ASML (ASML) Q3 FY26 Earnings Call Transcript

Operator00:00

Good day and thank you for standing by welcome to the ASML 2026 third quarter financial results conference call on October 14th 2026 at this time all participants are in a listen only mode after the speaker's introduction there'll be a question and answer session to ask a question during the session you will need to press star one and one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star one and one again please be advised that today's conference is being recorded I would now like to hand the conference call over to Mister Jim Kavanagh please go ahead

Jim Kavanagh00:37

Thank you operator welcome everyone this is Jim Kavanagh head of investor relations at ASML joining me today on the call are ASML CEO Christophe Fouquet and our CFO Roger Dassen the subject of today's call is ASML's 2026 third quarter results the length of the 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 www.asml.com A transcript of management's opening remarks and a replay of the call will be available on our website shortly following the conclusion of this call.

Jim Kavanagh00:51

Before we begin, I would 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.

Jim Kavanagh01:10

For a discussion of risk factors, I encourage you to review the safe harbor statement obtained contained in today's press release and presentation found on our website at www.asml.com and in ASML's annual report on form 20-F and other documents as filed with the Securities and Exchange Commission.

Jim Kavanagh01:16

With that, I would like to turn the call over to Christophe Fouquet for a brief introduction.

Prepared remarks

Christophe Fouquet01:41

Thank you, Jim. Welcome everyone and thank you for joining us for our third quarter 2026 results conference call. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the third quarter 2026 results as well as provide some additional comments on the current business environment and on our future business outlook.

Christophe Fouquet01:42

Roger?

Roger Dassen01:54

Thank you, Christophe, and welcome, everyone. I will first review the third quarter 2026 financial accomplishments and then provide guidance on the fourth quarter and the full year of 2026.

Roger Dassen02:09

Let me start with our third quarter accomplishments. Total net sales in the third quarter of 2026 were a record at 11.7 billion euros, towards the high end of our guidance and reflecting strong execution of our capacity ramp.

Roger Dassen02:25

Net system sales were 8.4 billion euros, which includes 4.1 billion euros from EUV system sales, including the sale of one high NA EUV system and 4.3 billion euros from non-EUV system sales.

Roger Dassen02:34

Net system sales were split between logic at 54% and memory at 46%.

Roger Dassen02:48

Install base management sales for the quarter were 3.3 billion euros exceeding our guidance by almost 0.4 billion euros primarily due to the strong demand for our productivity upgrade products in both EUV and DUV.

Roger Dassen03:01

Gross margin for the quarter was above guidance at 57.5% primarily due to the contribution of very high margin components within our install based management business.

Roger Dassen03:11

Our operating expenses were as guided with R&D expenses at around 1.2 billion euros and SG&A expenses at around 0.4 billion euros.

Roger Dassen03:25

The effective tax rate for Q3 was 16.1% for the full year 2026 the expected annualized effective tax rate is around 17%.

Roger Dassen03:44

Net income in Q3 was 5 billion euros which includes around 0.5 billion euros as a result of an increase in the valuation of our initial investment in Mistral AI representing 42.5% of total net sales and resulting in earnings per share of 12.95 euros.

Roger Dassen03:55

Turning to the balance sheet, we ended the third quarter with cash, cash equivalents and short-term investments at a level of 12.7 billion euros.

Roger Dassen04:05

Our free cash flow in Q3 was 11.4 billion euros underpinning the strong order momentum of our customers and related down payments.

Roger Dassen04:18

Moving to the cash return to our shareholders, in Q3, ASML paid the first interim dividend over 2026 of 1.88 euro per ordinary share.

Roger Dassen04:28

Further, we purchased in Q3 around 4.1 billion euros worth of shares under the current 2026 2028 share buyback program.

Roger Dassen04:47

The second quarterly interim dividend over 2026 will be 1.88 euro per ordinary share and will be made payable on November the 4th 2026. With that I would like to turn to our expectations for the fourth quarter and the full year 2026.

Roger Dassen05:04

We expect Q4 total net sales to be between 14.2 billion euros and 15.2 billion euros with a gross margin of around 57%. We expect our Q4 install base management sales to be around 3.7 billion euros.

Roger Dassen05:13

The expected R&D expenses for Q4 are around 1.2 billion euros and SG&A is expected to be around 0.4 billion euros.

Roger Dassen05:27

Regarding our full year expectations, we expect our full year 2026 total net sales to be between 44 billion euros and 45 billion euros with a gross margin of around 56%.

Roger Dassen05:47

This anticipated year over year total net sales increase of around 36% reflects our expectation of over 45% growth in EUV around 20% growth in non-EUV related system sales and around 50% growth in install base management sales.

Roger Dassen06:09

Turning to end use, this year we expect logic net system sales to grow around 10% and memory net system sales to grow around 75%. The growth in memory is driven by the combination of capacity expansion of our customers and the increasing adoption of EUV on advanced DRAM nodes.

Roger Dassen06:35

As previously mentioned, we continue to expect the China region to account for around 20% of our total net sales this year. In summary, the third quarter was a record for both total net sales and gross margin and we expect our business to continue to accelerate in the fourth quarter as we execute against a backdrop of very strong customer demand for all our products and services.

Roger Dassen06:39

With that I would like to turn the call back over to Christophe.

Christophe Fouquet06:57

Thank you, Roger. If we take a step back to look at the market environment, we see that the pace of the AI build out continues to be very robust. Supply shortages across advanced logic and memory nodes continue to increase in size and in time horizon.

Christophe Fouquet07:10

Against this backdrop we had very constructive discussions with our customer throughout the quarter and the demand signals we have received have continued to strengthen.

Christophe Fouquet07:22

Our leading edge high volume customers are sharing very good visibility as a result of the increasing number of long-term commitments they are securing with their customers.

Christophe Fouquet07:45

This extended visibility has led them to conclude that demand for their product will outpace supply through at least 2028. As a result, customers are accelerating capacity build out plans and preparing for further expansion beyond 2028 in order to better meet the anticipated level of demand.

Christophe Fouquet08:04

For us, their drive to add capacity is translating into not only greater short term demand across our entire holistic lithography portfolio but also improved longer term visibility and demand especially for our EUV products.

Christophe Fouquet08:34

As customers shift focus to their needs beyond 2027, our order momentum continues to build. We are increasingly receiving orders for 2028 and customers are also expressing interest in placing orders for 2029 and even 2030. As our customers are preparing to meet rising demand, we in turn continue our focus on adding capacity to support their needs.

Christophe Fouquet08:43

Roger will now share further details on our latest plans on providing our customers additional capacity. Roger?

Roger Dassen08:58

Thank you, Christophe. We have been very successful in ramping capacity this year. For low-NA EUV, we anticipate output of roughly 65 systems for 2026, which is nearly 50% more than the 44 systems that we shipped last year.

Roger Dassen09:12

For DUV immersion systems, while our initial output target for these systems was well below the prior year, we now expect we will deliver a similar quantity in 2026 as we did in 2025.

Roger Dassen09:29

Looking further ahead, we shared our intent last quarter to increase our capacity in 2027 by 30% for both low NA EUV and DPV immersion systems as well as to investigate adding a further 30% in 2028.

Roger Dassen09:40

However, given the dynamics of this quarter, we now anticipate that our current plant levels of output in 27 and 28 will not fully meet the demand of our customers.

Roger Dassen10:01

Therefore, we continue to strengthen our efforts to produce more systems especially beyond 27 and with that goal in mind are now looking into expanding our 2028 capacity even above the 30% year-on-year growth target that was under investigation last quarter for both low NA EUV and immersion systems.

Roger Dassen10:16

In addition to shipping new systems, we support customer needs for more wafer capacity through productivity upgrades across our EUV and DUV installed base as well as with the introduction of new products.

Roger Dassen10:27

The ability to enable an increase in capacity through upgrades on the same footprint is very compelling for our customers as the effect is an immediate increase in output capability.

Roger Dassen10:39

We will continue to work on this important value driver expanding the upgrade portfolio offering new productivity options to our customers in the coming years.

Roger Dassen11:07

The introduction of new products is the other lever we have to support increased wafer capacity. We plan to introduce our next generation low NA EUV system, the NXE 3800F starting in small quantities at the beginning of 2027. This system is specified at a throughput of 260 wafers per hour compared to the 230 wafers per hour capability of the NXE 3800E system.

Roger Dassen11:16

We also plan to introduce the next generation critical DUV immersion running at 330 wafers per hour.

Roger Dassen11:27

These new products will provide incrementally more wafer capacity to the industry as they ramp in the coming years. With that, I will hand it back over to Christophe for a technology update.

Christophe Fouquet11:40

Thank you, Roger. This quarter, we saw meaningful momentum around INA EUV, with several industry announcements providing evidence of the technology's progress from development towards production.

Christophe Fouquet11:54

Intel announced that it has exposed more than 1 million wafers using its INA EUV systems with performance that meets or exceeds comparable layers pattern using low NA EUV.

Christophe Fouquet12:07

Additionally, Samsung and TSMC announced plans to introduce INA EUV into high volume manufacturing in 2028 and 2030 respectively.

Christophe Fouquet12:17

With availability across the existing INA EUV fleet approaching 90% we now expect to see adoption increase northern node moving forward.

Christophe Fouquet12:33

To further ensure chip makers can fully leverage the advantage of INA EUV we also in collaboration with TSMC began an industry-wide initiative to develop larger format EUV photo masks.

Christophe Fouquet12:54

This collaborative effort aims to establish a 12 inch mask pilot line by 2031 and enter production in 2033. The broad support for this transition reflects customer interest in maximizing the value of INA EUV and in investing in the next generation of this technology.

Christophe Fouquet13:21

In closing, the combination of very strong demand fundamentals, improved visibility and rising little intensity reinforce our confidence in the trajectory of our business. Our focus continues to be on supporting our customer as they ramp their logic and memory nodes by continuing to expand our capacity over a multi-year horizon while also delivering enhanced productivity by executing our technology roadmap.

Christophe Fouquet13:40

In Q3, we have also shipped the first YieldStar 550B metrology system. This overlay measurement system is designed with improved accuracy and precision to support the tighter process control requirements of the 14 nanogram node in logic and the 1D node in DRAM.

Christophe Fouquet13:54

The system is designed to deliver more than 60% greater productivity over the previous generation Yearstar allowing customers to measure more wafers and therefore more quickly drive yield improvement in their processes.

Christophe Fouquet14:07

This latest generation system continues to support major adoption of FieldStar customer with a demand that is expected to more than double for the coming years versus 2025.

Christophe Fouquet14:20

Finally, the transition of INA EUV into high volume manufacturing creates a compelling opportunity for customers to enhance the economics of their future roadmap and we remain fully committed to helping them execute a successful insertion.

Christophe Fouquet14:26

With that, we would like we will be happy to take your questions.

Jim Kavanagh14:40

Thank you, Roger and thank you, Christophe. The operator will instruct you momentarily on the protocol for the Q&A session. Before, I would like to ask you to kindly limit yourself to one question with one short follow-up if necessary.

Jim Kavanagh14:48

This will allow us to get to as many callers as possible. Now, operator, could we have your final instructions and then the first question, please?

Questions and answers

Operator15:00

Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again.

Operator15:12

We will now go to the first question. And your first question today comes from the line of Joe Quatrochi from Wells Fargo. Please go ahead.

Joe Quatrochi15:29

Yeah, thanks for taking the question. I was wondering if you could provide maybe just a little additional color on the capacity expansion that you need beyond the 30% previously talked about and just what do you think you can do in 2027 you know relative to that kind of mid 80s that we talked about last quarter.

Christophe Fouquet15:49

Well I think that you know we are basically working very hard to increase capacity and I think this is true now as Roger explained we've done a lot of that this quarter that's going to be true next year and that's going to be true in 2028.

Christophe Fouquet16:22

And the reason for that as we explain is we continue to see customer asking for more tools now if we look at some of the opportunity we see of course it's a bit easier for us to enable those opportunity later so mostly in 2028 rather than on the shorter term so this is what we are focusing on I won't give new number for 27 or 28 because it's far too early to give those numbers as we continue to basically do everything we can to get extra capacity

Joe Quatrochi16:45

And then as a follow-up you know you talked about in the prepared remarks or in the transcript um you know value based pricing impacting more 2027 2028 can you share any just a few more additional details on that how to think about just kind of the trajectory of gross margin from here

Christophe Fouquet16:59

Yeah, so those are two questions, right? So first on the pricing, as we mentioned in July, we at that point, we were entering into conversations with customers on price increases.

Christophe Fouquet17:38

Those conversations have been completed and have indeed led to pricing increase for what we call the most critical products for our customers. So that has been done. As we also and you made reference to it as we said in the prepared remarks this is not going to have an impact on 26 you will see some impact on 27 but I would say that the full impact of that is really going to start in 28 so from 28 onwards you're going to see a sustained impact of that but you will see in the course of 27 you will see that starting to manifest itself in a positive way in both our revenue in the ASPs and in the gross margin.

Roger Dassen19:09

Your second question on gross margin is obviously much more broader question but let me take that one then so what are the puts and takes on the gross margin so as you have seen a gross margin this quarter very very strong and you know stronger than we anticipated I would say primarily as a result of the 400 million more upgrade business that we had but we should also not forget that if you look at the total year at 56% it's not just the upgrade business right it's also higher volume it's also you know the fact that we had you know very strong low NA EUV business in there very strong immersion business in there so those are all things that that help and then obviously you know the question is how will that develop into the years beyond this year right so what's the implication for 27 and beyond and of course we're not going to you know give you a gross margin percentage for 27 that will come in January of 2027 but you know if you look at the key drivers of the gross margin this year you have to ask yourself you know how much of that can be sustained into 2027 so first off volume with everything that Christophe just told you on the 30% increase in 2027 of course volume should help right and volume as long as we're able to control the cost of the increase in capacity volume should give you better fixed cost coverage so that should be a positive in that regard.

Roger Dassen19:24

The second element is mix and there too again key drivers of the volume are the 30% extra in immersion and low NA EUV both of them are obviously very positive from a gross margin perspective.

Roger Dassen19:39

Of course there will be quite some dry business that that we continue to increase you know this year but also next year but I would say that also mix with the strength in EUV demand and immersion demand that should help.

Roger Dassen22:03

Then to your point we have the price increase which as I mentioned will have some effect in 27 the larger effect you will see in 28 but it will have some effect in 27 so that's going to be helpful and then finally in the positive sense I would probably call out the mix effect within EUV right where the mix effect next year is going to be better than this year because this year we still have quite some D models in the mix you know that that won't materially be the case anymore next year and we will have a few Fs in there as well so that's going to be helpful in the total EUV mix so those are key elements and then what are the things that that we need to watch out for well one as I mentioned is the ramp cost right so so how much cost are we incurring to ramp not just for 27 but also for beyond so that that's one thing that we simply need to manage those costs well and then there is the swing factor of the upgrades right because as we mentioned the upgrades are very very strong this year so that really begs the question how sustainable is the upgrade business and you know if you look into that the sustainability of the upgrade business there's a few elements to bear in mind there first off we still see as of today that there is quite some addressable market for us on the upgrade business so if you look at the number of upgrades that we have performed in the field it's quite a few tools but there is still quite a few tools out there that have not yet been upgraded so that gives you good potential you know for the coming quarter but also for the year thereafter second as we mentioned on the video we're also aggressively pushing upgrade products so we will bring new upgrade products to the market and of course that will open an entirely new addressable market for us in the install base so that's helpful and then of course there is the question you know how will the market continue in the current market environment with the demand that is out there as we just said there is a lot of appetite for these upgrades so I would say upgrades is an important swing factor for us in the gross margin development as we see it in 27 and beyond very strong this year but you know I think we're at least from our side doing whatever we can to create as much opportunity for upgrade business on a go forward basis as we can

Joe Quatrochi22:07

Appreciate all the detail thank you

Roger Dassen22:09

You're welcome

Operator22:18

Thank you. Your next question today comes from the line of Chris Sankar from TD Cowen. Please go ahead.

Krish Sankar22:50

Yeah, hi, thanks for taking my question. Christophe or Roger, my first one, I understand you don't want to give exact capacity numbers, I'm just wondering amid the strong demand environment, is there a natural ceiling on your EUV output either due to space at BIC or Carl Zeiss capacity or in other words if the demand is there can you do 140 or 150 units in 2028 and along the same line do you worry that customers are pulling in orders or giving you bigger forecasts just to secure a slot and a quick follow-up after that

Christophe Fouquet23:09

Yeah, so maybe let me try to answer both questions. So first on maybe what we are doing to increase the capacity. So I think I mentioned that before. This is a task really started several months ago and I think there are really three elements to it.

Christophe Fouquet23:26

The first one is to optimize the footprint we have here in order to basically build our machines We have, as you know, a pretty important footprint and we started to make sure that most of that footprint can be used for output.

Christophe Fouquet23:42

That's true for low NA EUV, that's also true by the way for DUV including immersion. And this creates already some opportunity that we can use and build up again this year, next year and in 2028.

Christophe Fouquet23:55

The second one, which I think is a very big opportunity and still a major parameter, is the cycle time. meaning the time we spend in our factory with a certain given machines.

Christophe Fouquet24:23

And as we gain in maturity for example on the NXE 3800E we are capable to shorten the cycle time for a certain given sequence but we are also capable to further optimize the sequence meaning there are things that we needed to do initially in order to qualify a tool which over time in agreement with our customer we believe we don't have to do anymore.

Christophe Fouquet24:47

And I would say that this approach we can take pretty far moving forward and this is one of the really key opportunity we see basically moving forward and as I mentioned before you know as we go over time you know the opportunity continue to materialize which give us some more hope and opportunity.

Christophe Fouquet25:31

On the supply chain of course I mean indirectly your question is or your remark is that we have to supply the supply chain this is something that we take into account starting with Zeiss we do not see Zeiss today as a bottleneck for the capacity expansion we are discussing even beyond the 30% we mentioned for 2028 and we have done in the recent years many many work with all the supply chain to make sure that the supply chain will not be an issue for us. So we continue of course to watch that very carefully you understand that every time you add capacity of course we create more challenges there.

Christophe Fouquet25:53

So we do that and the last thing I will say is that we have time. I mean if you look at the progress we have done this year I think there are very significant we are feeling pretty good about next year and the time we have again for next year for 2028 is still significant for us to continue to be very creative on all those fronts.

Christophe Fouquet26:55

So that's I would say the first the answer to your first question on the second one I think I mentioned in the introduction we have very good conversations with our customers and the conversation is not only about you know how many tools they need it's also about exactly when those tools will be hitting the ground in their factories and you know when it comes to the demand we are referring to the increased demand we are referring to I think we are very much capable to validate that demand with some more detailed plan our customers are sharing with us in terms of fab construction release etc so I think that you know we when we talk about demand when we refer to demand in those discussion we really refer to demand we believe is real and not inflated by any potential buying behavior from our customer.

Krish Sankar27:12

Gotcha. That's super helpful, Christophe. Another quick follow-up for Roger on the value pricing is this across the board? Is it for systems, services, spare parts, everything? And I'm guessing based on your commentary, you're not repricing the backlog. Can you just clarify that? Thank you.

Roger Dassen28:17

Yeah, exactly how we do it Krish, I'm not going to share but as I mentioned we are increasing prices for what we call the most critical products those products that bring most value to our customers so these are you know the high range high volume manufacturing products those are the ones that provide most value to customers in the current environment and those are the ones that we put the pricing increases on it and you will also understand that upgrade prices are closely associated with the prices of the tools so you know they will also follow upgrade prices will also follow this pattern that's how we do it and exactly how we do it you know when we do it etc I don't want to go into any detail but the bottom line is that you will start to see the effect on that in the course of 2027 but the full effect you will start to see from 28 and onwards

Krish Sankar28:19

Thanks a lot, Roger.

Roger Dassen28:20

You're welcome.

Operator28:30

Thank you. Your next question today comes from the line of Sandeep Deshpande from JPMorgan. Please go ahead.

Sandeep Deshpande29:26

Thank you for letting me on. My question is back again to the question of your indication that you are looking at adding more capacity than the 30% into 2028 there are multiple components that you need to be able to add capacity and some of these suppliers of ASML will need to add physical capacity to be able to supply you with this kind of huge volume increases given that there's already a 30% increase in 2027 have these discussions started with customers does ASML need to make any substantial payments to these suppliers in terms of adding this capacity and are there any particular impediments and given that you know you yourself do not have any additional physical capacity till 2029 how is this whole supply chain being managed to be able to produce more capacity in 2028 and I have a quick follow-up after that thank you

Christophe Fouquet30:38

So I'll try to add a bit to what I said before. I think that you know the only real challenge we have with the supply chain is to make sure they can ramp. I think that there is not question on their side on the you said the strength of the demand on the strength of the ramp I think that the main challenge with all our suppliers because in this case really all the suppliers is make sure that they can go up 30% every year now Roger mentioned it before in the introduction we went up this year by 50% on EUV which is the sign basically that these are the kind of things we are capable to do with the suppliers and as you can imagine that's a discussion that we have with them on a very regular basis and us mentioning 30% growth in 27 more than 30% growth in 28 is the result of the confidence we have that this entire supply chain can of course follow our own demand both on EUV and DUV.

Christophe Fouquet30:57

That exercise, I will say, of course, could be extended as far as needed because we are continuing also to add, I will say, suppliers. So we are continuing to make sure also that we have more and more people who can produce some of our parts, especially the non-critical one.

Christophe Fouquet31:25

And when it comes to the very critical one, you know, Zeiss comes to mind again, we are absolutely strategically aligned on you know the trajectory of the industry and therefore the trajectory of the demand so these are very very detailed intense discussion but again every number we share with you is the result of us having validated that the supply chain can of course follow those numbers

Sandeep Deshpande31:57

Thank you Christophe quickly Roger on the gross margin your guidance on gross margin in the fourth quarter is down from the current quarter even though your revenues are going up significantly and then I mean just again regarding a response you made earlier about the value based pricing would should we assume that most of the value based pricing related increases will go straight down to the gross margin line or is there a margin number on this increases that you would be putting through?

Roger Dassen32:35

So on the first one, the gross margin in Q4 a little bit lower from Q3 that is primarily related to the fact that we are seeing some ramp costs right so we're ramping up for the increases that Christophe was just talking about that has a bit of a bearing on the gross margin expectation and that's why the fixed cost coverage that you would expect to benefit from the higher volume is a little bit compensated and a bit more compensated by the extra cost that we incur in the ramp as we see it now in Q4.

Roger Dassen33:46

So that's the main reason that we have there. In terms of the price increase and to what extent is the price increase completely accretive to the gross margin, of course, there the same applies, right? I mean, one of the arguments that we had also in our conversations with our customers is that we are incurring costs in order to ramp, right? So ramp costs will give you some additional costs. So it will definitely be accretive to the gross margin, but again, you will see some ramp costs that we are incurring in 2027 in order to get to the elevated numbers that Christophe was just talking about and this is both for ourselves but also into the supply chain for the reasons that Sandeep you just mentioned right we need to make sure that the supply chain is completely attuned to what we're looking for and of course that also means that in some places there is some help needed to get that done so there's some portion of the increase, of the price increase that we need to cover for the extraordinary ramp that we're going through but I would say that still a significant part of it is directly to the gross margin.

Sandeep Deshpande33:49

Thank you, Roger.

Operator34:01

Thank you. Our next question today comes from the line of Francois Bouvignies from UBS. Please go ahead.

Francois Bouvignies34:56

Thank you very much. So I just wanted to follow up a bit on this shortage situation obviously we are in a very unprecedented time with this capacity constraint for your customers but also today you are claiming that on your side as well the demand will be higher than supply so I mean the behavior usually that people order as much as they can especially if you start seeing some to make sure they have the tools and we see in other industries some long term agreements some prepayment try to get a more you know true sense of the demand. I was wondering if you were considering any change of the way you want to contract with your customers in those times for example you know increasing the prepayment or also you know adding like more the firm orders earlier to make sure you know that your customers are committed.

Roger Dassen35:20

Yeah, Francois, so if we take that, and we said it before, if you put an order with ASML, that's not a frivolous piece of paper that you put your name under. It comes with two serious commitments. One serious commitment is a commitment to make a down payment, and as I qualified it before, it's a down payment that is enough to hurt, right? So that's one element.

Roger Dassen35:39

And secondly, you know, a PO is a real commitment on both sides of the equation, and it also means that it's, you know, if you want to get rid of that commitment, that's not going to be easy, right? That comes at a price, not just the down payment, but more than that.

Roger Dassen36:00

So therefore, before customers, you know, sign a PO with ASML, they've made up their mind and they're not doing this frivolously. In terms of will you accept orders early on, well as Christophe mentioned we are getting the request of customers to

Roger Dassen37:37

To you know to accept for us to accept their orders their POs already for 2029 and 2030 and the only reason why Christophe worded in that way that customers are requesting us and therefore we have not yet accepted those is that we want to make sure that we have a good picture of you know what the overall demand in 29 and 2030 looks like that customers are currently signaling and mirror that against you know the capacity expansion as we see it at that point in time we want to do that because you know we don't want now to accept you know orders from customer A, B, and C and then to tell customer D who hasn't given orders yet for 29 and 2030 sorry we're sold out I mean that would be totally inappropriate for customers that have been business partners for us for a very long period of time so we're now really using this period of time to mirror to get a good understanding what is the total demand that our customers are signaling for the 29 2030 time frame what does it look like what is for us a reasonable expectation of capacity as we see it in the 29 2030 time frame and once we have that picture ready then we are ready to accept orders and you know also accept the commitment from our side to execute on those orders so we the only hesitation we have at this stage is that we really want to do our homework be very diligent on the acceptance of the orders that customers are offering us to make sure that no no single customer you know feels left out

Francois Bouvignies38:03

Great. Thank you, Roger. Very good answer, detailed. The second one is on high NA news flow. I mean, Christophe, you mentioned this high volume manufacturing in 28 with the memory guys and also TSMC in 2030. And if I look at the past, low NA when we started this high volume manufacturing, I mean, we saw a significant step up in shipments during those years.

Francois Bouvignies38:18

So I was wondering if we should think about high NA shipments in 28 to increase significantly on the back of it and potentially a double digit number of high NA shipments to as we go forward?

Christophe Fouquet38:43

Well, I think it's, you know, we're still looking at a very initial ramp. I think that you are going indeed to see that you know every year our customers are going to need more tools as they validate in manufacturing that they like INA and that most probably they plan over time more layers.

Christophe Fouquet40:10

I think the announcement and the drive of TSMC first on the 12 inch critical is very interesting there because the first signal it gives is that you know in the mind of the customer there will be more and more use of INA because if it was not the case I mean no one will really bother to go to 12 inch mask on INA so the 12 inch drive and very wide adoption by customer and the consumption is just a sign that everyone has in mind over time to develop basically more and more adoption of INA so with that you know it's always difficult to say exactly how this will basically manifest itself we also have of course a very big ramp so there's a lot of focus on building up capacity which sometimes can have you know a positive or negative impact on the INA rollout depending if customers see INA as additional capacity or potentially a bit of a slowdown but the number will grow for sure year after year and again the message I think all our customers have given this quarter with their participation into the 12 inch consortium is that they believe over time this really become a very important technology and the number of layers will grow over time for sure.

Francois Bouvignies40:13

Great. Thank you very much.

Christophe Fouquet40:15

You're welcome.

Operator40:26

Thank you. Your next question today comes from the line of Lee Simpson from Morgan Stanley. Please go ahead.

Unidentified speaker41:19

Hi. Good morning. Thanks for squeezing me in. Maybe just follow up to the last answer set I thought it was quite interesting that you know if you look at the non-current liabilities there there's quite a material jump Q and Q we're of the order of about 5 billion and typically the bulk of that is down payments so can we make a read through to you know a relative size of big order intake in Q3 that that that's question number one and I think maybe alongside that it did seem to infer Christophe in your answer to the last question that it's perhaps new customers that are bringing you to sort of thinking about the 29 and 30 sort of framework and as you say you still want to keep your marginal buyers still in the mix here are we right in saying that most of this is coming from new customers as a result thanks

Roger Dassen41:55

Yeah, so on the first one, the non-current liabilities, does that include down payments? Yes, it does, right? So in that way, it is a an interesting gauge of how order intake is developing. I should say it's a bit of a lagging indicator because typically the down payment and the receipt of the money lags a little bit the actual signing of the PO so it is a bit of a lagging indicator but for lack of any PO numbers that you get from ASML it's a nice proxy.

Roger Dassen41:57

Yeah.

Roger Dassen42:01

Yeah, I'm not sure I fully understood the second question. So

Roger Dassen42:26

I think the second question I think was on you know the customers in 29-30 that express an interest to do that I think your question is is that a totally new customer that might potentially start with a T and you know might this be that this customer is in that way sort of locking out existing customers but

Roger Dassen42:29

Much better than I would.

Roger Dassen42:44

And I guess the answer is that the interest is being expressed is much broader this is not linked to one specific customer there is a far broader interest in customers to have to place POs for that time period.

Christophe Fouquet43:19

Yeah and maybe to add to that because you mentioned a new customer and directly I think what's interesting on low NA EUV we've talked about you know increased adoption of EUV we continue to see in fact new customer on low NA EUV especially when it comes to DRAM and I would say this go a bit beyond the T customer so that's another interesting dynamic that we have to indeed take into account for 2028, 29, 2030.

Christophe Fouquet43:49

that's another of course challenge when it comes to the capacity discussion we're having but I think it's a great news when it comes to the validation of our EUV will be used moving forward and the last thing I will say is that we see a similar trend on INA so that's I think also a very good set of news we get from our potentially new customers.

Unidentified speaker43:53

Great. Thanks for that.

Christophe Fouquet43:54

You're welcome.

Operator44:05

Thank you. Our next question today comes from the line of Alexander Duval from Goldman Sachs. Please go ahead.

Alexander Duval45:05

Yes. Many thanks for the question. Just wanted to pivot a bit and talk about immersion DUV you talked today about how you'll reach a throughput of 330 wafers per hour so I wondered what that could directionally mean for pricing in 28 and whether we should be thinking about the kind of ASP step ups we saw historically on EUV tools when we think about the innovation you're delivering on immersion and then would like to think also secondarily as a follow-up on logic versus memory I wondered if it's fair to say that in the prior quarter the incremental demand seemed to be very much related to memory but now you seem to be seeing quite a strong balance across both logic and memory so curious to what extent you'd agree with that statement and what is driving this whether it might be across drivers like agentic AI or it could be progress either with existing customers or new customers. Many thanks.

Christophe Fouquet47:32

Yeah, I can start. So I appreciate the question on the 330 wafer per hour because this is one of the I would say the very short term action we have taken to increase capacity we're going to bring the different immersion product to 330 per hour you know that we have slightly different version of our immersion tool depending on the overlay requirement of our customer but all of them at the beginning of next year will go to 330 wafer per hour and when it comes to value and therefore to pricing as we discussed many times for EUV the price the value scale basically with the throughput and I think what's true for EUV will be true also for DUV so this is both an opportunity on value margin pricing it's also of course very helpful when it comes to capacity because you look at of course providing the same capacity with potentially less tool doesn't mean that we need less tool it means that we get more capacity for our customer of course so that's another I would say creative move we have made on our portfolio to get more capacity out and we expect again the value to come to us in the same way it always come with productivity that's for DPUV on the second question I think that Roger gave some number if you look at the increase compared to last year memory has gone up very much we're still on trend where memory become more and more important 75% increase which is of course significant so you start to see the results of this huge memory investment that's by the way is mostly DRAM to be clear and we continue to see that moving forward and I think we've said in the past that the ratio between logic and memory will most probably increase towards memory still I will say that logic is also very strong so to be able to predict exactly where this is going to land is difficult because I like to stress that we see also a very strong demand on the logic side because of course as you know the two are very much coupled when it comes to delivering AI capacity to the market.

Roger Dassen48:05

And just to give you one one more data point there, so in indeed as I mentioned, logic went up uh you know 10% around 10%, but the advanced logic piece uh included in there is is far bigger, right? So that grew over 25% is expected to grow over 25% in this year. So you're right, uh memory is getting closer to logic, but logic remains very very important and you know when we look at 2027 um memory comes close um uh but I I still believe that logic will outweigh memory in the total book of business for next year.

Alexander Duval48:08

Okay, thanks.

Operator48:18

Thank you. The next question today comes from the line of Chris Caso from Wolfe Research. Please go ahead.

Chris Caso48:46

Yeah, thank you. Good morning. Uh my question is with regard to your customer clean room constraints and you know perhaps you could discuss that with respect to your decisions to expand capacity into 28, um do you expect that that clean room is still a constraint on your customers ability to add tools and add capacity and then what does that mean as you go into potentially 2029?

Christophe Fouquet49:11

Well, you know, I think there's still some what I would call tactical constraints. It could be that, you know, one system will move from the end of a quarter to the beginning of another one. We don't see too much of that, to be honest, but that's still possible because our customers have been ramping their clean room facility extremely fast.

Christophe Fouquet49:28

If we look at the longer term, as I said before, beyond those little move or those tactical move, we have confirmed that you know the number of customers are giving us are really lined up with their plan.

Christophe Fouquet50:14

In fact in many cases you know when the supply is tight we make sure before we fully allocate a tool to a customer that you know the space will be there, the facility also will be there so that we don't ship a tool that will be waiting for weeks for a customer to use it because of course other customer will be very disappointed with that. So we do a lot of work to make sure that in all the plans we have at ASML you know we don't have delay of more than a few days or weeks I will say in shipping our products. So short answer is I think no we don't see our customer clean room constraint being a major factor on our demand

Roger Dassen50:38

But to your point, Christophe, it's very clear that with everything that is being built today, it is such a massive scale. So on the one hand, that opens a significant opportunities, but it also means that our customers have to manage the execution of all that construction in 27, 28 very diligently, right? So they're looking at huge expansion of their footprint, but of course, that requires very diligent execution.

Roger Dassen50:52

And that's obviously something that we need to monitor very, very carefully. So in that way, conceptually, a lot of opportunity and not a constraint, but in reality, we need to make sure that they execute well such as become a constraint.

Chris Caso51:13

Thank you. As a follow-up, follow-up question is with regard to China and you talked about that at 20% of your systems revenue this year what should we expect going forward with respect to China did you expect it to maintain those levels as you go into next year?

Roger Dassen51:38

I think the intrinsic demand in China is strong, right? If you look at what China needs in terms of mainstream logic, in terms of memory, there is very strong demand in China for their domestic consumption. If you look at the fabs that are being built in China, there is a lot coming online.

Roger Dassen51:59

There and therefore you know we would expect that the demand in China to be strong you know this year 20% and I would argue that also for 2027 and beyond based on the intrinsic drivers it seems that the demand situation in China remains very strong.

Chris Caso52:02

Thank you.

Operator52:12

Thank you. Your next question today comes from the line of Tammy Qiu from Berenberg. Please go ahead.

Tammy Qiu52:27

Hi, thank you for taking my question. So firstly, it's on your value-based pricing. So this year you are increasing pricing. Going forward, let's say this tightness in the industry continues, do you think you'll be able to negotiate price increase every single year?

Roger Dassen52:35

Well, Tammy, that wasn't the plan, to be honest.

Roger Dassen52:37

Smiling.

Roger Dassen52:39

We were smiling. Our customers are listening.

Roger Dassen53:10

Yes, exactly. Yeah, exactly. That wasn't the plan. So, you know, we've had these conversations with customers that, you know, given everything that the ecosystem is going through, and given the efforts that we're all going through to meet the ramp requirements, we thought that we were entitled to a higher percentage. And, you know, we were able to get there with customers and we would see that as something that is possible within our value-based pricing model, but we would not be looking at repeating this every year or so.

Roger Dassen53:11

That is not the plan.

Christophe Fouquet54:15

No, I would have to, Roger, it's still I think mostly you notice this mostly one of the very first time we have this discussion with customer if you go back many many years back this is something we never did and Roger mentioned in the introduction the discussion we have constructive I think they were more than constructive meaning there was a clear acceptance that maybe the overall value in the ecosystem is shifting and that's triggered by of course AI to some extent and I would say you know we will see what the future brings but at least we have been able to have a very good very mature discussion which I think is very important so something we never did before we don't want to do that every year because that's not the purpose but I think that it's very good that in principle at least we have the ability mostly once a while to discuss again what's the real value of lithography in the entire ecosystem.

Roger Dassen55:11

Absolutely. And Tammy, as you know, one of the key objectives for us in the pricing conversation is to make sure that we never depart from the concept of value-based pricing. Because we don't want to be in a position that the market goes down, that we're actually having discussions with customers on price decreases. I mean, and that is very well understood in the conversations with our customers as we've had it. So to Christophe's point, these have been conversations on fairness but you know the premise that we are able to capture value of the next generation of tools and that as a result of that we're able to continue to increase the pricing commensurate with the value that it brings that is a principle that we want to sustain even if the market goes backward a bit so that's the reason why we're not opportunistically pricing what we're not opportunistically seizing the opportunity and why we're executing along the lines of what Christophe just described

Tammy Qiu55:35

Okay, thank you. That's really clear. And secondly, regarding your exposure in China, so I understand that China will never be able to compete with you from a technology perspective. But going to let's say 2029 ish, when they work out let's say a low end version of immersion tool, do you think that will decrease your potential to price at a premium versus the Chinese local players?

Tammy Qiu55:40

Or your potential margin in Chinese market may need to come lower?

Christophe Fouquet56:02

Well, I think, you know, there's a lot of speculation in the question, but where we are today, I think, with our Chinese customer is that they all want to work with us. I think this is very clear. I won't give any market share number, but you can imagine it's extremely high, especially on immersion.

Christophe Fouquet57:10

And therefore you know as long as we have a good market access as long as our customer can trust they can work with us I think that the likelihood of a major competition in China is still pretty low that's the first thing I will say the second is of course you know if you know they were to not have access to some of our tools then you get a lot more motivation but it's still a very very long way to go and I think that we have been having this discussion about you know China having a tool to compete with us for the last 25 years and you know every other years we get the news that this is coming if you stick to fact I think the fact this year are not different from the fact a year ago or even five years ago so I think that the progress is not very strong the motivation is not strong at all and I think that as long again as we preserve market access in reasonable means we should be fine.

Tammy Qiu57:14

Okay, thank you.

Christophe Fouquet57:15

You're welcome.

Jim Kavanagh57:34

Okay I just wanted to remind we've got time for one last question so Sharon can I ask you to ask the final question please and then if there are follow-on questions please contact ASML Investor Relations and we'll do our best to follow up so operator can we have that last question please?

Operator57:41

Thank you. Your final question today comes from the line of Stephane Houri from ODDO BHF. Please go ahead.

Stephane Houri58:12

Yes well thank you for taking my question actually my question was on China initially but just to understand the discussions that you have on 2029 and 2030 if it is more because you seem to be very positive at the moment on memory if it's very balanced between memory and logic or if it's still memory manufacturer who are giving you some visibility on 2028 2029 sorry in 2030 thank you

Christophe Fouquet58:53

Well, I think, you know, you need both memory and logic to get some AI chips. I think we have discussion with both customers because they get the same message from their own customer I think today DRAMs is a bit more aggressive on the build up of those capacity but yeah we have discussion with both so I think we see equal interest equal I will say demand trajectory for both DRAM and logic because we need both basically to get the product out.

Stephane Houri59:04

And in DRAM, is it at the same time the US, Korea, and even China, or is it more concentrated from a geographic standpoint?

Christophe Fouquet59:13

No, I think that we're mostly talking about UV in this case. So this excludes China.

Stephane Houri59:14

Okay. Yeah.

Stephane Houri59:17

Good. Thank you.

Jim Kavanagh59:27

Okay. Thank you, everyone. On behalf of ASML, I'd like to thank you for joining the call today. Operator, if you could formally conclude the call, I'd be very much appreciated. Thank you.

Operator59:36

Thank you. This concludes the ASML 2026 third quarter financial results conference call. Thank you for participating. You may now disconnect.