ASML - Q4 2025 Investor Call

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the ASML 2025 Fourth Quarter and Full Year Financial Results Conference Call on January 28th, 2026. At this time, all participants are in a listen-only mode. After the speaker's introduction, there will be a question-and-answer session. To ask a question during the session, you need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Jim Kavanaugh. Please go ahead.

Jim Kavanagh (Head of Investor Relations)

Thank you, operator. Welcome, everyone. This is Jim Kavanaugh, 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 2025 fourth quarter and full year results. The length of this 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. 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 in our ASML's annual report on Form 20-F and in 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.

Christophe Fouquet (CEO)

Thank you, Jim. Welcome, everyone, and thank you for joining us for our fourth quarter and full year 2025 results conference call. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the fourth quarter results and full year 2025 results, as well as provide some additional comments on the current business environment and on our future business outlook. Roger?

Roger Dassen (CFO)

Thank you, Christophe, and welcome everyone. I will first review the fourth quarter and full year 2025 financial accomplishments and then provide guidance for the first quarter of 2026. Let me start with our fourth quarter accomplishments. The fourth quarter of 2025, total net sales were EUR 9.7 billion, which is within our guidance. Net system sales were EUR 7.6 billion, which includes EUR 3.6 billion from EUV system sales, including 2 high NA systems, and EUR 4 billion from non-EUV system sales. Net system sales were driven by logic at 70%, with the remaining 30% coming from memory. Installed base management sales for the quarter came in at EUR 2.1 billion as guided. Gross margin for the quarter was also within guidance at 52.2%.

On operating expenses, our expenses were slightly higher than expected at rounded EUR 1.3 billion, mainly due to higher non-recurring personnel costs and the recognition of a grant that shifted into 2026. SG&A expenses also came in higher than guided at EUR 375 million, driven mostly by higher, mainly non-recurring salary-related costs, the sale of receivables, and pull-in of certain IT spending. The effective tax rate for Q4 was 18%. For the full year 2025, the annualized effective tax rate came in at 17.7%. Net income in Q4 was EUR 2.8 billion, representing 29.2% of total net sales, and resulting in earnings per share of EUR 7.35.

Turning to the balance sheets, we ended the fourth quarter with cash, cash equivalents, and short-term investments at a level of EUR 13.3 billion. Our Q4 free cash flow was EUR 10.9 billion, which was significantly higher relative to the previous quarters of this year, with the majority of the cash coming in at the very end of the quarter. Moving to the order book, Q4 net bookings came in at EUR 13.2 billion, split between EUR 7.4 billion of EUV systems and EUR 5.8 billion of non-EUV systems. Net bookings in the quarter were slightly weighted towards memory, with 56% of bookings and logic accounting for the remaining 44%. Turning now to the full year, net sales came in at EUR 32.7 billion, with a gross margin of 52.8%.

EUV system sales realized from 48 systems, including High NA, were EUR 11.6 billion, which was 39% higher than 2024. DUV system sales decreased 6% year-over-year to EUR 12 billion, while metrology and inspection system sales increased 28% from 2024 to EUR 825 million. Looking at the market segments for 2025, logic system revenue was EUR 16.1 billion, 22% higher than 2024. Memory system revenue was EUR 8.4 billion, 2% lower than 2024, and installed base management sales were EUR 8.2 billion, 26% higher than 2024. We concluded 2025 with a backlog of around EUR 38.8 billion.

In 2025, we continued to invest in innovation across our full product portfolio, increasing R&D spending to EUR 4.7 billion, or about 14% of sales. SG&A increased to EUR 1.3 billion in 2025, which was about 4%. Net income for the full year was EUR 9.6 billion, 29.4% of net sales, resulting in an earnings per share of EUR 24.73. In 2025, we generated free cash flow of EUR 11 billion. With that, I would like to turn to our expectations for the first quarter of 2026. We expect Q1 total net sales to be between EUR 8.2 billion and EUR 8.9 billion. We expect our Q1 installed base management sales to be around EUR 2.4 billion.

Gross margin for Q1 is expected to be between 51% and 53%. Expected R&D expenses for Q1 are around EUR 1.2 billion, and SG&A is expected to be around EUR 0.3 billion. For the full year 2026, we expect net sales to be between EUR 34 billion and EUR 39 billion, with a gross margin of between 51% and 53%. Regarding our cash return to our shareholders, in Q4, ASML's second interim dividend over 2025 of EUR 1.60 euro per ordinary share. ASML intends to declare a total dividend for the year 2025 of EUR 7.50 euro per ordinary share, which is a 17% increase compared to 2024. An interim dividend of EUR 1.60 euro per ordinary share will be made payable on February eighteenth, 2026.

Recognizing this interim dividend and the two interim dividends of EUR 1.60 per ordinary share paid in 2025, this leads to a total dividend, a final dividend proposal to the annual general meeting of EUR 2.70 per ordinary share. In Q4 2025, we purchased shares for a total amount of around EUR 1.7 billion. This program finished in December 2025, with a total of EUR 7.6 billion we purchased out of the up to EUR 12 billion program. We returned EUR 8.5 billion to shareholders through a combination of dividends and share buybacks in 2025. ASML announced a new share buyback program, effective today, and to be executed by December 31st, 2028.

We intend to repurchase shares of an amount up to EUR 12 billion, of which we expect a total of up to EUR 2 million will be used to cover employee share plans. We intend to cancel the remainder of the shares repurchased. With that, I would like to turn the call back over to Christophe.

Christophe Fouquet (CEO)

Thank you, Roger. As Roger has highlighted, we finished the year with a very strong quarter with good financial results. The market outlook has improved notably over the last months, especially as related to the continued buildup of data centers and AI-related infrastructure. This buildup is now translated into additional capacity needs at our advanced logic and DRAM customers, and in turn, an increased demand across our product portfolio, especially in our EUV business. Over the past quarters, we have seen a notable increase and acceleration of capacity expansion planning across a large majority of our customer base. In advanced logic, our foundry customers have become more positive on the long-term sustainability of demand on a number of fronts. Sorry. AI accelerators are migrating from the 4-nanometer node to the more litho-intensive 3-nanometer node.

At the same time, customers continue to ramp the 2nm node in support of next-generation HPC and mobile application. In memory, our customers are reporting very strong demand for both HBM and DDR products, with supply remaining very tight through at least 2026, as they ramp both their 1B and 1C nodes in support of the demand. In addition, DRAM customers continue to adopt more EUV layers on those nodes. This is expected to continue on their future nodes as they migrate more multi-patterning DUV to single expose EUV, resulting in an increase in litho intensity. As a result of these dynamics, we see our customer in both segments increasing and accelerating capacity expansion plans to support the very strong demand they are seeing. We expect these investments to generate business for ASML in 2026 and beyond.

Starting first with EUV, we expect revenues to be up significantly this year as a result of the dynamics in both advanced logic and DRAM. In non-EUV, we expect revenues for 2026 to be similar to last year's, as our advanced logic and memory customer expand capacity. As part of the outlook for non-EUV, we expect the China region share in our total net sale in 2026 to be in line with our current system backlog, which is around 20%. We also expect our metrology and inspection businesses to grow significantly as customers increasingly invest in enhancing their process control strategy. For installed base management, we expect another year of revenue growth. This is primarily the result of increasing service revenue from our growing installed base of EUV systems and of our customer plans for performance upgrades to support their rapidly increasing capacity requirements.

Turning to technology, in EUV, we continue to make progress, driving down the cost of technology on our customers' most advanced processes. We ramped our NXE:3800E for 2025, and its productivity gains support further replacement of complex multi-patterning with single expose EUV for multiple layers on current and future DRAM. We also expect both immersion and EUV litho intensity to increase as customers migrate from 6F² technology to 4F² architectures. With regard to High NA, our customers are reporting good progress on their qualification of the technology for logic and DRAM applications in their R&D facilities. Intel announced last month the qualification and acceptance of their EXE:5200B system, which will be used in high-volume manufacturing for their leading-edge nodes.

We expect more systems to be released to our customer in 2026, supporting their preparation for the insertion of High NA in high-volume manufacturing. With the continuing increase of 3D structure in advanced logic and memory, we see more adoption of our multi-beam e-beam inspection system to detect optically non-visible yield-limiting defects. Our progress on system maturity and productivity supports further use of this multi-beam system in high-volume manufacturing on the most advanced nodes. In summary, our product portfolio roadmap remains focused on supporting the roadmap requirements of our customers and driving our overall competitiveness. We look forward to sharing more performance data at the SPIE Advanced Lithography Conference in February. Looking longer term, the last few months have confirmed the positive impact of AI on customer demand for our advanced product, and especially for our EUV system.

As we shared during our Capital Markets Day in November 2024, we see the end market dynamics supporting a shift in product mix towards more demand for our advanced lithography products and an increase in litho intensity. The combination of our strong productivity roadmap on Low NA and the introduction of High NA supports further cost of technology reduction. It also supports the conversion of more multi-patterning DUV to single DUV exposure, especially on advanced DRAM nodes. In line with what we shared at the 2024 Capital Markets Day, we expect a 2025 revenue opportunity between EUR 44 billion and EUR 60 billion, with an expected gross margin between 56% and 60%. With that, we will be happy to take your question.

Jim Kavanagh (Head of Investor Relations)

Thank you, Roger, and thank you, Christophe. Now, the operator will instruct everyone momentarily on the protocol for the Q&A session. Beforehand, I would like to ask that you kindly limit yourself to one question with one short follow-up, if necessary. This will allow us to get through as many callers as possible. Now, operator, could we have your final instruction and then the first question, please?

Operator (participant)

Thank you. As a reminder, to ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We are now going to proceed with our first question. Our first questions come from C.J. Muse from Cantor Fitzgerald. Please ask your question.

C.J. Muse (Senior Managing Director)

Yeah, good afternoon. Good morning, thank you for taking the question. So I guess first question, trying to better understand your outlook for calendar 2026. Based on your EUV bookings, it looks like you're entering the year with about 114 Low-NA tools, and your implied guide is about 56, you know, give or take, Low-NA. Is this a function of lack of certainty around the precise timing of cleanroom space adds? Are you facing challenges in sourcing lenses from Carl Zeiss? Are you seeing extension of lead times? Would love to hear your thoughts around those moving parts.

Christophe Fouquet (CEO)

Yeah, C.J., good morning to you. Indeed, I think it's a number of the things that just call out, right? So obviously we are, we are ramping, during the, during the year to accommodate the demand is there. But the demand is also a little bit, dependent on the progress that our customers are making in terms of the completion of their, of their fabs, during the, during the year. So that's an important element in, in the bandwidth, if you like, of the, of the guidance that we, that we provide. So to a large extent, it's driven by that. It's driven by our ability to execute and, you know, to continuously ramp, or, or move rate, you know, quarter on, quarter on quarter.

Those, I would say, are the most important drivers of the corridor that you just alluded to.

C.J. Muse (Senior Managing Director)

Great, thanks. And as a follow-up, I guess on the High-NA side, you know, is there any change in terms of your vision for revenuing 4-7 tools in calendar 2026? And then, more importantly, how are you thinking about adoption? Do you think there's an opportunity for follow-on High-NA orders in the second half? And could we be surprised by seeing DRAM adopt sooner than Logic? Thanks so much.

Christophe Fouquet (CEO)

Well, I think there's no major changes compared to what we discussed last quarter, C.J. So-

... I think that in term of adoption, I mentioned it, we continue to see good progress at both DRAM and logic customer. I think some of our customer are even starting to play with the limited product wafer to see the performance of the tool, which is a good news. We still expect, you know, a lot of those qualification data collection to last most of the year, which means that when it comes to decision for insertion new order, we indeed look at the second half of this year, 2027. On the question, you know, if it's going to be DRAM or logic first, I think, well, it, it's a bit of a neck-to-neck race right now, so hard to say.

We see really good progress on both and the appetite to test the technology, I would say, in the coming months, sorry, on the product, again, in both DRAM and logic customer.

C.J. Muse (Senior Managing Director)

Thank you.

Roger Dassen (CFO)

Maybe a final comment to C.J., 'cause you referenced, I think, 114 tools in the backlog, if I-

Christophe Fouquet (CEO)

Yeah

Roger Dassen (CFO)

If I quote you correctly on EUV. I would tell you, I think that's a little bit on the high end. At EUR 25.5 billion of total value of EUV. I think, and that obviously includes also High NA. You might be a little bit on the high end of your unit number there.

Operator (participant)

We are now going to proceed with our next question. The next questions come from the line of Joe Quatrochi from Wells Fargo. Please ask your question.

Joe Quatrochi (Analyst)

Yeah, thanks for taking the questions. I guess I wanted to just go back to the 2026 kind of revenue growth guidance. If I look at the range, you know, between 4% and 19% growth, what type of those variables, I guess, are ASML controlled versus your customers controlled?

Roger Dassen (CFO)

Joe, I think I just said it, right? I mean, it's obviously to a very large extent driven by the progress that our customers are making in completing the fabs and their ability to take in the tools. So that's a significant one in terms of, you know, whether the demand falls in 2026 or whether it falls a little bit beyond 2026. And then, of course, there is our ability to execute. But it all starts with the ability of our customers to get the fabs in order and the capitals in order in due time. So it's a bit of a combination of both, I would argue.

Joe Quatrochi (Analyst)

Okay. So, I guess just, yeah, maybe as a follow-up, just can you remind us, just how do we think about the manufacturing capacity capabilities in terms of just, like, the number of Low NA EUV tools? I know you've had some targets out there, you know, from some analyst days previously, but maybe just an update there.

Roger Dassen (CFO)

Yeah, Joe, so what we've done, and this is the way we talked about it in the past, we have put in, you know, infrastructure as such that we can respond, let's say, within a 12-month or a little over that to demand. So that means that what we call the long lead time items, anything that takes, you know, a lot longer than, let's say, 12 to 18 months, that is in place. So we have our cleanroom in place, we have the equipment in place, et cetera, et cetera. So now what we're doing, you know, based on the stronger demand signals as we've gotten them in the past couple of months, now we're ramping up our capacity.

Now, you will appreciate, you won't move from 44 EUV tools in one year to, I'm just throwing it out, 80 tools in the year thereafter, right? So obviously, that's a gradual process, and that's a process that we're doing. So you will see an increase in our move rate quarter on quarter. So getting the people in, training the people, et cetera, et cetera. And then that way, quarter on quarter, you will see an increase in the move rate, and we will do that hand-in-hand with our supply chain. So you will see the move rate increase during 2026, and in all likelihood, what we're seeing today is sustainable. You will continue to see that also beyond 2026.

Joe Quatrochi (Analyst)

Thank you.

Roger Dassen (CFO)

You're welcome.

Operator (participant)

We will now take our next question. The questions come from the line of Andrew Gardiner from Citi. Please ask your question.

Andrew Gardiner (Managing Director and Senior Equity Analyst)

Thanks very much. Good afternoon, everybody. Christophe, Roger, you've spoken today about the customer's medium-term plans being revised up. I mean, we can see that too in their public statements around revenue growth and CapEx for the coming years, in particular from your biggest customer, TSMC, who said CapEx will be significantly higher for the next few years. I mean, some of that's quite clearly reflected in the record order intake that you just reported, but also quite clearly, not all of it. I'm just wondering, in terms of the plans you just outlined, Roger, in terms of increasing that move rate over the coming quarters, how much more visibility are the customers providing you in terms of the equipment needs for next year and the year after?

Christophe Fouquet (CEO)

I mean, no one wants to be the bottleneck in the kind of, you know, growth that we're seeing in this industry, and I presume that goes for you guys as well, and you must be having those conversations with the customers. So can you give us any insight as to how that visibility is improving into next year and the year after?

Roger Dassen (CFO)

I, I think the public commentary of, of customers on, you know, the sustainability of the, particularly the AI-related demand that they see on advanced logic and on memory, I think they, they also share that in the conversations with us. And of course, that also translates into, indications that they provide to us, either for very concrete orders or what we call from demand, so their indication of how they see, the demand, develop. You know, I, I think the order intake in Q4, I think, is strong evidence of that conversation and that it's not just a conversation, but that they're actually also, you know, putting, putting evidence and money, into, into that...

But they're also talking, you know, beyond this year, about what their expectations are, I would say, in particular for 27. So our move rate plans that we have also takes that element into consideration. So what they tell us, I think, directionally is very much in line with what they say publicly, but of course, they also, you know, give us a strong indication of how they see their demand develop year on year.

Christophe Fouquet (CEO)

And maybe the one thing I add to that, Andrew, I think you have to be aware that so you have seen indeed our customer moving, being far more vocal about their capacity planning. I think this has been also the results of many, many discussions with their customers, which are also providing, I would say, this midterm demand. So what we have seen really in the last three months in the alignment between the different parties that, you know, on the midterm, as Roger explained, we see basically a strong buildup of demand. And we have got many, many proof of that also in the last few weeks coming out of either logic or DRAM customers.

So I think it took a bit of while to really get to that point, but we really see that happening very strongly in the last few weeks. And I think this is aligned across a large part of the ecosystem.

Andrew Gardiner (Managing Director and Senior Equity Analyst)

Thanks very much.

Operator (participant)

We are now going to proceed with our next question. The question comes from the line of Alexander Duval from Goldman Sachs. Please ask your question.

Alexander Duval (Analyst)

Yes, thank you very much, indeed, for the question. Firstly, on 2026, I wanted to just go back to assumptions for the top end of your sales guidance. I was curious to what extent that would assume that China is meaningfully down. And then going back to the discussion about long-term capacity, you've obviously talked about customers being more confident on midterm demand and the longer-term situation. I think in the capacity planning you've done in the past, you talked about 80-90 EUV tools, but if we think very much towards the 2030 timeframe, the kind of plans that the customers are talking about would imply something bigger than that.

So what kind of lead time would be required for you to push beyond that kind of outcome? And would there be other means through which you could deliver the capacity needed, for example, making your tools more productive by investing in R&D? Thanks very much.

Roger Dassen (CFO)

So when it comes to the top end of the expectation, you know, when we talk about China being at 20% of sales, I would argue that's across the entire range, right? So which obviously means that if we're talking about EUR 39 billion, you're looking at approximately EUR 8 billion of China. So I would say that probably our expectation on China probably moves with that. If you look at what are the key expectations on the upside of that?

Well, A, as we just said, it means that our customers indeed, you know, are able to take our tools, that we're able to execute on as we currently plan, and probably also that the installed base business is running on all cylinders, particularly on upgrades. Which is not illogical, because upgrades obviously are in very high demand right now, because it's the easiest, fastest, and most effective way for customers to get additional capacity, which in the current market is obviously very, very important to them. So those would be the key elements that I would say that would drive that. And, you know, in that model, you could also envisage a China market at 20% of that total sales number.

When you talk about the long-term demand, let me make a few comments, and then, Christophe, maybe you can weigh in. First, you should not forget that when we get to the 2030 timeframe, obviously at that stage, yes, we're looking at low NA, but we're also definitely looking at high NA. And, the low NA tools that we would be providing at that point in time would of course be low NA tools with, again, a higher throughput than what we have today. So back to your question on R&D, absolutely.

You know, we will continue to push the roadmap on our Low NA tools and continue to drive capacity such that per tool, you know, the customers get more productivity than what they get today. But also, at that stage, we expect, you know, a more meaningful number of High NA tools that would provide significant additional output capacity. And in that combination, you know, I think the numbers that you were just throwing out, I think will provide, you know, output capability to customers way ahead of the numbers that we're talking about today.

Christophe Fouquet (CEO)

Yes, I think Roger said it all. I think the way I would summarize it is that we have, I would say, the flexibility to react to the development of the market. I think we talked about, you know, mid short term already. I think it's also true on the long term. And yeah, Roger is right. The contribution of High NA, the work we continue to do on productivity, we already planned for that, will give us even additional flexibility. So with the step we have done on our capability on EUV, DUV in the last few years, which you remember, we did execute despite the fact that maybe the demand was a bit lower at some point, we have created basically the right flexibility to see the market coming.

Alexander Duval (Analyst)

Thanks very much.

Operator (participant)

We are now going to proceed with our next question. The question comes from the line of Krish Sankar from TD Cowen. Please ask your question.

Krish Sankar (Managing Director and Senior Equity Analyst)

... So hi, thanks for taking my question. I have two of them. First one, Roger, for there to reconcile your bookings between EUV and memory, typically memory has been 30% of the EUV mix, so it looks like a big jump in the memory orders last quarter was driven by DUV. Is that fair? And then on EUV for memory, for the 1C node DDR5, are we talking about 7-8 EUV exposures or lower than that? And then I had a follow-up.

Roger Dassen (CFO)

Let me take the first one, and Christophe can take the second one. No, I think the order intake, you know, for memory is strong, but not just the DUV, also EUV. And in all likelihood, if we look at the composition of our sales in 2026, you will see a major memory play in there. So the demand in 2026 is far more balanced in terms of logic, logic versus memory than it was in 2025. So that's what you see. But this is not just DUV, this is definitely also EUV.

Christophe Fouquet (CEO)

Yeah, and I think on the, on EUV, I think when it comes to DRAM, I think we are going to benefit both from, of course, the demand for capacity, which we already discussed, is very strong, you know, this year, most probably beyond that. And, you know, we have been talking about the number of EUV layers increasing on DRAM. This has been one of our focus. We have seen that happening in 2025. We continue to see that happening and mentioned it in the introduction, on 6F², but also on 4F². And this is a bit, what I would call the perfect storm, because when it comes to EUV, as a result, DRAM share most probably will increase over time.

So this, this is a very good dynamic on the, on DRAM, which again, based on all the work we do with our customer discussion we have, we don't see stopping. So there's still, some leeway for more EUV layers, for more litho intensity on, on DRAM for sure, and we should benefit from that in the, in the years to come.

Krish Sankar (Managing Director and Senior Equity Analyst)

Got it. Got it. And there's a quick follow-up. Sorry to get back to this manufacturing capacity. Is it fair to assume your EUV manufacturing capacity is around maybe 70 units? And does that potentially constrain your growth next year? The reason I'm asking is that is your manufacturing capacity limit causing movement of tools between this year and next year, leading to a wide range of revenue guides for 2026?

Roger Dassen (CFO)

Yeah, Chris, as I said, our capacity is very dynamic because you can't-- we cannot move from one point to the other just like that in one quarter, right? So that's why I said, you know, we had 44 units, revenue units of EUV Low NA last year. You cannot go from one quarter to the other, even from one year to the other, from 44 to 80. So we will crank it up. Every quarter, you will see us increase ramp rate, you will see us increase capacity. And, you know, if the demand signals remain as strong as they are, that will continue into 2027 as well.

Then I would say 70 would not be the limit that I would currently be looking at. I think that, that-

Krish Sankar (Managing Director and Senior Equity Analyst)

I look at-

Roger Dassen (CFO)

That is higher.

Operator (participant)

We are now going to proceed with our next question. The question comes from the line of Mehdi Hosseini from Susquehanna Financial Group. Please ask your question.

Mehdi Hosseini (Senior Equity Research Analyst)

Yes, thanks for taking my question. My first one has to do with just the capacity that, Roger, you just highlighted. I want a better understanding in EUV capacity, and the topic has been around since 2021, when last time we had the shortages. I want to better understand what are the key factors. As you ramp the EUV capacity, is that gonna impact the booking trend? In other words, are your customers actually waiting to have a conviction of you adding committed capacity before they commit to booking or backlog that would be shippable in 2027 and beyond? And I have a follow-up.

Roger Dassen (CFO)

No, I don't think, Mehdi, that's what is going on. Customers know what we're doing. We share pretty openly with customers, you know, how we're looking at our ability to increase. I think customers appreciate that we build in far more flexibility into our model than what we had before. If anything, you know, if customers start to smell that for a certain year, you might be supply constrained, actually the dynamic is the other way around. They wanna make sure that they get their booking in before they are too late, right?

So, as a matter of fact, I would say if they believe that the capacity might become a choke point, then they will jump to put in the order. So I think it's more that than that they are waiting for a definitive confirmation that the capacity is there. But we're very openly share with them what our plans are, and again, they appreciate the flexibility that we've built in and the significant reduction of response time that we have created as a result of creating the long lead time items.

Mehdi Hosseini (Senior Equity Research Analyst)

Okay, great. Thanks for clarification. I want to go back to the comments, and the transcript that was posted with the earnings report. There was a comment that some of the booking would be shippable in 2027. So the question that I have is: What would it take for you to hit the high end of revenue guide for this year? Is that the China? I'm assuming that China book backlog has a shorter lifetime, and to that extent, is that the China that is going to impact your ability to hit the high end of your revenue guide range?

Roger Dassen (CFO)

Mehdi, I think I said it. I think first and foremost, it's the readiness of our customers to take tools. I think that is number one. So their ability to complete fab construction, put the pedestals in, and take our tools. I think that's constraint number one. Constraint number two, our ability to execute. So I just talked about what we're doing to increase the ramp. We're comfortable with that. But of course, you know, everyone needs to sing from the same song sheet, not just us, but also the supply chain. So we gotta make sure that everyone is tuned in to the same ramp that we have on pace. So that would be the second one, so that would be more of a supply factor.

On the demand side, I think it's the demand for upgrades, and I gave some color on that earlier on. As I mentioned on China, I think in our guidance, China is 20% of revenue, so China would breathe along with the corridor that we have given.

Mehdi Hosseini (Senior Equity Research Analyst)

Thank you. Thank you.

Roger Dassen (CFO)

You're welcome.

Operator (participant)

We are now going to proceed with our next question. The questions come from the line of Didier Scemama from Bank of America. Please ask your question.

Didier Scemama (Managing Director and Senior analyst)

Thank you. Good afternoon, gentlemen. I'm just asking about 4F² and the DRAM really. So I think, Christophe, you mentioned in your press release that you see new interaction with your own customers, that in fact, the EUV layer count could go up with 4F². So I'm just wondering, you know, obviously, there is a school of thought in the market that 4F² would lead to a cliff in EUV demand from DRAM customers whenever we see 4F² introduction, say, 2028. So is that a risk that you think is significantly diminishing because, you know, obviously, the view is reuse of tool capacity?

Or do you think that now as the NVIDIA account goes up and, you know, there is also a view that now wafer capacity in DRAM is gonna have to expand dramatically over the course of the next five years because of AGI and, you know, more complex LLMs, that effectively this, this risk of a cliff and significant reuse of EUV tools is, is effectively, really diminishing dramatically? I've got a follow-up as well. Thank you.

Roger Dassen (CFO)

Yeah, I'll try to answer on the point. So I think the first thing to say is, if you look at 4F², the structure requires a more advanced litho mask. So that's the first thing. So you get basically to look at a more complex structure, and that structure is going to require more lithography. This is why we mentioned that both, in fact, the immersion and EUV will go up. Now, you talk about cliff a lot. Customer don't like cliff. Cliff are very bad for operation.

What customer like is optimized technology over several nodes, and therefore, when we talk about EUV insertion with our customer, of course, the transition to 4F² is taken into account, because no one wants to buy a lot of tools and be stuck with them. So cliffy is never good for customer when it comes to operation. And what you see happening with DRAM is that EUV basically has become a very handy tool to simplify processes, to simplify the number of step, to simplify cycle time, to reduce cycle time, sorry, and even to bring more capacity, because if you have less mask, if you have less multi-patterning, you end up basically with more space in your fab.

So EUV, I would say that the more DRAM customer use it, the more they like it, because they get benefit on all those counts. And again, they want to include the cliff. So when we made the statement in our release, basically it's really out of many discussions with customer. And I think that... Well, I don't know if the risk is going down. We never thought that the risk was pretty high, but I think we're very confident that, again, litho intensity will grow with 4F², both on Deep UV and EUV. And as I said before, we see EUV number of layers continuing to grow, both before and after this transition.

Didier Scemama (Managing Director and Senior analyst)

Very clear. Thank you. So my follow-up is on the gross margin side. So I think perhaps one element of these appointments in the guide is the gross margin. And I think you mentioned, you know, the mix of EUV Low-NA. Obviously, you know, immersion probably gonna decline because of China, and then also the, let's say, the upgrades business and the sort of milestone payments that might not be as strong in 2026. I'm just wondering, if you look into 2027, do you think that your mix of Low-NA EUV will sort of revert back to, you know, what you had said before, which is the majority will be 3800E? Or is there any reason why, you know, 3nm capacity expansion will continue to grow into 2027?

I guess the immersion question on China is anyone's guess, but if you want to hazard into an answer, I'm very happy to hear it.

Roger Dassen (CFO)

Didier, on the mix for EUV, you know, customers liked our 3800 so much that they took as much as they could get in terms of 3800s rather than 3600s in 2025. But of course, you know, we had a number of 3600s that still needed to be completed, that we had all the parts for, and those will be shipped, in all likelihood, in 2026. So the 2027 mix in terms of EUV should be substantially better. And also at that point in time, we're probably looking at the next generation. So the EUV mix by 2027 should be better than 2026.

You're right, that is an important element, because if you look at how we plan towards the 56%-60% gross margin in 2030, it's pretty clear that new generations of low-NA EUV are critical in that regard. That the EUV mix in 2027 will be better than it is in 2026. Another mix effect that is in there, indeed, is on the DUV side, so quite a bit more dry rather than immersion. I would say in all likelihood, that is less a matter of demand, but it's supply, right?

So on the supply side, we are constrained in terms of immersion for 2026.

Didier Scemama (Managing Director and Senior analyst)

Ah.

Roger Dassen (CFO)

So it's in that result that that's you know with higher DUV business and restrictions on the immersion side that gives you a less favorable DUV mix that goes into the equation. And then an important swing factor 'cause you know you still have a 2% bandwidth in the gross margin. An important element of the swing factor will be installed base and will be upgrade business. That gives you the moving parts DJ.

Didier Scemama (Managing Director and Senior analyst)

No, that's great. By the way, did you want to say what you think will be the rev rec on High NA in 2026?

Roger Dassen (CFO)

Rev, rev rec on High NA.

Didier Scemama (Managing Director and Senior analyst)

What?

Roger Dassen (CFO)

The amount of High NA units this year.

Didier Scemama (Managing Director and Senior analyst)

Right.

Roger Dassen (CFO)

Okay. Okay. Yeah. Probably a bit more than we had this year, but don't want to go into too much detail there.

Didier Scemama (Managing Director and Senior analyst)

Okay, fair enough. Thank you.

Operator (participant)

Thank you. We are now going to proceed with our next question. The question comes from the line of François Bouvignies from UBS. Please ask your question.

François Bouvignies (Research Analyst)

Thanks a lot. I have one for Christophe and one for Roger. I mean, the first one maybe is for Christophe on the High NA. I just wanted to, you know, get in more details in here. I mean, we see the industry moving into a rush in terms of capacity, both at TSMC and advanced logic, I should say, and the memory overall. I was wondering if you have a rush in this capacity, could that delay the High NA adoption? You know, do you see some risk happening of delay of High NA adoption because the industry is simply too busy to add capacity, that they don't want to add another risk in terms of transition? So I was just wondering if it's something that that's possible.

Roger Dassen (CFO)

Well, you know, I think from day one, I've been talking about three phases of High NA adoption with R&D qualification for high volume manufacturing, then insertion and high volume manufacturing with, you know, limited amount of layer and then the whole thing. And I would say that that plan always provide basically the time to have a real qualification. So, you know, the acceleration you see today on capacity, of course, is on existing nodes that are ramping with known technology, and those nodes will call for the use of the existing product we ship today. So that's Low NA, that's DUV, that's, you know, metrology inspection as we know it today.

The preparation of High NA for the next node is such that it does leave the time, if customer want to use it, to insert it properly. So sometimes, you know, maybe some of you could believe that 1, 2, 3 phase is a bit long, but this is, on the other end, the way to secure the insertion on the node, because once a decision is made to use it on the node, they really want to use it. They prepare the mask for it, they qualify the whole process with it. So it's very difficult to change your mind and say, "Hey, I'm going to go back to the whole stuff." So I think customer try to do those things in such a way that they are not too sensitive to either a major acceleration or slowdown of their capacity.

It's a longer answer to say no, basically. We don't see a risk there.

François Bouvignies (Research Analyst)

Perfect. Thank you. And maybe, Roger, your question—my question is for 2026. I mean, if China is 20% of revenues, if we take the midpoint, it would imply China is down, what? 20%-25% year-on-year, which is mainly in DUV. And you guided DUV flat for 2026, which means non-China DUV needs to go up by 40% for 0% year-on-year, kind of, to get the flat DUV. And I remember, you know, last year, I guess it's kind of a déjà vu, where last year you said there is a strong correlation between the non-China DUV and EUV growth. But when I look at 2025, your non-China DUV was actually not growing much compared to EUV. You had a big disconnect between the two.

I was wondering if there was a catch-up, you know, somehow from 2025 to 2026, or just trying to understand why this year you would see this strong growth happening and we didn't see that in 2025.

Roger Dassen (CFO)

Yeah, François, that's a really good question, and indeed, this is what we observed. So 2024 was strong. Also on the non-China business, 2024 was pretty strong, also in the dry business for customers across the board. 2025 disappointed a bit. If we look at 2026, we see the market come back with all our leading customers. Frankly, I think many of our customers are doing what we do, which is you put in the long lead time items, which in our case is more the EUV stuff, and you take a bit more flexibility in your shorter lead time items, which is the DUV business.

I think that's what they've done for a significant part of the year. We actually could see the non-China DUV business come back in the last months of the year. And we frankly see that trajectory continue into 2026. So you're right in that we found the 2025 non-China DUV business disappointing. That is clearly the case. But we do see a you know a reversal of that trend in the last months of the year, and see that reversal continue into 2026.

François Bouvignies (Research Analyst)

Great. Thank you very much, Christophe.

Operator (participant)

Thank you. We are now going to proceed with our next question. The question comes from the line of Chris Caso from Wolfe Research. Please ask your question.

Chris Caso (Managing Director and Senior Equity Analyst)

Yes, thank you. Good morning. My question is with regard to the expected timing of deliveries within the backlog, and you mentioned a few things in your earlier comments, you know, including, you know, customers recognizing that capacity may be tight, availability of customer cleanroom space. I'm not sure you wish to quantify, you know, how much of the backlog is expected to ship in 2026. But would you say that the timing of those expected deliveries is stretching out, you know, as compared to, you know, what's happened over the past few quarters?

Roger Dassen (CFO)

Our expectation is, Chris, that the second half will be stronger than the first half, but I would say that that's a function of what I just said, which is, A, the availability of fab space of our customers, and B, our continuous quarter-on-quarter ramp of our move rate. So as a result, that we expected to, for the second half to be stronger than the first half of this year. That's the way we currently model our shipments in, you know, in discussion with the customers. But clearly, you know, quite a bit of the order intake that we had in Q4, and clearly, you know, part of the backlog is for 2027. That is pretty clear.

It is 2027, right? So the majority, the lion's share of the orders that came in in Q4, some of it is 2026, but the lion's share really is for 2027.

Chris Caso (Managing Director and Senior Equity Analyst)

Thank you. My follow-up question is with regard to gross margins, and you spoke about that a bit, but perhaps you could clarify, you know, what are the headwinds and tailwinds with respect to gross margin for this year? You know, I presume that the China is one factor, but you know, what are the factors that cause you to be on the upper ends or lower ends of gross margins as you go through the year?

Roger Dassen (CFO)

I wouldn't say it's China per se. I would say, I would say it's immersion, right? So immersion is a significant contributor to the gross margin. As I mentioned before, we do expect the immersion sales this year to be below 2025, which is not the result of demand, but it's the result of supply constraints on the immersion side. So that is a bit of a drag. Then you see quite a bit of dry sales. As we said, we also expect the dry sales, which was fairly low in 2025. We already saw that reverse itself in the last months of the year, and we see that reversal continue into this year.

But dry tools come with lower gross margins, so that's a drag on the gross margin. On the EUV side, there is a bit of a mix effect, because we have, you know, 3600s in the year that we didn't have that much in 2025. And then, you know, if we have a bit more High NA, then of course, that also comes with a slightly depressing effect on the gross margin. So that's all the negatives. In terms of all the positives, I would say, you know, higher EUV numbers, right?

So we're clearly looking at a significant step up in the number of EUV tools this year, and that is margin accretive. So that's on the positive side. And as I mentioned, the big swing factor as I look at it today is on installed base. And to the extent that the installed base will manifest itself in a positive way, high demand for upgrades, which, you know, at least theoretically, you could assume to be the case this year, with all the appetite for capacity additions that our customers have, that should be helpful on the gross margin. So those are all the puts and takes, as I could see it, for the gross margin this year, Chris.

Chris Caso (Managing Director and Senior Equity Analyst)

Helpful. Thank you.

Roger Dassen (CFO)

You're welcome.

Operator (participant)

We are now going to proceed with our next question. The question comes from the line of Tammy Qiu from Berenberg. Please ask your question.

Tammy Qiu (Analyst)

Hi, thank you for taking my question. So the first one is on, logic roadmap. So over the next few years, we do have A16, A14, A14T, and A10. Can you confirm that for every single generation, are we still going to have EUV insertion of couple of layers, or some of the customers are really trying to minimize the, incremental EUV layers, please?

Roger Dassen (CFO)

Well, so let me try to answer that. So I think, if you look at, you know, the midterm, so we talked about 2nm. Indeed, we're going to go to A16, which is very similar to 2nm, to be honest. This is not a big difference, so I will skip that. We see then, basically, EUV layers increasing again at A14. As we discussed in the past, you know, most probably 10%-20%. We see that being even more true for A10, where the structure change could call for even more EUV layers. So that's a bit the view we have, all the way to A10.

In the discussion with our foundry customer, again, there's a lot of focus on that, because this is key in enabling their future technology. So that's a bit what we see today on the foundries.

Tammy Qiu (Analyst)

... Okay, thank you. And, I have a follow-up also on capacity issue. So I remember that back in 2021, you were very clear about, you will do 90 EUV tools, and that is a capacity we need. Then, of course, you know, the unfortunate 2022 happened, so we took a pause of that. And it sounds like today, your capacity addition plan has been more cautious than you were previously. Is there is any reason for that, or it just basically after 2022, it's better to take a cautious approach from a capacity perspective?

Roger Dassen (CFO)

I think I tried to explain, but I guess I didn't completely succeed in that. So what I said is what we did in the earlier years of this decade is to put in what we call the long lead time items, which means that's, you know, anything that takes more than, let's say, 12 to 18 months to get done, we did, right? So we build additional factory, we put in equipment, et cetera, et cetera. So we built cleanrooms. So all of the things that take time, we did. So that's good news, so that gives you more flexibility. But as I mentioned before, you cannot from one year to the other, move from a move rate, an annual move rate of 44 to 80 in one year time.

Simply doesn't work, because you need to take in people, you need to hire people, you need to train those people, and you cannot double that in one year's time. That needs to be a gradual approach. So this is the process that we're in right now, because we also took a decision back in 2022, 2023. We're not gonna put in people for an output of 90, because that would make no sense. They would have nothing to do, and it would be very, very costly. So we're gradually moving our move rate up. So does our supply chain, same story there. They're also gradually, quarter on quarter, moving up their move rate.

In that way, you know, we will very meaningfully increase our capacity over what we had in last year. So that's what we're doing. So we have the structural big investments to get to 90, and now we're gradually moving our move rate up in order to move our integral capacity to cater to the demand. We think that our increase in capacity goes nicely hand in hand with the completion of fabs by our customers, such that we will not be the limiting factor in them being able to increase their capacity.

Christophe Fouquet (CEO)

Yeah, maybe to add to that, to second Roger on that. So I think what we said, you know, back to 2026, so we said that the major factor, in fact, on tool delivery would be the execution of our customer, because you have to realize that a lot of decision have been done in the last few months, and this also means that they are extremely active in putting capacity in place, et cetera, et cetera. And, you know, in 2026, as Roger said, we can nicely follow basically right now their own ambition, which is good.

When it comes to beyond 2026, as you know, the lead time on our EUV machine is at least 12 months, which means that as we speak, we are capable to have that discussion with our customer, looking at next year, basically. And as we do that, we can adjust basically our planning exactly in the way Roger mentioned it. But so far, you know, if you look at the short midterm, we are capable to nicely follow basically what our customer are asking for. So I think I sense a bit some concern that we may be the bottleneck basically for our customer. This is not the case. Certainly not this year. And again, for next year, we have plenty of time to continue to follow basically their demand.

So I just want to make that clear. I think what Roger described is the process and the flexibility we have, thanks to the investment we have made on our indeed 90 capability for EUV, 600 for DUV to follow basically very carefully what our customer are going to need in the next few quarters.

Tammy Qiu (Analyst)

Thank you.

Roger Dassen (CFO)

Okay. Unfortunately, we've run out of time, but if you were unable to get through on this call and still have questions, please feel free to contact the ASML Investor Relations department with your question. So now, on behalf of ASML, I would like to thank you for joining the call with us today. Operator, if you could formally conclude the call, I would very much appreciate it. Thank you.

Operator (participant)

2025 fourth quarter and full year financial results conference call. Thank you for participating. You may now disconnect.