ASML Announces 2008 Fourth Quarter and Full Year Results

ASML Drives Key Technology Developments and Implements a More Effective Cost-Structure During Downturn

• Press Release
• Source: ASML Holding NV
• On 1:58 am EST, Thursday January 15, 2009

VELDHOVEN, Netherlands--(BUSINESS WIRE)--ASML Holding NV (ASML) today announces 2008 fourth quarter and full year results according to US GAAP as follows:

• Q4 2008 net sales of EUR 494 million versus Q3 2008 net sales of EUR 696 million (Q4 2007 net sales of EUR 955 million). Full year 2008 net sales were EUR 2,954 million, down 21.6 percent versus 2007 net sales of EUR 3,768 million.
• Q4 2008 net loss of EUR 88 million, or 17.8 percent of net sales, including restructuring and impairment charges of EUR 138 million. Excluding the effect of these fourth quarter charges net of taxes, ASML would have booked net income of EUR 11 million or 2.3 percent of net sales, versus Q3 2008 net income of EUR 73 million or 10.5 percent of net sales (Q4 2007 net income of EUR 193 million or 20.2 percent of net sales). Full year 2008 net income amounted to EUR 322 million or 10.9 percent of net sales, down from 2007 net income of EUR 671 million or 17.8 percent of net sales.
• Q4 2008 net bookings valued at EUR 127 million with 13 systems including 5 new and 8 used systems, leading to an order backlog valued at EUR 755 million as of December 31, 2008.

“As per our December 18, 2008 announcement, net sales in the fourth quarter of 2008 fell just below EUR 500 million and net bookings were very weak, confirming the major impact of the worldwide recession on the semiconductor equipment industry,” said Eric Meurice, president and Chief Executive Officer of ASML. “Fourth quarter sales were impacted compared with previous guidance, as three systems were delayed by memory customers. Low fourth quarter bookings of 13 units were the result of a virtual freeze in capital expenditure by most customers, due to declining utilization rates and the inability of some customers to finance their technology transition plans. In view of the medium-term market prospects, we took restructuring and impairment charges in the fourth quarter of EUR 138 million, reflecting our implementation of measures to structurally lower our cost base and the introduction of new, more cost-competitive, scanner models,” Meurice said.

Operations Update

Full year 2008 net sales of EUR 2,954 million consisted of system sales of EUR 2,517 million, as the company shipped a total of 151 systems, including 115 new and 36 used, and net service and field option sales which amounted to EUR 437 million. 2007 net sales of EUR 3,768 million consisted of net system sales of EUR 3,351 million, as the company shipped a total of 260 systems, including 235 new and 25 used, and net service and field option sales of EUR 417 million.

In Q4 2008, ASML’s net sales of EUR 494 million included 15 new and 10 used systems, totaling net system sales of EUR 381 million, and net service and field options sales of EUR 113 million. Net system sales for Q3 2008 included the shipment of 26 new and 11 used machines, totaling EUR 591 million, and net service and field options sales of EUR 105 million.

The Q4 2008 average selling price for a new system was EUR 20.4 million, compared with the Q3 2008 average selling price for a new system of EUR 21.6 million. The Q4 2008 average selling price for all ASML systems sold was EUR 15.2 million, compared with the Q3 2008 ASP of EUR 16.0 million.

Q4 2008 net bookings totaled 13 systems valued at EUR 127 million.

ASML’s order backlog as of December 31, 2008 was EUR 755 million, totaling 41 systems with an average selling price of EUR 18.4 million. ASML’s backlog as of September 28, 2008 was valued at EUR 1,028 million, totaling 53 systems with an average selling price of EUR 19.4 million.

In Q4 2008, ASML generated a net loss of EUR 88 million, including exceptional restructuring and impairment charges of EUR 138 million, or a net loss of EUR 0.20 per ordinary share as compared with a net income in Q3 2008 of EUR 73 million or EUR 0.17 per ordinary share. We recorded net income of EUR 322 million (EUR 0.75 per ordinary share) for the full year, compared with EUR 671 million (EUR 1.45 per ordinary share) for 2007.

The company’s Q4 2008 gross margin was 7.9 percent. Excluding restructuring and impairment charges gross margin would have been 35.5 percent. This margin is the result of a lower level of net sales and compares with the Q3 2008 gross margin of 38.1 percent.

Q4 2008 research and development (R&D) costs were EUR 127 million net of credits (including impairment charges of EUR 1 million) down from Q3 2008 R&D costs of EUR 130 million net of credits.

Selling, general and administrative (SG&A) costs were EUR 47 million in Q4 2008 (including restructuring charges of EUR 1 million), compared with SG&A costs of EUR 52 million in Q3 2008.

Net cash used was EUR 204 million in Q4 2008. The major items affecting this cash outflow were: suddenly delayed system deliveries which had an impact on inventories for which we still paid our suppliers, back-end loaded shipments for which receivables were not due in the quarter, paid income taxes for prior years, and investments in our new Extreme Ultraviolet (EUV) factory. ASML ended Q4 2008 with EUR 1,109 million in cash and cash equivalents, compared with EUR 1,313 million by the end of Q3.

Outlook

“The severity of the global economic downturn has caused semiconductor manufacturers to delay their investment plans. The uncertainty as to the timing of a semiconductor end-product demand pick up and the time needed to complete the current consolidation and restructuring activities in the memory sector, makes a recovery prediction impossible. We have therefore taken decisive actions to adjust our cost structure to cope with these exceptional economic circumstances so we can generate cash at a low level of sales, while not impacting our current aggressive technology development roadmap. In addition, we plan to maintain a level of manufacturing capacity to ramp production to customer needs without lengthy lead times, as the lithography market may pick up quickly once end-product demand recovers,” Meurice said.

ASML expects Q1 2009 net sales between EUR 180 million to EUR 200 million, and gross margin in Q1 2009 of about 8 percent. R&D expenditures are expected to be at EUR 117 million net of credits and SG&A costs are expected at EUR 44 million.

ASML will submit a proposal to the 2009 General Meeting of Shareholders to declare a dividend of EUR 0.20 per share (approximately EUR 86 million), representing 27 percent of net income per ordinary share, compared with a dividend of EUR 0.25 per ordinary share paid in 2008, representing 17 percent of net income per ordinary share.

ASML has reduced costs through a comprehensive company-wide efficiency program, while not impacting key research and development projects. We have been able to react quickly by using the flexibility of our business model, including significant use of contract and flexible labor. ASML still has an extensive pool of flexible contracts and we intend to avoid forced redundancies. By Q1 2009 we expect to have cut our operational expenses by EUR 50 million per quarter. We expect that these savings, in combination with reduced components purchasing and the assembly of components already in inventory, will help us generate a positive Q1 operating cash flow. Also, about half of our quarterly cost savings will be sustainable when the economy recovers, making ASML a much leaner and more profitable company.

We will continue investing in our new Double Patterning and EUV lithography platforms to address the 32 nanometer node and beyond, in order to lead the semiconductor industry to the next generations of chip manufacturing technologies. Our EUV production system roadmap supports cost-effective chip manufacturing to 22 nanometers and smaller; we will start deliveries of five production systems already in 2010. In addition, ASML has developed a range of resolution enhancement techniques which leading vendors are implementing to reduce cost per chip. These techniques, from advanced illumination shaping to radical mask pattern enhancements, require powerful computational modeling and intimate knowledge of the scanner systems. This is a unique combination of capabilities in which ASML has established a leading role thanks to the know-how acquired through our Brion division.

About ASML

ASML is the world's leading provider of lithography systems for the semiconductor industry, manufacturing complex machines that are critical to the production of integrated circuits or chips. Headquartered in Veldhoven, the Netherlands, ASML is traded on Euronext Amsterdam and NASDAQ under the symbol ASML. ASML has more than 6,900 employees, serving chip manufacturers in more than 60 locations in 15 countries. For more information, visit our website: www.asml.com

IFRS Financial Reporting

ASML's primary accounting standard for quarterly earnings releases and annual reports is US GAAP, the accounting standard generally accepted in the United States. Quarterly US GAAP statements of operations, statements of cash flows and balance sheets, and a reconciliation of net income and equity from US GAAP to IFRS are available on www.asml.com

In addition to reporting financial figures in accordance with US GAAP, ASML also reports financial figures in accordance with IFRS for statutory purposes. The most significant differences between US GAAP and IFRS that affect ASML concern the capitalization of certain product development costs, the accounting of stock option plans and the accounting of income taxes. Quarterly IFRS statements of operations, statements of cash flows, balance sheets and a reconciliation of net income and equity from US GAAP to IFRS are available on www.asml.com

The consolidated balance sheets of ASML Holding N.V. as of December 31, 2008, the related consolidated statements of operations and consolidated statements of cash flows for the quarter ended December 31, 2008 as presented in this press release are unaudited.

2008 Annual Report on Form 20-F

ASML will publish its 2008 Annual Report on Form 20-F on January 26, 2009. The report will be published on our website at www.asml.com.

Press Conference

A press conference hosted by CEO Eric Meurice and CFO Peter Wennink will be held at 11:00 AM Central European Time / 05:00 AM Eastern U.S. time. To listen to the press conference, access is available via www.asml.com

A presentation about 2008 fourth quarter and full year results is available on www.asml.com

A video statement of CFO Peter Wennink is available on www.asml.com

A replay of the Investor and Media Call will be available on www.asml.com

Investor and Media Call

A conference call for investors and media will be hosted by CEO Eric Meurice and CFO Peter Wennink at 15:00 PM Central European Time / 09:00 AM Eastern U.S. time. Dial-in numbers are: in the Netherlands +31 20 531 5856 and the US +1 706 679 0473. To listen to the conference call, access is also available via www.asml.com

Forward Looking Statements

"Safe Harbor" Statement under the US Private Securities Litigation Reform Act of 1995: the matters discussed in this document may include forward-looking statements, including statements made about our outlook, realization of backlog, IC unit demand, financial results, average sales price, gross margin and expenses. These forward looking statements are subject to risks and uncertainties including, but not limited to: economic conditions, product demand and semiconductor equipment industry capacity, worldwide demand and manufacturing capacity utilization for semiconductors (the principal product of our customer base), including the impact of credit market deterioration on consumer confidence and demand for our customers’ products, competitive products and pricing, manufacturing efficiencies, new product development and customer acceptance of new products, ability to enforce patents and protect intellectual property rights, the outcome of intellectual property litigation, availability of raw materials and critical manufacturing equipment, trade environment, changes in exchange rates and other risks indicated in the risk factors included in ASML’s Annual Report on Form 20-F and other filings with the US Securities and Exchange Commission.

ASML - Notes to the Summary U.S. GAAP Consolidated Financial Statements

Basis of Presentation

ASML follows accounting principles generally accepted in the United States of America (“U.S. GAAP”). Further disclosures, as required under U.S. GAAP in annual reports, are not included in the summary consolidated financial statements. Unless stated otherwise, the accompanying consolidated financial statements are stated in thousands of euros (‘EUR’).

Principles of consolidation

The consolidated financial statements include the accounts of ASML Holding N.V. and all of its majority-owned subsidiaries. Subsidiaries are all entities over which ASML has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. All intercompany profits, balances and transactions have been eliminated in the consolidation.

Use of estimates

The preparation of ASML’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities on the balance sheet dates and the reported amounts of revenue and expense during the reported periods. Actual results could differ from those estimates.

Recognition of revenues

ASML recognizes revenue when all four revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; seller’s price to the buyer is fixed or determinable; and collectibility is reasonably assured. At ASML, this policy generally results in revenue recognition from the sale of a system upon shipment. The revenue from the installation of a system is generally recognized upon completion of that installation at the customer site. Each system undergoes, prior to shipment, a "Factory Acceptance Test" in ASML's clean room facilities, effectively replicating the operating conditions that will be present on the customer's site, in order to verify whether the system will meet its standard specifications and any additional technical and performance criteria agreed with the customer. A system is shipped, and revenue recognized, only after all specifications are met and customer sign-off is received or waived. Although each system's performance is re-tested upon installation at the customer's site, ASML has never failed to successfully complete installation of a system at a customer’s premises.

For arrangements containing multiple elements, the revenue relating to the undelivered elements is deferred at estimated fair value until delivery of these elements. Revenue from installation services and service contracts provided to our customers is initially deferred and is recognized when the installation is completed and, in case of service contracts, over the life of those contracts. Revenue from extended and enhanced warranties is recognized in income on a straight-line basis over the contract period. The costs of providing services under extended and enhanced warranties are recognized when they occur.

ASML – Reconciliation U.S. GAAP – IFRS^1,4

Notes to the reconciliation from U.S. GAAP to IFRS

Note 1 Share-based Payments

Under IFRS, ASML applies IFRS 2, “Share-based Payments” beginning from January 1, 2004. In accordance with IFRS 2, ASML records as an expense the fair value of its share-based payments with respect to stock options granted to its employees after November 7, 2002.

Under U.S. GAAP, ASML applies SFAS No. 123(R) “Share-Based Payment” which is a revision of SFAS No.123. SFAS 123(R) requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant-date fair value of those instruments.

Note 2 Capitalization of development costs

Under IFRS, ASML applies IAS 38, “Intangible Assets”. In accordance with IAS 38, capitalized development expenditures are amortized over the expected useful life of the related product generally ranging between 2 and 3 years. Amortization starts when the developed product is ready for volume production.

Under U.S. GAAP, ASML applies SFAS No. 2, “Accounting for Research and Development Costs”. In accordance with SFAS No. 2, ASML charges costs relating to research and development to operating expense as incurred.

Note 3 Convertible Subordinated Notes

Under IFRS, ASML applies IAS 32 “Financial instruments: Disclosure and presentation” and IAS 39 “Financial instruments: Recognition and measurement” beginning from January 1, 2005. In accordance with IAS 32 and IAS 39, ASML accounts separately for the equity and liability component of its convertible notes (“Split accounting”). The equity component relates to the grant of a conversion option to shares to the holder of the bond. Split accounting results in additional interest charges.

Under U.S. GAAP, ASML accounts for its convertible bonds as a liability at the principal amount outstanding. As of December 31, 2007 ASML has no Convertible Subordinated Notes outstanding.

Note 4 Income taxes

Under IFRS, ASML applies IAS 12, “Income Taxes” beginning from January 1, 2005. In accordance with IAS 12, unrealized net income resulting from intercompany transactions that is eliminated from the carrying amount of assets on consolidation gives rise to a temporary difference for which deferred taxes must be recognized on consolidation. The deferred taxes are calculated based on the tax rate applicable in the purchaser’s tax jurisdiction.

Under U.S. GAAP, the elimination of unrealized net income from intercompany transactions that are eliminated from the carrying amount of assets on consolidation, give rise to a temporary difference for which prepaid taxes must be recognized on consolidation. Contrary to IFRS, the prepaid taxes under U.S. GAAP are calculated based on the tax rate applicable in the seller’s tax jurisdiction.

"Safe Harbor" Statement under the US Private Securities Litigation Reform Act of 1995: the matters discussed in this document may include forward-looking statements, including statements made about our outlook, realization of backlog, IC unit demand, financial results, average sales price, gross margin and expenses. These forward looking statements are subject to risks and uncertainties including, but not limited to: economic conditions, credit market deterioration on consumer confidence which could affect our customers, product demand and semiconductor equipment industry capacity, worldwide demand and manufacturing capacity utilization for semiconductors (the principal product of our customer base), competitive products and pricing, manufacturing efficiencies, new product development and customer acceptance of new products, ability to enforce patents and protect intellectual property rights, the outcome of intellectual property litigation, availability of raw materials and critical manufacturing equipment, trade environment, changes in exchange rates and other risks indicated in the risk factors included in ASML’s Annual Report on Form 20-F and other filings with the US Securities and Exchange Commission.

¹ All quarterly information in this press release is unaudited.

² The calculation of diluted net income per ordinary share assumes conversion of our Subordinated Notes as such conversions would have a dilutive effect.

³ The calculation of diluted net income per ordinary share assumes the exercise of options issued under ASML stock option plans as such exercises would have a dilutive effect.

⁴ As of January 1, 2008 ASML accounts for award credits offered to its customers as part of a volume purchase agreement using the deferred revenue model. Until December 31, 2007 the cost accrual method was used. This change in accounting policy was made because the deferred revenue model better reflects the business rationale. In addition the International Financial Reporting Interpretation Committee concludes in interpretation 13 (IFRIC 13 “Customer Loyalty Programmes”) that the deferred revenue model is the appropriate accounting treatment. Comparative figures for 2007 were adjusted to reflect this change in accounting policy. The impact of this change on equity as per January 1, 2007 amounted to EUR 8.5 million (decrease) and on net income for the year 2007 and the first quarter of 2008 amounted to EUR 8.2 million (decrease) and EUR 0.1 million (increase) respectively.

ASML Holding NV
Media Relations:
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or
Investor Relations:
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