ASML Holding's CEO Hosts Customer Co-Investment Program Conference Call (Transcript)

ASML Holding N.V. (ASML)

Customer Co-Investment Program Conference Call

July 10, 2012 1:00 am ET

Executives

Craig DeYoung – Vice President, Investor Relations

Peter Wennink – Executive Vice President and Chief Financial Officer

Eric Meurice – Chairman, President and Chief Executive Officer

Analysts

Satya Kumar – Credit Suisse Securities LLC

Marcel Achterberg – Petercam SA

Cornelius Rahn – Bloomberg News

Mahesh Sanganeria – RBC Capital Markets

Mehdi Hosseini – Susquehanna International Group

Jagadish Iyer – Piper Jaffray, Inc.

Janardan Menon – Liberum Capital

Didier Scemama – Bank of America Merrill Lynch

Jerome A. Ramel – Exane BNP Paribas

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the ASML’s Conference Call on July 10, 2012. Before 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 De Young. Please go ahead, sir.

Craig De Young

Thank you, Peter, and good evening and good morning, ladies and gentlemen. This is Craig De Young, Vice President of Investor Relations at ASML. I’d like to welcome you to our investor call and webcast. As I’m sure you’re aware as a subject that today’s call is ASML’s announcement of a customer co-investment innovation program. It’s a program aimed at accelerating development at EUV lithography beyond the current generation and pulling forward our development of 450 millimeter silicon wafer imaging technologies.

With me this evening in San Francisco, California to discuss the program is Eric Meurice, ASML’s CEO, along with Peter Wennink, who is ASML’s CFO, who is joining us from our headquarters in Veldhoven, Netherlands. Given the fact that we’re in two different locations, should there be any technical difficulties, the separated parties will rejoin the call as soon as possible.

At this time, I’d like to draw your attention to the Safe Harbor statement contained in today’s press release and in our online presentation both of which can be found on our website at www.asml.com. The Safe Harbor statement will apply to this call and all associated presentation materials. The length of this call will be 30 minutes.

And now I’d like to turn the call over to Peter Wennink for a brief introduction. Peter?

Peter Wennink

Thank you. Good afternoon and good morning, everyone, and thank you for attending today’s conference call regarding our recently issued press release. Before we begin the Q&A session, I’d like to provide a brief overview of the key points of the announcement. Following the introduction, Eric and I would gladly take as many of your questions as time will allow.

ASML announced today that we’ve established a program to enable minority equity investments in the company, by its largest customers in addition to commitments to partially fund ASML’s research and development spending for our future programs. The objective of the program is to accelerate our development of EUV beyond this current generation and our development of future 450 millimeter wafer technology, both due in the second half of this decade.

The possession is focused on risk sharing through co-investments by customers and contains basically three elements: first, the first element is that it has customers contributing potentially up to €1.4 billion towards our research and development cost for what we call a non-recurring engineering cost over and above the five year period starting in 2013.

The second element is that customers will have the ability to take a minority interest in the company, which in essence provides the cement for the strategic relationship between ASML and the industry. And the third element is that the money that we will receive for the issuance of the maximum of 25% additional shares will be returned in full to the adjusting shareholders through the use of a synthetic buyback program.

We see multiple benefits of this program to our customers, our shareholders, and our employees, as well as the electronics consumer at large by providing advanced lithography solutions sooner that will reduce our customer’s cost of IC manufacturing. Our customers will see an acceleration of delivery of lithography products through the middle of the next decade that will allow cost reductions, a few continued scaling, and larger wafer size migration. It’s important to point out that the products that result from this customer co-investment will be available without any restriction to every semiconductor manufacturer worldwide.

As for the existing shareholders, all money is paid for every new share created in this program, which will be a minimum of 15% and a maximum of 25% of issued shares, will be repaid by way of a combination of a capital repayment and a reverse stock split such there is no earnings per share or EPS dilution as the result of this program.

In addition, this program helps to spread the risks of the significant new development activities. However, not only does the additional funding and customer commitment de-risk the R&D program, the customer co-investment helps ASML in maintaining its consistent policy of return of capital, while at the same time, expanding the long-term growth of the business through increased sales and operating profit opportunities as we expect new commercial opportunities as a result of these additional R&D expenditures.

As both the next generation EUV development and 450 millimeter wafer size, two developments will take place at the same time. We will be creating some challenges in resourcing these programs. We currently see a need to add about 25% more engineering manpower or approximately 1,000 to 1,200 additional engineers both flexed and fixed giving our current and future employees plenty of new opportunities and challenges.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

Trump's Obsession With Winning His China Trade War Could Pummel Investors

Trump's Obsession With Winning His China Trade War Could Pummel Investors

3 Great Stock Market Sectors Millennials Should Invest In

3 Great Stock Market Sectors Millennials Should Invest In

Trump, Trade Wars, General Electric, 'Jurassic World' - 5 Things You Must Know

Trump, Trade Wars, General Electric, 'Jurassic World' - 5 Things You Must Know

Harley-Davidson to Shift Some U.S. Production in Wake of Tariffs

Harley-Davidson to Shift Some U.S. Production in Wake of Tariffs

Futures Fall on Further Trade News and 4 Other Stories to Watch Monday Morning

Futures Fall on Further Trade News and 4 Other Stories to Watch Monday Morning