ASML Holding N.V. (ASML)

Barclays Capital Global Technology, Media and Telecommunications Conference Call

May 22, 2012 02:45 pm ET


Craig DeYoung - VP, IR


Andrew Gardiner - Barclays


Andrew Gardiner - Barclays

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Good afternoon everybody. My name is Andrew Gardiner from the Barclays European Equity Research team covering the technology hardware space and it's my pleasure on behalf of Barclays, on behalf of the European team as well as our US team here covering the semiconductor capital equipment space headed by CJ Muse to welcome ASML. There we have Craig DeYoung and Peter Convertito from the investor relations team at ASML and we are just going to do a fireside chat, we should have some time for questions at the end, but I will just run through a few hopefully salient topics for Craig, but first of all he is going to give us perhaps a quick update on the most recent quarter’s latest trend.

Craig DeYoung

Sure. Thanks Andrew and thanks everybody for your interest in attending today. Yeah I talked -- maybe I would take about five minutes to kind of give you an update. There are have been some things that have changed over the course of the last three months, not so much since we've reported our results, but prior to that, so I wanted to bring everybody up-to-date. So we entered the year with a different view than we have now, probably almost in all sectors except maybe one. So it was our thought that as we entered the year that we would see a digestion period, probably in the second half of the year based on the number of tools that we shipped to the foundry space.

So we started to ship in real volumes to the foundries in total about middle of last year, so we shipped a significant amount of equipment. So again it was our opinion that we would probably see a bit of digestion and that hasn’t happened and we will get a chance to talk about more of the details in a minute. So today, we view the second half of the foundry activity of shipments at least from our standpoint to be stronger than the first half of the year where the opposite was true just a few months ago.

And we've been a bit surprised also by the NAND space. The NAND space, kind of the opposite has happened. We anticipated based on industry analysts' forecast about 70% bit demand growth in 2012, not sure that’s going to happen at this point in time. 70% bit supply would’ve required both shrink and capacity addition. So, we calculate that about 50% bits can be NAND bits, can be grown by the shrinks alone, the planned shrinks of our customers and just to remind you, 20% of our backlog at the end of the quarter is NAND.

So we continue to supply to that, to the shrink roadmaps of our customers, but on top of that, the other 20% or so that was expected from the supply side would had to be added by wafer capacity additions and this is where we see the moderation in behavior of our customers. So, within the 20% backlog, there is an amount of capacity that is going to be added, but not to the extent that we expected likely because the demand expectations for the NAND space are not quite through the year what was originally intended. So, there is rational and reasonable reaction from the NAND players in postponements of capacity additions in almost every location or transition from NAND to some other process in certain cases. So that was a bit of surprise.

So in the second half of 2012 coming in to the year, we expect that the NAND would be slightly higher in terms of us supplying to them than it appears they are going to be at this point in time over the first half. DRAM, really no surprises. Unbelievably, only 2% of our backlog at the end of the quarter is DRAM. DRAM can go bit by, somewhere approaching 40% by just the installed base that they have now or minimal additions to it in order to support the technology, no transitions that are planned by the aggregate DRAM players this year.

So in both the NAND and the DRAM spaces then we’ll have to look to expected demand growth in 2013 for either of the parties to come back to us for a greater supply. So again we'll have to let things develop a bit and let our customers get a view of 2013, we think at this point in order to get any real serious activity from them.

And then just to finish off on the foundry space there has been an increase interest in continued supply of both area of immersion, the critical layers tools as well as KrF tools to build out capacity in the 28 nanometer node. So you’ll notice in our reporting that we’re selling a significant number of units of immersion as well as the non-critical tools which fill out a brand new fab capacity.

So we know that behind that is real demand and you all can feel that and read about it et cetera. On top of that there is a renewed competitive slant to the sector such that that's stimulating probably an amount of additional capacity as we look forward into the at least this year and we’re starting very recently to get the view of the first half of next year. So let me just finish off by saying we can measure the utilization of the tools as an indication of supply demand balance if you will. So if we have a very high utilization it suggests we are a worse case in balance and best case if you will or worse case for the customer but good case for us where in an under supply situation. So we watch that, we also look at the number of tools we’re shipping into that sector and based on a number of challengeable variable inputs to the model, we can calculate the number of wafers starts that are going to be added.

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