Craig DeYoung - IR Peter Wennink - CEO Wolfgang Nickl - CFO.

Sandeep Deshpande - JP Morgan Kai Korschelt - Merrill Lynch Srini Sundararajan - Summit Research Mahesh Sanganeria - RBC Capital Markets Farhan Ahmad - Credit Suisse Gareth Jenkins - UBS Francois Meunier - Morgan Stanley Amit Harchandani - Citigroup Janardan Menon - Liberum.

Ladies and gentlemen, thank you for standing by. Welcome to the ASML Third Quarter Results Conference Call October 14, 2015. Throughout today’s introduction, all participants will be in a listen-only mode. After ASML introduction, there will be an opportunity to ask questions. [Operator Instructions] I would now like to hand over the conference to Mr.

Craig DeYoung. Please go ahead, sir..

Thank you, Aaron, 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 in Netherlands is ASML CEO Peter Wennink and CFO Wolfgang Nickl. To remind you that subject of today’s call is ASML’s third quarter 2015 results.

This call is being broadcast live over the Internet at www.asml.com and a replay of the call will be available on our Web site for approximately 90 days. 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.

And for a discussion of these 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.

The length of the call will be 60 minutes and now I’d like to turn the call over to Peter Wennink for a brief introduction..

Thank you, Craig. Good morning, good afternoon, ladies and gentlemen. And thank you for joining us for our third quarter 2015 results conference call. Before we begin the question-and-answer session, Wolfgang and I would like to provide an overview and some commentary on the recent quarter and provide also our view of the coming quarters.

Wolfgang will start with a review of the third quarter financial performance with some added comments on our short-term outlook and then I will complete the introduction with some further comments on the current general business environment and our future business outlook.

Wolfgang?.

Thank you, Peter and welcome everyone. For Q3 our net sales came in at €1.55 billion. This include system sales of €975 million of which memory represent at 56% and logic represented 44%. Service and field option sales came in strong at €574 million.

This part of our business as grow, continues driven by strong demand for holistic lithography option, high value upgrades and the growing installed base. Our gross margin for the quarter came in at 45.4% slightly above our guidance.

R&D expenses came at €267 million and SG&A expenses came in at €86 million, both slightly below our guidance positively affected by slower hiring, more favorable than land exchange rates and at some one-time Fx.

Turning to the balance sheet, quarter-over-quarter cash, cash equivalents and short-term investments grew to €2.68 billion from €2.52 billion. During the quarter, we repurchase share for €142 million bringing the total for repurchased shares to €426 million year-to-date.

Regarding the order book, Q3 bookings came in at €0.9 billion, slightly below our Q2 non-EUV bookings. Strength in memory bookings continued to be notable. We finished the quarter with a strong overall backlog of approximately €2.9 billion. With that I would like to turn to our expectations and guidance for the final quarter of 2015.

We enter Q4 with a strong and nicely balance system backlog, with continued strong service and field option sales in the quarter, we expect Q4 revenue to be approximately €1.4 billion. Based on expected customer and product mix, we expect gross margin for Q4 at around 45%.

R&D expense for the fourth quarter will be about €270 million and SG&A is expected to come in at about €90 million. Our annualized tax rate is expected to come in at approximately 11%. Q4 is affected by what appears to be a more cautious foundry segment.

This is resulting in more limited current foundry node capacity additions leaving out Q4 revenue guidance below Q3 and removing the potential Q4 upside in this sector we discussed last quarter. However Q4 foundry equipment shipment will support early next node volume ramps.

In addition given ongoing memory booking strength, we expect that sales to the memory sector will remain healthy in Q4, although slightly below last quarter sales level. Given these assumptions for the rest of 2015, we can clearly state that this will be a record sales year for ASML.

2015 revenue will has been enabled by another strong memory year driven by capacity additions in two new DRAM fabs and by some additional capacity needs in the one existing 3D NAND fab. The foundry sector will have increase versus 2014 as volume ramps continue at current and prior nodes. We will also have initial but limited shipment for 10 nanometer.

Lastly, 2015 will mark a record sales level in our service and field options business. Peter will talk more about EUV shortly but I would like to make a few points regarding 2015 EUV shipments.

As most listeners are aware, we continue to grow -- to show great progress in improving on the key EUV performance metrics related to productivity and availability with unchanged targets of improving both further throughout this year and next. Without a doubt, EUV continues to progress upward along the new technology adoption curve.

We are delighted to have a total of eight purchased orders for our NXE:3350 and NXE:3400 production systems plus the three remaining EUV development tool orders for NXE:3300 systems of which two are going to be upgraded. These 11 tools will go to five different customers.

However, you now see that our shipment expectation for 2015 has changed to four systems, down from our prior expectation of seven systems for the year. Changes to shipments schedules are largely due to our customers’ uncertainty on timing of new nodes as well as their near term priority setting.

As a reminder, all top manufacturers have had EUV development tools in house and in use for some time. Also, two logic manufacturing leaders have now publicly committed to production insertion of EUV. We expect EUV revenue for 2015 to be limited to the one NXE:3300 that we recognized during Q2.

For the time being, revenue recognition for EUV remains difficult to forecast since it depends amongst other criteria on the achievement of performance milestones and differs from customer to customer. Once the performance of EUV technology is matured, we expect to recognize EUV revenue on system shipment as we do it in our DUV business.

As we announced on our last call, we will share our expectations regarding revenue recognition as we ship systems. For the NXE:3350 that is being shipped right now, we expect to recognize approximately €60 million of system revenue in the middle of 2016 with the remaining balance deferred to 2017.

Now with that, I’d like to turn the call back over to Peter..

Thank you, Wolfgang. As Wolfgang highlighted, the expectations for the second half of this year have being adjusted due to caution amongst our logic customers as it relates to current 28 nanometer and 16 and 14 nanometer node ramps. However, with these adjusted numbers, we will still see a record revenue year in 2015.

While it’s too early to say anything quantitatively about 2016, we do see trends and development that are worthwhile mentioning. In memory our customers are currently indicating to rest of their system demand will continue at healthy levels throughout the first half of 2016 albeit somewhat below our high Q3 sales levels.

We expect as Wolfgang mentioned that the two new DRAM fabs will continue to install capacity next year. Meanwhile, in NAND, we expect limited lithography tool shipments to 3D NAND in 2016. The only existing volume 3D NAND stat will likely be full by the end of this year.

And the two new fabs will likely take limited equipment given that 3D NAND is still in its early stages of product introduction and the new fabs are not fully online. Given this memory landscape, we estimate that our sales to memory customers could be down year-over-year.

By how much will depend largely on end demand and the aggressiveness with which customers will fill their fabs. As mentioned earlier, in finishing out this year, logic customers have clearly taken a more cautious stance on capacity spent for 28 and 16 and 14 nanometer.

However the near term completion of two new family fabs are designed to support a next advanced 10 nanometer FinFET ramp. The most recent customer indications are that this technology introduction is progressing well.

This node should provide high value given its significant shrink versus the 20, 16, 14 nanometer node hence the continued and clear commitment to ramp 10 nanometer starting in the second quarter of 2016. The speed and ultimate spend levels for logic in 2016 will depend on the rate at which our customers will be able to execute their ramp.

And furthermore, field options and services will carry their strength into 2016 and will continue to show growth. On the ASML product side, I would like to highlight the fact that we’re launching two new scanners; one, under our DPP program and one under our EUV program.

This is enabled by an almost equal split in R&D spend on our DPP platform which is vital in supporting the existing industry needs and our EUV platform, supporting the industries’ future leading edge lithography needs. In addition, we continue to enhance our holistic lithography product offering now also moving significantly into the EUV area.

Firstly, with respect to our DPP platform, we’ve now shipped our first NXT:1980 immersion product, which has demonstrated 40% improved focus uniformity, 30% improved overall accuracy [ph] which is our prior offering, along with the world’s first 275 wafer per hour emerging capability.

This world leading capability will help our customers address the increasing and overwhelming cost and complexity of emerging multiple patterning and ever tightening process control requirements that come with continuing logic and DRAM node shrinks.

Regarding our holistic Lithography products, leading edge customers are using our full suite of emerging process, window enhancement and process control solutions to optimize yield at the 1 nanometer or the 1x nanometer production nodes.

Holistic lithography products are now also extending into EUV processes with customers evaluating our EUV source-mask optimization software for development of seven and five nanometer technologies. And finally EUV, as most of you are aware our 2015 focus has been on improving EUV stability, availability and productivity.

The key metrics of performance that now drive new lithography technology adoption. In several recent public presentations our customers have recognized our EUV progress in these areas. On the raw productivity side we have system configuration that has demonstrated more than a 1000 wafers exposed in a 24-hour period.

In a full week of customer run the manufacturing readiness test at the production convictions we’ve seen 15,000 wafers exposed with comparable results achieved using the same power configuration at multiple customer. Several customers have achieved four-week average system availabilities of greater than 70%.

However, the overall worldwide average is going to be still lower indicating that performance consistency needs to be further improved. Now Wolfgang discussed the encouraging state of our EUV orders, key in our orders are two leading logic manufacturers that are now publicly stating the need for EUV at seven nanometer.

The speed at which these and other customers order and adopt EUV is influenced by multiple factors, but as in any case dependent on the timing of the initial production ramp for these next advance nodes.

In that context some customers have indicated that with current challenges of multiple patterning schemes which drives significantly into its complexity that timelines for current advance nodes for instance 10 and 14 nanometer logic have been prolonged. This is forcing them to put priority on the integration efforts on these current notes.

These combined factors have therefore directly affected EUV tool [ph] delivery requirements in 2015, pushing out some of those deliveries to 2016. However as mentioned before, the need for EUV for the seven nanometer node remain unavailable.

We do not believe that the decisions on timing of these shipments will affect the company’s stated target of reaching €10 billion of sales by 2020, since -- as most of you know we considered a three-year note cadence when preparing the opportunity analysis that we shared with you last year.

And finally, as our customers are collectively saying and consistent with our previous suggestion EUV remains a question of when, not if. Now with that we would be happy to take your questions..

Thanks Peter and Wolfgang. Ladies and gentlemen, the operator will instruct you momentarily on the protocol for the Q&A session but beforehand, I’d ask you to kindly limit as I always do to one question and one short follow-up if necessary. This will allow us to get to as many callers as possible.

Now, Aaron, could we have your instructions and then the first caller please..

Thank you. Ladies and gentlemen, at this time we’ll begin the Question-and-Answer Session. [Operator Instructions] And that’s from Mr. Sandeep Deshpande. Please state your company name and your question. Go ahead..

Hi. Sandeep Deshpande from JP Morgan. Hi Peter, I mean I have a question on -- I mean clearly your customers are indicating some level of caution in terms of placing orders at the moment for fourth quarter as well as potentially in the first-half of next year.

Do you have associated with this likely -- a softer revenue trend into next year? I mean you're not guiding to 2016, but you probably have seen and have some views on what revenues in 2016 are going to be.

Do you have any views on how much -- how your OpEx will trend into 2016 and is there any flexibility on OpEx in the event that there is a decline in revenue next year?.

Yes, I think the flexible on OpEx [indiscernible], but generally I think you’re saying cautious planning orders, I think it's particularly true for foundry as I said in the introductory call, which I think when you look at foundry it very clear in the discussion with our logic customers, it's not only found with our logic customers, we see the 10 nanometer ramp as being very real and I know there have been questions with many people, how real is it? But in the discussion we’re having with customers and the progress that we are making which they have shared with us, we believe it's very real but it will not start before Q2.

And I think before so -- before things turn up in Q2 I think for logic things are likely going to be a bit lower than bit higher. But it will definitely start going up in Q2. On the flexibility of our OpEx..

Hi Sandeep, so we’re right now running on R&D from a try up 270 million in the quarter and try up of 90 million in the quarter on SG&A and our intent to keep it around these levels for next year and as we’ve stated before we do have some level of flexibility in all of our OpEx and we’re not looking at any major downturn that we are right now looking at exercising these options.

So you should model in your models about flattish OpEx for next year..

Yes and in terms of flexibility we have about 20% workforce flexibility which is labor contract that are not on the payroll which is basically outsourced..

And just to follow-up on EUV, Peter, I mean in terms of -- I mean there have been multiple milestones reached on EUV, but most of these have been with top tier customers, I mean is there any sign of the mixed tier of customers coming into the program and showing any interest in EUV?.

Yes, I think we have discussions with all our major customers which is about seven and we’re all talking very in depth, every time that we meet them we have the logic part of our meeting is it is about EUV. So it’s not only the top three logic makers, definitely also very serious discussions on EUV introduction for our memory customers..

The next question comes from Mr. Korschelt please state your company name followed by your question. Go ahead sir..

Thank you for taking the question. It’s Merrill Lynch. The first one was just on EUV adoption in memory and you may have mentioned some of the smaller customers, but I think there was an article yesterday or a couple of days ago with that on the DRAM side, EUV adoption could be on the roadmap for 15 and 10 nanometers.

So I am just wondering do you have any more color and if that were the case, in which sort of time frame could you start to look at orders from those customers? And then second question was just on the logic side, so I think Intel yesterday indicated they’ll probably spend more CapEx next year.

It also seems that that as TSMC and Samsung for two foundries ramping 10 nanometer. So I mean you basically have the entire logic ramp starting that 10 nanometer ramp which I don’t think has sort of every really happened in the history.

So I am just wondering I mean shouldn’t that imply a pretty material snapback in your total revenues from the second quarter onwards? Thank you..

Kai, the two questions. First on EUV introduction in memory in DRAM, you’re talking about 15 and 10. Well, we tend to talk about I’d say around 16 nanometer so let’s start with that. That is for us scheduled when we look at the roadmaps of 2018, early 2019.

So that means as the year shipment before that means the 2017, end of ’17 the latest shipment, at the latest, so that would mean we need to conclude orders say in due course of next year. On the 10 nanometer ramp for logic, very clear that yes you are absolutely right. We see all major logic makers bringing 10 nanometer forward.

There is a difference as we see in terms of timing of introduction, timing of start of this production, but generally you are right, I mean if all the leading logic makers moving into the 10 nanometer area next year.

Now that like I said earlier in the previous question -- answer to the previous question, we see things turning up in Q2, it depends -- generally these ramps also depend on how well those 10 nanometer introductions go from a -- let’s say yield and a production qualification point of view.

Now there I must say we have had some good and positive news also from customers that things are going well.

So, yes that might look favorable going let’s say onward from the second quarter, but like I said we do not control unfortunately those advanced ramps for our customers, but that will determine the speed and the size of that opportunity in 2016.

So let’s keep our fingers crossed that we see the good development that we currently see, we see that continuing..

Next question comes from Mr. Hosseini. Please state your company name followed by your question. Go ahead sir..

Prior person who asked question, over the past several years as logic foundry demand has actually turned out to be weaker than expected because Moore's Law is just becoming very expensive and this kind of brings back EUV to the picture, but EUV is more like later this decade when it’s going to be commercialized.

So Peter with that as a background, do you see a scenario where 10 would actually end up disappointing because of the cost going up? And isn’t this why the 10 nanometer ramp is turning out to be as slow as what we experienced with 20 and 16?.

It’s always a bit of speculative question which would/should warrant a speculative answer, which I’m not going to give.

What we are seeing on 10 nanometer is a level of cooperation with our customers, with our logic customers, to manage the complexities of 10 nanometer multiple patterning which should lead and that’s what we’re currently seen to yields that should provide our customers and their customers with a cost per function of cost per bit that is still competitive, that is for the -- at least for the larger applications, the applications that use the larger volume, still a very attractive node.

Don’t forget if you talk about 10 nanometer and you compare the 10 nanometer shrink to the 20 nanometer shrink because from a literal point of view 16, 14, 20s about the same, you’re talking about a significant shrink, that’s a real shrink with a real cost benefit.

It’s hard to imagine that the end users and the customers of our customers are going to walk away from that benefit. This is also what customers keep telling us and like I earlier said, the progress on the 10 nanometer development is going well. So we currently don’t think it’s going to be a small amount because of that reason.

You did mentioned one other point which I think is important, you said 10 nanometer is going to be an expensive node which is true and also EUV is going to be a solution. But to be very frank I mean we’ve all always planned 10 nanometer to be a EUV node.

Now we’re just late and this unfortunately leads to a situation where customers need to applied complex multiple pattering strategies which probably means that the 10 nanometer node is going to be prolonged which actually has an impact on EUV which pushes the EUV need six to 12 months back for those guys and which by the way is what we put into our simulation model last year because we anticipated some of the [indiscernible].

So in that context you need to see 10 nanometer and EUV..

The next question comes from Mr. Srini Sundararajan from Summit Research..

Hi, this is Srini Sundararajan from Summit Research. And I just wanted to know like how much DRAM CapEx spending might be going down next year for the full year 2016? And if at all, and how much of it would be -- how much of the DRAM spending would be in the form of capacity growth and how much for shrinks? That’s my only question..

I think the total DRAM CapEx spending is really dependent on the aggressiveness with which our customers want to fill the existing new fab space and has been opened at the end of last year and in the middle of this year, those are very sizeable fabs.

There is a lot of potential capacity there and I think it will be a function of end market demand and how much aggressiveness our customers will want to put into the build of that capacity which will of course will have an impact on the supply of DRAM. So I don’t know how they want to deal with that.

So this is a bit of -- it's a good question, if you have the answer I would like to know, but we don’t have that answer readily available because it depends on the customer. What we do know is that the first half of 2016 is still healthy, that the second half is still a bit too far out.

How much of that is shrink, well those new fabs that we’ve been talking about are quarter leading edge nodes. So it's shrink and capacity, whereas the two new fabs and we will take basically the leading edge devices..

Next question comes from Mr. Iyer. Please state your company name followed by your question..

Yes that’s Joint [ph] Research. Two questions Peter, so if I look at the emersion revenues over the last several quarters starting from the beginning of the year there has been a steady decline in your emersion revenues given that there is a significant double patterning happening, why are the emersion revenues going down? And I have a follow-up..

Yes, this is Wolfgang, I’ll take a crack at this, you're right I mean in general when you look for instance 28 going to 20, 16, 14 the litho intensity goes up by some 40% to 50% and you're also right in your observation that our systems revenue as a company has been fairly stable over last couple of quarter.

I think there is three reasons for this at least, one is that we have provided upgradeability in our roadmaps to our systems and you’ll have seen that if you just take this year versus last year, we went from 1.6 billion to we will be somewhere around 2 billion on field options and services. So we do upgrade that don’t show up in our systems revenue.

Second reason is that in particular over the last couple of years we have provided our customers in response to the multi-patterning requirement that Peter mentioned with significant performance upgrade with 250 wafers per hour and now we’re going to 275 wafer per hour, that’s not going to go on forever, we’re reaching the physical limits there.

And last but not least and as well as also already mentioned by Peter, we see the period of time over which customer facilitates certain nodes stretching out. If you take the 20, 16, 14 for instance not all that equipment is being brought in a two-year period.

We’ve started to shipping in the second half of ’13, we’re shipping in ’14 and ’15 and we are actually going to ship into ’16 as well. So those are the three reasons why you're not seeing a big expansion on the system revenue yet..

Okay. Thank you.

And just as a follow-up, I don’t know Wolfgang you mentioned in terms of revenue recognition for EUV, did you clarify that for 2016 it will be just probably limited to one system, is that something that I heard or did I hear it right?.

I am glad you asked the question because we want to be crisp on that, let me just give you a precursor. Revenue recognition is somewhat difficult for us on EUV and it’s in particular difficult to forecast.

We have a pretty good view on the volumes but then the revenue recognition in detail depends really on what customer we ship to, certain performance milestones and other accounting related treatments. And in the long run by the way we want to do this like we do it in the EUV at shipment.

But what we said last quarter is that we are going to give you guidance as we ship systems, starting with the 3350 that’s being shipped right now. We’re telling you that off that revenue 60 million will be recognized by mid-2016 with rest in 2017. But that’s just for this particular system that’s shipping right now.

As a reminder, we’re planning to ship another two systems this quarter and there will be very likely revenue next year as well. And then we plan to ship somewhere if I want to pick a range additional 6-7 tools also next year on top of that and there will be some revenue because remember there will be some 3300s in there, there will be some revenue.

So the 60 million I mentioned is by no means the entire EUV revenue, it’s just the one that is attributed to the system we have started shipping now.

And in our January call we are going to talk about the shipments that we will make this quarter and how that will translate into 2016 revenue I think and hopefully we’ll -- we can give more color on that even that in January, but I hope that clarifies this a little bit for you..

The next question comes from Mr. Sanganeria state your company name followed by your question..

Yes, it’s RBC Capital Markets. Peter question on the memory, you said memory being healthy in the first half driven more by DRAM, new capacity, and when you look at the memory next year and you said overall memory could be down.

So in your downside scenario are you look at more downside from NAND or from DRAM?.

Well, it’s down year-on-year. We’ve had a particularly strong year in 2015 which was driven by the fact that we had a large DRAM factory coming online at the end of last year -- just at the end of last year taking tools throughout this year and a large factory coming online middle of the year taking tools.

So in that sense there is a significant DRAM shipment this year. NAND was pretty stable as compared closer to the year before, to 2013. Now when we look at the total memory market, DRAM will be driven by as I said the further build out for the first six months of the year, we have a pretty good visibility on it.

But we don’t know exactly what customers are going to do with what speed and what aggression, you could say, are they going to fill up the remaining capacity in the second half of the year, that’s where it becomes a bit more unclear.

And on NAND, NAND is really driven by 3D NAND and on 3D NAND by end of this year the only dedicated 3D NAND fab will be full.

That means there will be two new 3D NAND fabs coming online, but they will be limited in terms of the number of capacity that we will take driven by the fact that it’s still a device architecture that’s in its first phase of its life, so it’s not going to be a full ramp. And some of that capacity only comes online in the course of the year.

So by design, if you then say 3D NAND is the driver next year, there is a limitation in terms of available capacity and available appetite we think to go fast, they are probably going to be more in 2017.

So if those things that we said that could be as a likelihood that DRAM will be lowered and in 2016 as compared to 2015 largely driven by the strength of 2015..

That’s pretty helpful. And on the 10 nanometer, the volume production is slated for second half of 2017.

And so if that was the time line, how much before do you really ship the volume to your customer? Is that second half what you’re seeing, are those pilot lines or mass production tools? And what will be really the volume out in the second half of 2017? When does the volume tool go into fabs?.

Yes, I think what you need to understand is that we mentioned it a couple of times before that 10 nanometer is highly complex.

It’s complex because involves multiple patterning strategies for multiple advanced layers which actually means that the time between shipping to and the qualification for production lengthens, so you should not underestimate that time.

So when there is a -- on the roadmap there is let’s say a volume ramp starting in the second half of 2017, you need to think about the year earlier that you need to put those tools in and to make sure that you can grow to this full ramp which means that the first pilot ramp will be starting somewhere in the middle of next year and the first risk production is starting in the beginning of the year.

The new fabs will be ready soon, they will be able to take machines in the second quarter. Those machines will take time to install as about a quarter, so you are in Q3 of 2016 before it again start working on pilot production and then it’s logical that the volume production will be in the middle of 2017.

These things get more complex, takes more time, so in that sense it all fits. .

The next question comes from Mr. Ahmad, Please take your company name followed by your question..

I am Farhan from Credit Suisse.

My first question Peter is on the 3D NAND side, there is a very different commentary which I am hearing from you guys versus rest of the industry, we are seeing like in that orders speaking of all-time high because of orders that they have received from Toshiba and that is like a big conversion in Toshiba that’s happening next year also at Micron.

So I wanted to understand like is there a big difference between a customer that builds a new fab on 3D NAND versus somebody who is converting their fab from plainer to 3D, is there a big difference in the litho intensity?.

The 3D fabs is generally as a green field fab we need about 10% more litho, in a green field fab with the same wafer capacity out.

We are basing what we see in 3D NAND based on the customer compacts that have and on the shipping patterns that they are asking and on the wafers start capacity that they want to add and we believe it is -- it doesn’t show a full aggression you have mentioned to Toshiba. They will likely be ready with their fab taking tools at end of this year.

And we don’t foresee it as a very stronger ramp and with Micron that fab will only become available in the course of the year, whereby of course that fab needs to ramp up.

And those are all elements that make us believe that 2016 will be a limited year for 3D NAND, 2017 definitely, in 2017 you see these two fab ramping that would probably be a much stronger year. We just see a slower 2016 than what you seem to indicate..

Got it, thank you and then my second question is on service side, you guys had record high revenue in service if I look at your service revenues; they have grown from about 400 million a year ago to 575 million almost like a 40% increase.

I just wanted to understand how sustainable is the revenue you level on the service side usually service tends to be like more stable, so just wanted to get a sense of how we should think about service revenue in quarter-to-quarter review of the [indiscernible]?.

Yes, I’ll take that this is Wolfgang, first of all you are right, I mean we do in a quarter now that what a few year ago we did in a year, but I’d like to just make sure that we are clear on the nomenclature it’s fields option and services.

So it is really driven by options that we make available on our holistic lithography software products but also the upgrade that we enable, I mean if you have 1950 emersion system today we can upgrade that two or three levels and those are major upgrades, I mean they are like €20 million, Peter always calls them half-tertiary, it's basically almost replacing the scanner [ph], so that is increasing quite a bit.

The install space is increasing as well and with that we have higher service revenue, it’s a good business for us.

This year I have mentioned it earlier in response to another question, I think will around 2 billion and we see that business continuing to grow for modeling purposes I think if you take a 10% increase year-over-year I think you are in the ballpark. So it's a strong business for us and it continues to grow..

The question comes from Mr. Sahil [ph], please state your company name followed by your question..

Thank you very much, maybe as just follow up excluding the leading foundry players that are 16 nanometer or 14 nanometers right now, how do you see some of the caution right now potentially impacting their 10 nanometer rollouts?.

Yes, we don’t see that caution at all as it relates to 10 nanometer, when we talked about caution it has to do with -- also had to do with the foundry's not being the -- let's say the leading foundries.

We have mentioned last quarter that we also saw some -- still some upside in areas of China, areas of Taiwan not specifically in the leading edge, that has all disappeared and it had to do with 28 nanometers also. So 28 nanometers where we planned some shipments for the remaining of the year did not turn out to happen.

I think its low shipping [ph] in that area 28 nanometer, even there are some16 nanometer and 14 nanometer tool, but those are you could say two, three tools in total and two tools are easily €100 million. So you have to put it in context.

So it's that caution that’s -- let's say -- I would say affect the eagerness with which its customers, I’m not talking about the 10 nanometer ramp, I mean the 10 nanometer ramp keeps pushing us and telling us that this needs to happen for several reasons, I mean it's very strategic for all the leading foundries to be there with the right yields at the right time for our leading edge customers and they are pushing it and has no relation to this weakness or caution that we are seeing in 28, 14, 16..

Great that’s helpful and just a follow-up question on the EUV side with you now shipping the 3350B systems to your customers, are there different milestones for qualifications on that and that again will impact the revenue recognition of those systems relative to some of your earlier one?.

Yes, like we said it will depend customer by customer and yes when we do additional orders with additional customers it may be that the terms and conditions will differ slightly from what we have on orders right now and that would impact when we would recognize revenue for this tools..

If I may add to it that the earlier tools, we sold the earlier tools to the R&D folks and the R&D folks had only one qualification requirement and it’s that ship us a tool that can print a wafer and when we can print the wafer, you can do refract [ph] because that will be only requirement.

The 3350 is a production tool, we’re selling those tools to production people to wafer fab process. They had different requirements than just to print one wafer. So this is where those requirements kick-in in the deals and that’s why the refract is a bit more complicated than the ones that we sold to the R&D folks..

Next question comes from Mr. Jenkins. Please state your company name followed by your question..

Gareth Jenkins from UBS, couple of follow-ups if I could, sorry to go back 10 nanometers, but I just wondered if you could talk about the length of the node and maybe the size.

Would we be right in assuming that it would be a fairly short node, so maybe one and a half years before seven comes in at logic and given I guess litho intensity the length of the node and maybe some of the end demand weakness that we’re seeing, that the size might be slightly smaller than 28 or 14 in terms of capacity? And then maybe I’ll come up to the other one after these points..

Yes, let's just get one thing clear, when you talk about 10 and seven nanometer you probably talk about the specific road map that is out there.

When we look at it, so let's look at it together for us the 10 and seven nanometer is sustained with [indiscernible] and so in that sense it is normally one and a half year, for us it's close to two or three year.

And that also coincides with some other comments that were made by other customers about a prolonging of nodes that’s what we’re seeing, we’re seeing it happening at 10 nanometer. The real lithography step that we will see is when we introduced EUV and whether you call the seven or five or how do you want to call it that is in the ’18, ’19 timeframe.

And that means that we need to ship in 2017, start shipping in 2017, which means this is exactly in our plan. So node name is -- can be a bit confusing, we just look at what type of machine litho tools is needed when.

And that means that our advance DPP immersion tools are needed lastly in 2010, ’15 and ’16 and big part in 2017 and EUV starts to be needed in 2017 shipment for us and used for our customers in ’18 and ’19. So this is how we look at it and I also think this is how we should look at it when you talk about lithography..

Thanks Peter and may I just follow-up on the EUV, we’ve talked a lot about refract, but can you talk about cost rack, I presuming you’ll be taking cost upfront, but if so what’s the timing on that and do you recognize all the cost on the initial 60 million and can you talk about cash recognitions also when you would actually expect see cash payments to these? Thanks..

Again you’ll not be surprised, this will be differ customer-by-customer as well as, but yes this will make it even more complicated.

We’ll have situations where we have to recognize that the cost when we stopped recognizing some revenue and in that case we’ll get a little bit out of [indiscernible] on the margin we’ll have to describe that effect to you and then the cash that we put a lot of attention on and you can in general assume that we get the cash earlier than we recognized revenue..

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

Yes, it's Morgan Stanley. The two technical question actually the first one is actually on the 3350B which was in my mind too close to be delivered and installed this summer.

So could you maybe, explain, what are the technical difficulties that you're facing with this tool? I understand it's quite difficult to deliver, but still I would like to understand what is the delay related to? The second question is around the ecosystem, I am sure you send people to SPAE [ph] photomask in Monteria.

I was there it looks like the ecosystem has made lot of progress regarding the [indiscernible], regarding the mask manufacturing and with size, but there is still is actinic through the [indiscernible] inspection tool which is missing for very high volume manufacturing. So how do you think this will be sold with [indiscernible]? Thank you..

Well, to talk about first one the 3350B is shipped two-three months later than we thought, but it has to do with the fact that we have a new drivers laser dead, the laser that is basically shooting at the thin droplets was the stability of that laser, we have some issues with it, but that all resolved now. So that’s why we ship the tool.

So at business when you have a big new piece of equipment and here you have a planning on the integration, sometimes the integration takes a bit longer and this was the case.

Of the ecosystem the -- there is question of whether we need or do not need an actinic inspection tool that can actually inspect through the pellicle [ph], it has been a question that has been around for a couple of years. I think the general consensus is that for the EUV introduction also for the production introduction, we do not need it.

We might in the end need it if future sizes keep going down and we keep shrinking to 5 nanometer, 3 nanometer that by that time we need something like an actinic inspection tool, but that’s not insight so that’s next decade.

Until then we think we can definitely live with the solution of the removable pellicle [ph] and it is up to rest in our customers to prove that actually the removable pellicle [ph] is such a good solution that we don’t need an actinic inspection tool at all and this is where we are today.

So, not -- whatsoever no impediment to EUV introduction in our production in I would say remainder of this decade..

And then a quick question about the new DUV systems in 1980, what’s the price increase versus the previous version which I think was in 1950?.

1980 is a complex tool, it has some price increase, but that has to do with the productivity. So we have the higher productivity as compared to the previous tool that provides higher throughput, lower cost per wafer, lower cost per die, lower cost per bit and that will reflect in the tool pricing.

So, as you know, we had a previous tool at 1970 that was able to 250 wafers per hour, this one 275..

Next question comes from Mr. Harchandani. Please state your company name followed by your question..

Thanks. Amit Harchandani from Citigroup thanks for taking my questions. Two if I may, firstly with regards to EUV and the shipment being delayed from this year into next year, if I could go back to that and just try to understand it a little bit. So that’s aimed at risk production.

Is there a particular reason why the customers were unwilling to proceed on that as planned in parallel with the focus on the next node, which is the 10 nanometer? I appreciate 10 nanometer as a priority, but is there a particular reason that you think that has changed in the past three months, so if you could dig a little bit more into that? And as a follow up if I may ask you more broadly strategically, looking at areas outside lithography have you talked about in collaborating with partners on the etching side.

Could you give us a sense of your progress there? Thank you..

On the reshipment delay, I think I mentioned that to be clear the issue with 10 nanometer is, is that we are late with EUV, that’s the major issue.

I mean we should have had EUV risk production or production ready at 10, which actually which we didn’t because the reason is just complex and we have the Cymer acquisition and we didn’t make enough progress fast enough. I think we’re heading our targets for 2015, so we’re really [indiscernible] our targets in 2016.

So I think we’re on the right track, but we cannot change history, we cannot change the fact that we’re late. So that doesn’t [ph] mean that we forced our customers into a bridge solution, which is 10 nanometer doing with multiple patterning emergence, that’s highly complex.

And when we talk to our customers and you’re actually right saying that 10 nanometer has the first priority, it’s very strategic and we then talk to customers saying what are they focusing on and how can they divide their capacity of people that can do the integration for 10 nanometers and do the development work for 7 nanometer, that capacity is limited that virtually all that people working on the 10 nanometer introduction because that is what the first priority is.

Now with that fact that 10 nanometer is also stretching out, so the lifetime as you could say the time of that node is getting longer, it is natural than also that you need tools later, they need it later because EUV is getting reintroduced a bit later, but also they need all their resources to do the 10 nanometer development.

And those are the reasons why I say, okay, we can now take the €95 million or close to €100 million tool today, or we can take it when we actually need it and we have the resources to deal with it and it where we are today.

It's a very particle solution that customers are now discussing with us, finding out that 10 nanometer is known as simple as we thought and that their initial desire to stay on the two year cadence is getting more complex. You move on and you learn more and this is what has happened and this happened throughout the year.

I think it has become clear to us over the last three months that this is where we are and this is the situation and we are going to help our customers through it.

Okay then the second question on etch, I think yeah, one of the issues is when you keep shrinking and you do multiple patterning that one thing is overlaid, now overlay we do -- actually have methodology solution that is integrated call YieldStar, but you will also have a CD, the critical dimension, how you want to control the critical dimension.

The CD uniformity is not only determine after the emerging process but also after the etch process and we are working together within an etch company but also with a applied research company called iMach to see what we as a combination of two suppliers can do to help our customers to control that CD uniformity when we keep shrinking to 10 to 7 to 5 and that’s work that’s ongoing but I would say that’s ongoing more on a research and development level where we work together with those companies..

That’s very helpful, thank you Peter..

You are welcome..

Let me jump in here for a moment, I think we have a time for one last question of course the associated follow up, so if you are unable to get through on the call and still have questions pending call, feel free to contact ASML investor relations department with your question and we will get back to you on that as soon as we can.

So operator could we have the last caller please..

The last question comes from Mr. Menon, please state your company name followed by your question, go ahead sir..

Hi, it's a Liberum, thanks for taking the question.

Just going back to the 7 and 10 nanometer nodes in the context of trends in emersion revenue, I think on the Q2 conference call TFMC made a comment that they expect a total wafer starts at 7 and 10 together to be lower than at 20 and 16, it's a given that outlook and if that were true, and given that you’ve seen an increase in litho intensity clearly at best [ph] at 10 and potentially at 7 as well, would you expect that your foundry emersion or revenue trend will inflect at 10 nanometer and into 7 nanometer, or given that there is also the situation where we’re seeing some weakness in the smart phone market that you would see more sort of a continuation of the trend that you had seen in the last one or two years and I have follow up?.

Okay Janardan, if you don’t mind I will abstain from commanding on the smartphone market because it’s a bit too far away, so we just listen to the customers.

The assumption that wafer capacity might be lower in let’s say at 7 -- 10 to 7 than in 2016, I think it's also something that we have assumed when we talked to you last year when we gave you an outlook till the end of the decade, I mean we have actually seen a 10% node after node reduction of the wafer capacity needed and it has to do with indeed the increased cost and especially the increased initial cost because the market for those customers, that kind of ordering [ph] cost and create value with that cost, that market in terms of number of players, also those players are very large, but that market is off course smaller than we had 28 nanometer and above, so that is an assumption that we also follow.

However, you mentioned it, the lito intensity node-by-node goes up at about 40%.

And especially if we go to 10 and 7 we see very intense multiple patterning strategies and Wolfgang alluded to that part of it, we're going to help our customers buy upgrading machines in the field which will be unique to us for our service at field options sales and next to that when we look at the multiple patterning strategies and the number of layers that are effected.

We also see upside in the number of unit that they need from an emersion point of view. Now not everything in life is that rosy, it means that cost will go up and complexities will go up so it will force customers who are after this, in order to move into the UV and I think it’s inevitable.

So I don’t think it has a major negative impact on us because of the reason that I just mentioned and I think the emersion business will stay very healthy for the years to come..

Got it and just a very brief follow-up to Wolfgang.

You said that R&D spending on EUV and DUV is roughly similar, when do you expect that DUV part to start falling off in your current planning, when would you start dropping that and sort of increase that EUV spend from your overall R&D, at what point of view?.

Let me -- the frame will go first, we’re just shy of 1.1 billion per year right now and our target is by 2020 at 10 billion revenue to be about 13%. So we’re foreseeing a little bit of a growth there. The split is a little bit less than half EUV and the other half is not only DUV but is also holistically lithography and its fundamental research.

Fundamental research I would suggest will be flat to slightly up, holistic lithography will go up year-over-year because there is a lot of additional value comes in through the software options. And then DUV overtime will go down, I mean we have just put major innovation in the 1980, we will see one platform after that.

So I don’t think that you see a major inflection before the end of 2017 beginning 2018 and that’s when we will ramp more in EUV when we go into technology as that prolongs the life of EUV such as INA [ph] that some of our customers are now starting to mention probably as well.

So overall the shape will be -- overall R&D will grow at a slower slope than the revenues, so the potentially will come down and somewhere in the ’17, ’18 timeframe you’ll see DUV come a bit down and EUV extension and applications will go up in the piece of the pie..

With that on behalf of the ASML Board of Management, I’d like to thank everybody for joining us today and I’d also like to thank the operator and ask him if he would formally conclude the call please. Thank you..

Ladies and gentlemen, this concludes the ASML third quarter 2015 results conference call. Thank you for participating. You may now disconnect your line..