ASML Holding N.V. (ASML) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the ASML 2026 Second Quarter Financial Results Conference Call on July 15, 2026. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Jim Kavanagh. Please go ahead.

Thank you, operator. Welcome, everyone. This is Jim Kavanagh, Head of Investor Relations at ASML. Joining me today on the call are ASML's CEO, Christophe Fouquet; and our CFO, Roger Dassen. The subject of today's call is ASML's 2026 second quarter results. The length of the call will be 60 minutes, and questions will be taken in the order they are received. This call is also being broadcast live over the Internet on 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. 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. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation found on our website at www.asml.com and on ASML's annual report on the Form 20-F and other documents as filed with the Securities and Exchange Commission. With that, I would like to turn the call over to Christophe Fouquet for a brief introduction.

Thank you, Jim. Welcome, everyone, and thank you for joining us for our second 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 second quarter 2026 results as well as provide some additional comments on the current business environment and on our future business outlook. Roger?

Thank you, Christophe, and welcome, everyone. I will first review the second quarter 2026 financial accomplishments and then provide guidance on the third quarter and the full year of 2026. Let me start with our second quarter accomplishments. In the second quarter of 2026, total net sales were EUR 9.3 billion, which is above the high end of our guidance as a result of higher-than-expected installed base management sales. Net system sales were EUR 6.6 billion, which included EUR 3.8 billion from EUV system sales, including sales of 1 High NA system and EUR 2.8 billion from non-EUV system sales. Net system sales were almost equally split between logic at 51% and memory at 49%. Installed Base Management sales for the quarter came in at EUR 2.8 billion, almost EUR 300 million above our guidance, a result driven primarily by additional upgrade business. Gross margin for the quarter was above our guidance at 54%, primarily due to the contribution of very high-margin components within our installed base management business. Our operating expenses were higher than guided due to the recognition of estimated costs related to the technology and IT transformation in Q2, primarily in R&D. R&D expenses came in at EUR 1.3 billion, and SG&A expenses came in at around EUR 0.3 billion. The effective tax rate for Q2 was 17.5%. For the full year 2026, we expected annualized effective tax rate is around 17%. Net income in Q2 was EUR 2.9 billion, representing 31.3% of total net sales, resulting in earnings per share of EUR 7.59. Turning to the balance sheet. We ended the second quarter with cash, cash equivalents and short-term investments at a level of EUR 7.6 billion. Our free cash flow in Q2 was EUR 1.3 billion. Moving to our cash return to our shareholders. In Q2, ASML paid the final dividend over 2025 of EUR 2.70 per ordinary share. Together with the 300 dividends paid in 2025 and 2026, this resulted in a total dividend for 2025 of EUR 7.50 per ordinary share. In the second quarter, we purchased around EUR 1.1 billion worth of shares under the current 2026-2028 share buyback program. The first quarterly interim dividend over 2026 will be EUR 1.88 per ordinary share and will be made payable on August 5, 2026. With that, I would like to turn to our expectations for the third quarter of 2026. We expect Q3 total net sales to be between EUR 11 billion and EUR 12 billion. We expect our Q3 installed base management sales to be around EUR 2.9 billion. Gross margin for Q3 is expected to be between 55% and 57%. The expected R&D expenses for Q3 are around EUR 1.2 billion, and SG&A is expected to be around EUR 0.4 billion. Driven by continued strong demand, we are updating our full year 2026 guidance. We now expect total net sales between EUR 43 billion and EUR 45 billion, with a gross margin between 54% and 56% [ billion numbers in euros ]. With that, I would like to turn the call back over to Christophe.

Thank you, Roger. I will now provide some additional details on the dynamics that prompted us to raise our guidance for the full year. The combination of continued strong momentum in customer demand and our ability to respond to that by driving higher output to strength in our supply chain, our manufacturing and our installed teams in the field are the primary drivers of our improved guidance. Strong end market demand this year has motivated our customers to aggressively add capacity on their leading-edge nodes. A number of our customers have revised their capital expenditure plans report for the year, and our ability to increase output has allowed us to meet their requests for additional lithography system. The dynamics are very similar in both advanced logic and DRAM and the plans to build up capacity are equally aggressive. Our customers in both segments are entering into long-term agreements with their customers, providing them with longer-term visibility and the confidence to add significant capacity to support demand. In logic, there is a continued investment not only to enable the expansion of 3-nanometer capacity in support of the latest generation of AI accelerators, but also at both the 5-nanometer and the 4-nanometer nodes to support the diverse set of chips required by AI product. At the same time, the 2-nanometer node continues to ramp rapidly to support next-generation HPC and mobile applications. And our customers are already planning investment to support the development of the 1.4 nanometer nodes. These dynamics in the logic segments are driving both an increase in litho intensity and greater demand for advanced lithography. We now expect advanced logic/foundry related net system sales to grow over 25% this year. In DRAM, the supply challenges driving up both DDR and HBM prices have prompted significant investments in fab expansion. Our customers are adding meaningful capacity this year while at the same time, they plan further capacity expansion as indicated by the plans to build multiple mega fabs. These additions will come online in phases over the coming years. In addition, DRAM lithography intensity is raising as customers migrate to advanced nodes. This includes both EUV and DUV immersion, with EUV low NA growth driven by the increased replacement of multi-patterning with more cost-effective single exposed EUV. As a result, we anticipate our memory-related net system sales to grow by over 75% this year. I will now turn it back over to Roger to provide details on what that means for the different parts of our business and our plans to support this growing demand.

Thanks, Christophe. Starting first with our EUV business. We now expect to ship around 65 low NA EUV systems this year resulting on year-on -- year-over-year EUV net system sales growth of over 45%. This demand is being fueled by very strong momentum in both DRAM and advanced logic. Moving to the DPV business. For immersion DPV, we expect about 130 shipments this year, which is similar to the output level of these systems in 2025. This year, we have worked closely together with our supply chain partners to reaccelerate our output of these systems. Shipments of dry DPV systems have also increased markedly this year. Further, greater process control intensity at advanced nodes has led to major traction when it comes to adoption of our optical and [indiscernible] metrology products across all key customers. Given these trends in our DPV and metrology and inspection business, we expect growth in non-EUV net system sales of around 25% this year. Installed base management sales are expected to grow over 30% this year, driven by service revenue from our expanding EUV installed base and customer demand for performance and productivity upgrades to support their increasing capacity requirements. Turning to our China-related business. We continue to expect this to make up around 20% of our total net sales for the full year as it increases in line with the overall business, mainly related to an increased demand in mainstream logic. With regard to our capacity plans, we are continuing to have very constructive conversations with our customers to better understand the demand for our systems beyond 2026. With increasing visibility into their customer plans -- their customer plans, our customers have been able to share forecast with us that extend out multiple years. We see this heightened visibility reflected in auto momentum that has remained extremely strong through the first half of the year. As a result, our backlog continues to increase with a broad mix of customers. For 2027, we are now close to being fully covered with orders for low NA EUV, and we are planning to increase our low NA EUV capacity by around 30%. Looking ahead to 2028, we have already received a significant number of low NA EUV orders. Strong demand forecasts from our customers have led us to investigate a further 30% capacity increase for that year. Similarly, for our immersion systems, we intend to increase capacity by 30% in 2027 and are investigating a potential further 30% expansion for 2028. With that, I would like to turn it back over to Christophe.

Thank you, Roger. Turning to our technology road map. We see High NA EUV continue to make good progress. We are continuing to work very closely with our customers to prove the value of High NA technology for their process technology road maps. In parallel, the maturity of the platform is improving towards the level required for insertion into high-volume manufacturing. We were also very pleased to announce in a press release earlier today that Intel foundry is using ASML High NA EUV technology on the Intel 18A process node to produce a subset of its Intel core Ultra-series reprocessors. These milestones marks an important step in demonstrating High NA EUV readiness in a production environment. To conclude, customer demand remains very strong with visibility now extending several years into the future. We have responded effectively to the increasing demand, and we'll continue investing to ensure our capacity and capability remains aligned with our customer needs. We also see that the rapid growth of AI-related demand in advanced logic and DRAM is accelerating the move towards more advanced lithography solution and increasing lithography intensity. At our next Capital Market Day, which will be held on June 10, 2027, we will update our longer-term views to reflect the market and technology dynamics since our last Capital Market Day. I look forward to seeing many of our investors there. With that, we will be happy to take your questions.

Thank you, Roger, and thank you, Christophe. [Operator Instructions]

[Operator Instructions] And your first question today comes from the line of Francois Bouvignies from UBS.

My first question maybe is on ASML has often described its pricing approach as being based on the value delivered to customers, although, of course, by definition that requires assumptions about the economic benefits, the customers can extract from your tools. So with that in mind, I just wanted to revisit TSMC recent comments on High NA systems being too expensive. One interpretation could be that customers are finding more value in the low end than maybe we previously expected, particularly if they can do some triple patterning at competitive cost versus high NA. So my question is, is there any scope for pricing adjustments for low NA over time to ensure that the system pricing remains aligned with the incremental value customers I mean, the incremental value you give to customers. Does that make sense?

Well, I think, Francois, I understand maybe the question, the connection between High NA and Low NA. So let me start with High NA. I think we discussed that in the past. And every new generation of lithography system ASML ever brought to market was with a strong intention to reduce the cost of patterning. So when you look at High NA single expose, the design of the tool, the performance of the tool will be such that it provides a cost benefit to our customer. Now of course, to reach that point, you need to have the right maturity of the platform. I just mentioned that we are still basically working in bringing the High NA platform to the level of maturity of low NA and when you achieve that, this is practically the time where the cost of High NA is going basically to provide an advantage versus the existing technology. So I think that logic is still true and again, get implemented when the platform reached the right maturity. Therefore, I think there's no we need to maybe look at 1 cool price versus the other because that logic, I think, was also true for low NA, if you remember our discussion back in 2018, '19. I think the key, again, for High NA to be cost effective to beat the cost of low NA plus emergent multi-patterning is to bring High NA to the right maturity. And in that sense, we are very happy with the press release this morning about Intel because this is, I would say, maybe the strongest signs so far that we're getting there.

So there is no section of low NA pricing -- yes, sorry, go ahead, Roger.

So I would say, Francois, in addition to that, when it comes to Low NA pricing, of course, you know that we keep on increasing the productivity of the low NA tool. So that, of course, that gives us a pretty strong runway for potential price improvements going forward. And you're right. I mean, value-based pricing is the concept that we that we follow within ASML. And you're also right that in the current environment, of course, the value for customers is higher than in other circumstances. So I would agree with you that the current environment provides more flexibility for pricing what you would have had in different days. Of course, you will also appreciate given the long order lead times that we have that doesn't translate into pricing effects tomorrow. But clearly, the environment that we live in today with the value that our products bring to customer is substantial, of course, gives us flexibility on pricing more so than what you would have seen in the past. And of course, we're executing on that as well.

When could that happen, Roger, I mean, to your point, if not tomorrow after tomorrow. So when he did...

So that really depends on the order situation that you have with customers. as I said, it's obviously linked to other lead times. So -- and of course, that varies from 1 to the other. But the dynamic is clearly there, Francois.

Okay. And maybe just the follow-up quick one is on the -- I mean, the 30% increase in '28, which implies 110 tools and I mean, Christophe, you mentioned investigating the world is precise. Do you need the new clean room for that? Or are you contemplating maybe to add clean room to ASML capabilities.

I think all the capacity increase either plan or investigated, we're talking about or based on our existing footprint. So we have been working extremely hard, as you may have noticed in the last 6, 9 months to increase our output. We'll continue to work very hard in the next few months to do the same. And the number we are mentioning, we can achieve basically by optimizing the existing clean room space in the right way. So this is also why we can create basically that improvement on the short term.

Our next question today comes from the line of Joe Quatrochi from Wells Fargo.

You noted that you're close to receiving all the orders you need for 2027 to be covered on low NA. And your increase in capacity, obviously, by 30%. So I guess the question is, is the implied kind of 85 tools for next year? Is that the ceiling of what you can think you can support in your supply chain can support next year? Or it sounds like maybe the existing footprint can support more. Is there a possibility that, that can move higher as we move closer to 2027?

Joe, it's the balance as we see it today. The balance between demand and supplies we see it today gets us to the 30%, right? So that's the way we do it. If customers are going to come to ASML and say, ASML, we need considerably more than just as we've been doing it in the past couple of months, we need to look ourselves in the eye, we need to look at all the supply chain and just see what can further be -- what can further be done. But at this stage, given the conversations we have, we think the 85 is a nice representation of the balance between what customers are asking of us and what, at this stage, we've been asking ourselves in the supply chain to do. But if more is needed, just as we've done it in the past couple of quarters, we're going to roll up our sleeves and see if more can be done.

And maybe, Joe, to add that back to Francois question. So I explained that the 2x 30% is based on our existing footprint. So the question basically is really the speed at which we need to execute to support the customer demand and potentially at some point we can execute. But on that part, as you have noticed in the last few months, we have been very successful. So we have the space. We have, I will say, the recipe to get to those numbers. And as I said, we will continue to both stay in sync with our customer, ask them what they need and continue to work very hard on output. And the first mission of ASML is to provide their customers what they need, basically.

And Joe, a bit to further build on that, we should also remind ourselves that shouldn't just be looking at unit percent increases, right? So we're looking at 30%, which is boxes, if you like, so 30% more tools. But you should also recognize that the 2 mix that we're going to ship next year is a different tool mix from the tool mix that we shipped this year. So when it comes to EUV in particular, right, the tool mix that we're going to ship next year will be [ these ] and us. While this year, it's a combination of these and these and if you recognize the difference and output in essence, what you're looking at is not 30% improvement of wafer capacity that we're adding that approximately 45%. And in addition to that, as you also know, we're offering a whole slew of upgrade packages to the install base to customers, which gives them another significant uptick. So it's in a combination of improving the number of -- the capacity that we have internally to crank out unit numbers and the productivity of the tools and the upgrades of the installed base. And in that combination, as Christophe said, we think that we're very successful in meeting the objectives and the amount of our customers.

That's really helpful color. I appreciate all the detail. Maybe just as a follow-up, you talked about like optimizing the existing clean room space for capacity. Does that change at all what you think you could do from a capacity standpoint for High NA? Can you remind us what the High NA capacity is we're looking into '27, '28?

Well, I think for NA, we follow the exact same principle, which is to match our supply with our customer demand. So I think we optimize across all the products. And there's also, of course, some discussion around High NA, as we mentioned. There is some discussion about insertion. So we keep also, of course, the flexibility to be able to respond to that when the time comes. So the optimization I was referring to before is really basically across all products. Now I think everyone understand that, of course, a lot more is being done to the low NA and immersion, for example, than High NA. But we are not sacrificing, I would say, any of our high NA supply by doing the rest of the optimization.

Our next question today comes from the line of Krish Sankar from TD Cowen.

I [indiscernible] the capacity increased to 85 and 110 units, you are meeting the demand, not under-shipping. Is that correct? And if so, for you to increase, are you waiting for purchase orders from customers before you start adding more capacity? And then I have a follow-up.

Well, I think on the first question, I think that, as you have noticed in the last few months, I don't think we have reached yet a stable state on what the demand will be for '27, certainly not for '28. So we keep on revising basically with our customer what that demand is and again, the whole goal of our supply is to follow that demand. So I would not say that we have done with this discussion. I think you see the dynamic on the market. This is still pretty strong. So this is also bringing some, of course, I would say, always tension to make sure that the 2 numbers match, but that's again something we'll continue to do. So short answer is yes, the capacity is there to meet the demand. but the demand is still fluctuating. We get nice visibility for sure for '27, even '28, but we also mostly are not at the end of the discussion with our customer.

And clearly, Krish, we're not waiting until we get the orders, right? Because we said we're investigating the 110 scenario for EUV in low NA by 2028. Of course, we don't have orders for 110 EUV low at this stage. So we're not waiting, We're preempting, but we are doing this because the demand signals that we're getting from customers that have not yet translated into full [indiscernible] the demand signals we're getting from customers are quite strong. So that's why we're investigating this and preparing as best as we can at this stage.

Very helpful. And then a quick follow-up. It seems like the 3-nanometer node is actually being more of a longer and stronger node than people thought. So I would assume that you would still be shipping 3,600 Ds. But Roger, you mentioned that next year, there won't be any D in in the mix. So I just want to clarify, is that true? And if so, is it fair to assume that gross margin next year should grow versus this year because if your mix is shifting to more volumes of E and eventually S?

Krish, at a certain point in time, we're simply sold out when it comes to D models, right? So D use a specific QB from Xian at a certain point in time, we're just done. And we expect to be done or maybe virtually done, but done this year, it might be 1 or 2 sitting into next year. But essentially, we're done with it this year. And then from that moment onwards, there is no left anymore, and therefore, we'll build even half next year. And of course, that mix will come with a better ASP than the mix that we have this year because it also will come with higher productivity as we just laid out and other and also comes with a better gross margin profile. Of course, I'm not going to guide you the gross margin for next year, Krish, but it is true that the mix effect on EUV next year will be more positive than it is this year.

Your next question today from the line of Stephane Houri from ODDO BHF.

Yes. So my question is for where you say you have already large order volumes, but not fully booked yet. Can you help us understand where you in terms of visibility out of the 110, you need targeted? Is it -- how is it covered today? And can you talk about the lead times as we speak? And I have a follow-up.

Well, the fact that we say that we investigate 110, we wouldn't investigate 110 if of customers were telling us that, that would be a ridiculous number, right? So we're investigating this simply because customers are signaling to us that the demand is very, very strong. But the fact that we now start talking about having significant order intake for '28 already like 2 years in advance is pretty strong, right? So that is something that we haven't -- that situation we haven't enjoyed in many, many years. So I think that is a very good underpinning of the strong market dynamics that are currently going on. We're not sharing order intakes. I'm not going to give you the coverage number, but I will tell you that the demand signals that we're getting from customers also when it comes to '28 are sufficiently strong for us to seriously investigate this 110 number and the related number on immersion that we signaled to you.

Okay. And about the 75% memory growth in 2026. Can you share with us how much is coming from HBM-driven lithography intensity versus volume addition, i.e., what I'm trying to know if with these investments, the memory manufacturer, your clients are kind of closing the gap between offer and demand or just investing in new technologies like HBM.

Well, I think the demand is really a combination of a lot more volume both for HBM and DDR. I think we have seen some shift between 1 product to the other recently because the price point of DDR, I think, is extremely strong right now. So there's some optimization at our customers. It's hard to know the exact, I would say, a ratio between the two. It doesn't matter that much in terms of technology for us because the DRAM, DRA itself is the same. HBM will require more wafers, so there there's a volume effect again. So that's 1 element. The second element is, of course, the number of EUV and immersion layer, which has increased basically on the the nodes that are ramping very, very strongly right now. So the 1C node, for example, which is going to be an enormous node or even 1B are using more EUV layers. So this is really this combination, which creates a bit of perfect storm for ASML on DRAM this year and most probably the next few years to come.

Your next question today comes from the line of Didier Scemama from Bank of America.

So my first question is on '26. When I look at your guidance on unit for merger and EUV as well as the guidance for IDM. I struggled a little bit to get even to the midpoint. So -- sorry, I'm struggling to not get above the upper end. I apologize. So I'm trying to understand if your ASPs are going higher in Q3, Q4, because of your holistic [indiscernible] attach rate on software? Or is there any mix impact that is particularly meaningful and associated with it, when I look at your full year guide gross margin, you're essentially saying that your gross margin exit rate Q4 is around 56% to 58%, which again, would suggest that your mix, your volumes, your software upgrades, et cetera, are very strong. So just trying to understand what's going on in those business systems in particular in Q3, Q4.