always a risk because you know it's about the end markets, it's about the global economy. But from where we are today we don't see that as a major issue.

Okay, thanks for that. And then I have a follow-up. So you talked about EUV, and you talked about 125 wafers an hour. On a high level, can you kind of quantify in calendar '17 in terms of your progress in terms of productivity and availability. And what should be the milestone for calendar '18? Not quarter-to-quarter variation, but just on overall annual level milestones. Thank you.

Yes, you have to realize that nobody has EUV in full production yet. I mean it's all coming out of the development phase, so they're qualifying product, which actually means nobody runs 125 wafers per hour continuously. I mean we're not there yet. It'd actually start in the back-half of 2018. But that capability is actually there, and [indiscernible] have been done by customers and by us show us that capability. Now, with respect to the availability, with the 3400 we're over 80%. We're significantly over 80%, and I think the target by the end of this year will be that the availability numbers are such that customers feel comfortable to put tools into a production that will give them around 1,500, maximum 2,000 wafer per day. And that is then a result of the 125 wafers per hour on average, and the availability and the, let's say, inactive hours that customers are planning for your own production. So that target of 1,500 to 2,000 wafers per day, that is what we are focusing on, and that seems very feasible with everything we have on the table we have today, which I think is evidenced by the fact that customers are giving us orders, and we got 10 orders in Q4.

Thanks for that. Congrats.

The next question comes from Mr. David Mulholland. Please state your company name followed by your question.

Hi, thanks very much. This is David Mulholland from UBS. Firstly, one of the strengths in the quarter was clearly the memory bookings. And I wonder if you could just help us understand how that breaks down in the quarter for as much visibility as you have between DRAM and NAND, and how those changed versus Q3. And also how much of it is coming from China at this stage. And then I've got a follow-up.

Yes, to answer your last part on China, of course we have green field fabs there. They're not going to ramp, like I said, as an answer to an earlier question. They're going to ramp up with the same speed as the mature memory companies. So they will take those tools, and we'll use those tools to create a first line where they can qualify their product. So it is in there in terms of the bookings. Now, split between DRAM and NAND is very difficult for the simple reason that customers are continuously assessing how to allocate their lithography capabilities and their capacity between DRAM and between NAND, and a lot of reallocations going on between DRAM and in NAND. That's why some time ago we decided to just give you the memory segment as one segment, and don't split between DRAM and NAND because they are continuously changing because of those reallocations.

That's clear. And then just on the follow-up. One of the comments you made was obviously two tools being recognized earlier in Q4. I just wondered if you can give us some clarity on what drove that. Was it the customer lowering the performance requirement that got you there earlier or was it better performance on your side of getting to the targets quicker?

It was because the customer signed off on the specifications that we agreed when we ship the tool. So no better or worse specification, just we me the specification and they signed off.

That's all right. Thanks very much.

The next question comes from Mr. Jerome Ramel. Please state your company name followed by your question.

Yes, Jerome Ramel, BNP Paribas. One quick question on EUV, can you update us on the mask inspection and pellicles?

Okay. Mask inspection, well we shipped the first EUV mask inspection tool through our HMI subsidiary. Mask in itself, as we also showed in the presentation this morning already you have actually -- but at least we showed we made significant progress on the pellicle development. So let's say pellicles are now able to be used at the 250 watt power level. Lifetime of pellicles is going up, they're all moving very nicely into the volume reduction area. So masks and the mask infrastructure we don't think there's any issue that will prevent our customers to put EUV into volume production in the course of the year.

Okay, thanks. And another follow-up on high NA EUV, some of your potential client made a comment that they might need to build new fabs to go with these new tools. Is that the vision you are sharing? The question is, can we eventually use high NA EUV in existing fabs or do we have to redesign the fabs? Thanks.

Well, I think it's similar to the current EUV tool. I mean, when we go five years ago, the current EUV tool did not fit into many of the fabs at that moment in time. I mean it's a better fab height, it's the strength of the floor, and it's -- you know these are bigger tools. But this is as low as -- and this is why we have such a coordinated and very detailed interaction with our customers in high NA. This also makes sure that they understand the full specification sets, not only from a lithography point of view but also from a logistics and a facility management point of view. That's being communicated. And I hope customers will build new fabs, and only because high NA, because the market is growing and we need more of those devices. And I think that will be the main reason why they start building new fabs. And then take into account that those are a bit bigger.

Okay, thank you.

The next question comes from Mr. Douglas Smith. Please state your company name followed by your question.

[Technical difficulty] great quarter, by the way. I noticed that the drive EUV moved up from 20 units to 25 units Q3 to Q4, but the immersion when from 22 to 20. Is that evidence of the increasing importance of NAND in your portfolio?

No, I think the to draw conclusions on a quarter-to-quarter comparison between Q3 and Q4, is that -- I think you probably shouldn't do that, because there's be all kinds of incidental factors, customer-specific shipments. But generally I would say that the drive DUV systems are going up in numbers going forward. Because, yes, you are absolutely correct, there is a higher need in the 3D NAND space. Now, it's not only because the 3D NAND space grows, that is for different reasons. One is we use stacks, like is said in my prepared comments, which actually means you need extra litho steps to connect those specs, that is one. But also, there are specific requirements that we need to put to those drive tools because there are peculiarities, I could say, with 3D NAND manufacturing which have to do with wafers, which have to do with opaque layers so that the alignment needs to be different. And all those specific peculiarities of 3D NAND will be addressed by us by brining out tools and options on the tools that will enable our customers to increase their yields, and to make sure that they can do effective 3D NAND production.

Got it. On a kind of related issue, I was wondering are you seeing any evidence yet that with the traction of EUV customers might be planning on ordering fewer immersion systems, which I guess is kind of the whole point of introducing EUV in the longer term.

Yes, what I think is probably best is we look at our analyst day of 2016, we gave you a couple of scenarios where high EUV introduction, lower EUV introduction for several reasons. It could be EUV not as effective as we'd, at that moment in time, planned, or where the markets were very different. And you can actually conclude from those scenarios that higher EUV will lead to somewhat lower immersion tools, but still significant, yes. And it's logical because it will cannibalize some of the multiple patterning layers. But on the other hand also layers are growing, yes. So there is a dilutive effect in that sense that you have more you know, layers, and some of those layers will be new layers, will be the immersion layers. You know, how you look at it the number of EUV -- of immersion systems will still remain significant, also with high EUV introduction. So also this is a -- I'd like to refer back to those four scenarios that we showed in the end of 2016.

And just to give you the numbers on these four scenarios, at anything between 50 and 80 tools, and that right in the middle of that range, around 70, is what we're shipping right now. So it's not in -- in no case it is going down significantly.

Yes.

Right. So it's that you're saying that it's too early really to judge the level of cannibalization of EUV to immersion?

Yes. And there will be probably some. I mean, if we now look at a good EUV adoption, which I think is a realistic assumption right now, then yes, there will be some affect on the immersion tools, but it's not going to be significant.

Got it. Thank you very much.

I think, by the way, if you look at over the lifetime, over a very long period it's actually not cannibalizing immersion at all. Because without EUV at one point in time there wouldn't be even new nodes, and if there is a new node there will also always be layers for immersion. So if you don't get it at a very long period of time, it's actually not cannibalizing at all. It's actually keeping it alive.

Yes, that's a good point.

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

Yes, thanks for taking my questions; Mehdi Hosseini from Susquehanna International. A couple of follow-up, Peter, how should I think about your DRAM customers that are planning for EUV? Will that take for you to hit that 2000 wafer per day target before you see a step up in booking activity, or is there any other metric that I need to track? Any insight here would be great. And I have a couple of follow-ups.

Yes, I think it's not a surprise that DRAM devices are more cost sensitive than the advanced logic. So it is true that 2000 wafers per day is what we have before is a realistic economic productivity target. And I think if we meet that target, all I say -- all I continue is basis. It's our assessment that that will be a very effective economic entry point for DRAM. Now –- and how realistic is 2000 wafers per day? With everything that we have on the roadmap today, I think it is realistic to beat it by the end of the year. So -- now let's work very hard and execute on it. And we work very closely together with our customers to get to that point because that of course it will be only for a very few layers, but there are lot of DRAM wafer. So, that could give an extra to our EUV story.

Sure. Now, I wanted to reconcile this with light source capacity. How long would it take for ZEISS to add additional capacity? Do you have any flexibility to accelerate investment there or accelerate capacity -- manufacturing capacity so that your 30 plus target for 2019 could increase? And I am asking you this because if you are able to increase confidence among your DRAM customers that you can actually do 200 wafer per day, wouldn't it need to place a PO before '19 and wouldn't some of these EUV shipment will have to take place into DRAM customer by late '19? So doesn't that create a kind of a double sword? And I want to get your view on the kind of lever that you can pull to accommodate these DRAM customers.

Yes, I know is --you have asked a very elaborate question and I will give you a very simple answer. The way that we -- the lead time to increase capacity at ZEISS has lapsed. I mean we are where we are today. We had to get 30 plus and how much the plus is dependent on the cycle time reduction in the factory of ZEISS. The faster they can do that and the better they can do that, the more we can squeeze out because everything else a long list of items in terms of buildings, machines, people, training, the whole thing, that will not happen until 2020, and our outlook to 2020, which is their outlook 2019. So that means we have what we have. And that also means we are very transparent to our customers on the 2019 potential shipment plan and when those machines become available. We are very transparent with every customer. And it's up to them to decide whether they want to take up that capacity. And as very little we can do other than just working very hard with our ZEISS colleagues to keep reducing the cycle time to squeeze out a few extra. But, that's what it is. And it is up to the customers to react on the transparency that we will give them.

But probably two clarifications just in case I got your question wrong because you referred to the light source, of course, the light source is not done at ZEISS. It's the optical system. And secondly, you seem to imply that DRAM EUV shipments would start late in 2019. We are already shipping EUV systems now. So I mean it will also be in DRAM in high volume manufacturing in 2019, just so that's clear.

Thanks for the correction. Does elaborate question give me a quick follow-up?

Yes, because we know it's such a long target.

Okay, great, thank you. You made interesting point about EUV mask mass inspection. You said that you have already shipped your first tool. How should we think about a year or two from now? Should we assume that you actually can turn this into a volume production and actually help customers meet inspection or mask inspection without relying on other vendors?

Well, it's a fully equipped mask inspection tool, so it's a leaving tool, and it can be used for EUV mask inspection. And the more EUV is used in terms of layers the more mask inspection tools are needed. So I think we just are going to deliver and ship into that market. And yes, it's what it is. And I think when we did the HMI acquisition last year, I think we also -- the year before in 2016, I think we did discuss the opportunity of EUV mask inspection as couple of hundred million euros. Yes, it is what it is. And I think the success of EUV will, of course, help us also penetrate that market.

Great. Thanks so much.

The next question comes from Ms. Tammy Qiu. Please state your company name followed by your question.

Hi, thank you for taking my question; Tammy Qiu from Berenberg. So the first question is on the cycle, I understand that based on your comment 2018 is likely to be a nice year. I am just wondering what's your view on 2019 and what is going to be end market driver there?

Well, I just sold my crystal ball. So I really can't answer this. But it all depends on the end market, so I mean the -- just the more high level answer is the proliferation and the penetration of IC devices into almost everything now actually makes it more qualifies I think macroeconomics swings. You want to talk about cycles, I think it will be macroeconomic cycle. I said it in the press conference this morning also and -- but when that happens, I don't know. The only thing is when it happens we will be able to react and in your case you seem to indicate what's the possibility of downward correction, I don't know, but when it happens, we have all the means and the flexibility to react.

Okay. And the second question I ask, you talked about EUV wouldn't actually limit the demand for Deep UV. So in general, I would say does that mean equipment cost become more and more expensive for the chip makers over time. So therefore, they will have to keep buying the more expensive and more equipment for making the node? So I am not sure how you view this point. Do you as the equipment maker need to cut the price at certain point so that they don't have to pay crazy CapEx all the time? Or, can they actually pass on the incremental CapEx to their customers?

Well, what you are basically asking is Moore's law still viable because of course when I just -- or just before the press conference I bumped into one of the really senior ASML employees and he said, you know this great where the company is going. I still remember sending out the first invoice for one million dollars. Now we are selling €120 million tool. So, to your point, yes, customers have started to pay a lot more for those tools. But the cost per transistor and the cost per function has continuously gone down on algorithmic scale. So, is Moore's law viable? Yes, we believe it's still viable. Yes, our customers will pay higher price for our machines whereby the costs will keep going down.

Okay, thank you.

The next question will come from Mr. Andrew Gardiner. Please state your company name followed by your question.

Good afternoon. It's Andrew Gardiner from Barclays. We spent quite a bit of time talking about memory this afternoon. I am just wondering if we could spend a minute or two on the logic. Just in terms of the first on the net thinking for 2018 and the sort of node migration plans in place there, how do you view your visibility into that logic business this year? I presume it's better or sort of firmer than we see in memory where you seem to be highlighting the potential risk in the back half for at least lack of visibility in the back half. But how -- so where is your conviction level or where are customer sort of order rates in terms of the 10 and 7 nanometer migrations?

Yes, I think we haven't changed our view as compared to one or two quarters ago. I mean the logic 10 nanometer Ramp is still going actually to the areas in China where we are shipping 14 and 28. And more importantly, I think what we will see is by the back half of the year, we'll start to see EUV going into 7 nanometer pilot production. This ramp I think also if you look at the comments made by our customers and their assessment of the size of the nodes, there is no reason whatsoever to believe that they -- that there is an indication that those nodes will actually dwindle in terms of number of wafers that they would need to build that capacity. And on the [indiscernible] area, I think comments have been made by the customers on the 7 and 10 nanometers nodes as being very large nodes and seeing a lot of bounce. So there is no indication whatsoever to change our views. Like I said earlier, we look at the memory and the logic business; we see 2018 developing at least at the same level as 2017 for both logic and memory with some upside here and there.

Okay, thank you. I just have a quick accounting follow-up for Wolfgang. We are starting to see the ZEISS investment come through in terms of the equity income line. It was somewhat negative in the fourth quarter. Is that a rough rule of thumb we should be thinking of as we put in our models for future period?

Yes. First of all for everybody we had two agreements with ZEISS. One was a high NA investment agreement and one was an equity agreement. High NA one obviously goes through our R&D line and also through our balance sheet as it relates to the CapEx. But as it relates to the equity investment, you will see that equity method investment on the balance sheet of about €1 billion for the 24.9% that we own. And then you see two elements in our financial statements. First of all, you see in the P&L a profit that's attributed to those 24.9%. And therefore, the first quarter you saw a negative 17 million. And the second thing that you see is in our cash flow from investing, you see that dividend that's attributed to that investment. And you see that we received a dividend also for our three months' period of almost €20 million. So the dividend is basically since SMT basically distributes their earning, a very good reflection of the profitability of that business. Now accounting makes this a little bit complicated because you need to do numerous things. But you start from a very healthy profit and then you start off with number one, the adjustment from IFRS to U.S. GAAP. Number two, you adjust for differences in accounting policies between the companies. But then number three, if it where it early hits you, even though it's not an acquisition, you still need to do purchase price accounting. That means you need to write up the inventory to the fair market value. You need to identify intangibles and then you do the same thing that what we were -- heard us talking about when we talked about HMI, you need to consume that inventory and you need to amortize these intangibles. And that takes your profit all the way to a 17 million loss. Now as it relates to the future, this is something that will still be with us for a long time because these intangibles has a lifetime of 15 years plus. But the inventory part, we will walk through within a year or so. So I think net-net for 2018, this will still be a loss. And then in 2019, you will also see a profit on that line. And the cash, of course, follows the true profit and cash flow of SMT. And from a cash flow perspective you should see a much, much higher number every year.

Thank you. Wolfgang, it wasn't such a good follow-up, sorry.

Ladies and gentlemen, we have time for one last question. If you were unable to get through on this call and still have questions, please feel free to contact the ASML Investor Relations department with your question. Now, operator, maybe we have the last caller please.

Of course, sir. The final question will come from Mr. Robert Sanders. Please state your company name followed by your question.

And it's Deutsche Bank. I just had a last question on the EUV backlog, just in terms of how many of those 28 tools are with the plant 251 configuration as opposed to, I think it's 205 of the standard tool? And I have a follow-up. Thanks.

All of them, because even if it's - we have to do a commitment to have all of those tools ultimately to be at 251, so in fact they are all at the 251 configuration.

Got it. So, all of them will have an extra amount of money to be build to the customer once you get up to 251, because that's beyond the spec, right?

No, because the stack is we need to [indiscernible] 125 wafers, so where we get over 250, once we get more wafers out there, we get extra money, but 125 wafers is what we sold about.

Oh, okay. And just last question for Wolfgang, just on the gross margin in 2018, given what you said about being higher than I think 45, is 45% to 46% a kind of good model - number for model for 2018? If you can just give a vague range, that would be great. Thanks.

I'd assume we would have noted that it's only extremely marginal, but I don't want to tie it down to a specific number at this point in time either. So, we will go through the year and the more important thing is it will be a good step forward towards the 50-plus in 2020, and that's really what we are working for.

Okay. Got it, thank you very much guys.

You are welcome.

Thank you. Thank you, Rob. Now, on behalf of ASML's board of management, I would like to thank you all for joining us today. Operator, if you could formally conclude the call, I'd appreciate it. Thank you.