ASML Holding (NASDAQ:ASML) held its second-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.

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Summary

ASML Holding N.V. reported Q2 2026 net sales of 9.3 billion euros, exceeding guidance, with significant contributions from EUV system sales.

Gross margin for Q2 was 54%, surpassing expectations due to high-margin components in install base management.

ASML raised its full-year 2026 guidance, expecting net sales between 43 and 45 billion euros and a gross margin of 54% to 56%.

Strong customer demand driven by AI accelerator needs and DRAM price increases led to aggressive capacity expansions and long-term agreements.

The company anticipates a 25% growth in advanced logic foundry-related net system sales and a 75% increase in memory-related net system sales in 2026.

ASML plans to ship around 65 low NA EUV systems and 130 immersion DUV systems this year, with an expected EUV net system sales growth of over 45%.

China-related sales are projected to account for 20% of total net sales for 2026, reflecting increased demand for mainstream projects.

ASML is investigating further capacity increases for 2028 due to strong demand signals from customers, particularly for low NA EUV systems.

ASML continues to focus on optimizing its existing footprint to meet demand without requiring new clean room space.

Management emphasized the importance of value-based pricing and flexibility in pricing given the current high demand environment.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to the ASML 2026 second quarter financial results conference call on July 15, 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 will need to press Star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star 1 and 1 again.

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.

Jim Kavanaugh, 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 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.

Christophe Fouquet, President and CEO

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 Dassen, Executive Vice President and CFO

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 9.3 billion euros, which is above the high end of our guidance. As a result of higher than expected install base management sales, net system sales were 6.6 billion euros, which included 3.8 billion euros from EUV system sales, including sales of one high-NA system, and 2.8 billion euros 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 2.8 billion euros, almost 300 million euros 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 install 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 1.3 billion euros and SG&A expenses came in at around 0.3 billion euros. The effective tax rate for Q2 was 17.5%. For the full year 2026, we expect the annualized effective tax rate to be around 17%. Net income in Q2 was 2.9 billion euros, representing 31.3% of total net sales, resulting in earnings per share of 7.59 euros. Turning to the balance sheet, we ended the second quarter with cash, cash equivalents, and short-term investments at a level of 7.6 billion euros.

Our free cash flow in Q2 was 1.3 billion euros. Moving to our cash return to our shareholders in Q2, ASML paid the final dividend over 2025 of 2.70 euros per ordinary share. Together with the three interim dividends paid in 2025 and 2026, this resulted in a total dividend for 2025 of 7.50 euros per ordinary share. In the second quarter, we purchased around 1.1 billion euros worth of shares under the current 2026-2028 share buyback program. The first quarterly interim dividend over 2026 will be 1.88 euros 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 11 billion and 12 billion euros. We expect our Q3 installed base management sales to be around 2.9 billion euros. Gross margin for Q3 is expected to be between 55% and 57%. The expected R&D expenses for Q3 are around 1.2 billion euros and SG&A is expected to be around 0.4 billion euros. Driven by continued strong demand, we are updating our full year 2026 guidance.

We now expect total net sales between 43 and 45 billion euros with a gross margin between 54% and 56%. With that, I would like to turn the call back over to Christophe.

Christophe Fouquet, President and CEO

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 strengthen 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 across the year, and our ability to increase output has allowed us to meet their request for additional lithography systems. 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 products. 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 investments 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 megafabs.

This addition will come online in phases over the coming years. In addition, DRAM lithography intensity is rising 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-expose 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.

Roger Dassen, Executive Vice President and CFO

Thanks, Christophe. Starting first with our EUV business, we now expect to ship around 65 low NA EUV systems this year, resulting in year-on-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 DUV business, for immersion DUV, 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 re-accelerate our output of these systems.

Shipments of dry DUV 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 e-beam metrology products across all key customers. Given these trends in our DUV 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 projects. With regard to our capacity plans, we are continuing to have very constructive conversations with our customers to better understand their demand for our systems beyond 2026. With increasing visibility into their customer plans, our customers have been able to share forecasts with us that extend out multiple years.

You see this heightened visibility reflected in order 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.

Christophe Fouquet, President and CEO

Thank you, Roger. Turning to our technology roadmap, 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 roadmaps. In parallel, the maturity of the platform is improving towards the level required for insertion into high-volume manufacturing. We are 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 3 processors.

These milestones mark 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 will 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 toward more advanced lithography solutions 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.

Jim Kavanaugh, Head of Investor Relations

Thank you, Roger, and thank you, Christophe. The operator will instruct you momentarily in the protocol for the Q and 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, can we have your final instructions and then the first question, please?

OPERATOR

Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to the first question. One moment, please. And your first question today comes from the line of Francois Bourbognier from UBS. Please go ahead.

Francois Bourbognier

Thank you very much. My first question maybe is on ASML. It 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's recent comments on high energy stamps being too expensive. One interpretation could be that customers are finding more value in the low NA 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?

Christophe Fouquet, President and CEO

Well, I think, Francois, I think I understand maybe the question of the connection between INA and low. So let me start with INA. We discussed that in the past, and you know 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 INA single exposed, the design of the tool, the performance of the tool will be such that it provided 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 INA platform to the level of maturity of low INA. And you know, when you achieve that, this is practically the time where the cost of INA is going basically to provide an advantage versus the existing technology. So I think that logic is still true and again gets implemented when the platform reaches the right maturity.

Therefore, I think there's no real need to maybe look at one tool price versus the other. Because that logic I think was also true for low INA. If you remember our discussion back in 2018-19. I think the key again for INA to be cost-effective, to beat the cost of low INA plus immersion multi-patterning, is to bring INA 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 sign so far that we're getting there.

So there is no question of low NA pricing.

Roger Dassen, Executive Vice President and CFO

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 tools. So 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 follow within ASML. And you're also right that in the current environment, of course, value for customers is higher than in other circumstances.

So I would agree with you that the current environment provides more flexibility for pricing than what you would have had in different days. Of course, you will also appreciate, given the long order lead times that we have, that 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 customers is substantial. Of course, it 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.

Francois Bourbognier

When could that happen, Roger? I mean, to your point, it's not tomorrow after tomorrow. So when is it?

Roger Dassen, Executive Vice President and CFO

But that really depends. That really depends on the order situation that you have with customers. As I said, it's obviously linked to order lead times. So. And of course that varies from one to the other, but the dynamic is clearly there, Francois.

Francois Bourbognier

Okay, and maybe the follow-up quick one is on the 100, 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 a new clean room for that or are you contemplating maybe to add clean room to ASML capabilities?

Christophe Fouquet, President and CEO

I think all the capacity it creates, either planned or investigated, we're talking about, are based on our existing footprint. So we have been working extremely hard, as you may have noticed, in the last six, nine 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.

Francois Bourbognier

Great. Thank you both.

OPERATOR

Thank you. Our next question today comes from the line of Joe Kotaki from Wells Fargo. Please go ahead.

Joe Kotaki

Yeah, thanks for taking the question. You noted that you're close to receiving all the orders you need for 2027 to be covered on low NA. And you're increasing the 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 and 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, you know, higher as we move closer to 2027?

Roger Dassen, Executive Vice President and CFO

It's the balance as we see it today. The balance between demand and supply as 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, then just as we've been doing it in the past couple of months, you know, we need to look ourselves in the eye. We need to look at all the supply chain and just see 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.

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.

Christophe Fouquet, President and CEO

Maybe Joe, to answer that back to Francois' question. So I explained that 2 times 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 on 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 would 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 customer what they need basically.

Roger Dassen, Executive Vice President and CFO

And Joe, to further build on that, we should also remind ourselves that we shouldn't just be looking at unit percent increases. So we're looking at 30% which is boxes if you like, so 30% more tools. But you should also recognize that the tool 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, the tool mix that we're going to ship next year will be E's and S's. While this year it's a combination of E's and E's. And if you recognize the difference in outputs, then in essence what you're looking at is not 30% improvement of wafer capacity that we're adding, but 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 demands of our customers.

Joe Kotaki

That's really helpful, Roger. I appreciate all the detail. Maybe just as a follow-up, you talked about 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 for looking into 27, 28?

Christophe Fouquet, President and CEO

Well, I think for INA 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 INA, 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 understands that. Of course, a lot more is being done today on low NA and immersion, for example, in INA. But we are not sacrificing, I would say, any of our INA supply by doing the rest of the optimization.

Joe Kotaki

Thank you.

OPERATOR

Thank you. Our next question today comes from the line of Krish Sankar from TD Cowan. Please go ahead.

Krish Sankar

Thanks for taking my question. I told them the capacity increased to 8,510 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 add a follow-up?

Christophe Fouquet, President and CEO

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 will not say that we are 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 always tension to make sure that the two numbers match. But that's again something we continue to do. So short answer is yes, the capacity is there to meet the demand but the demand is still fluctuating. We get nicer visibility for sure for 27, even 28. But we also mostly are not at the end of the discussion with our customer.

Roger Dassen, Executive Vice President and CFO

And clearly, Krish, we're not waiting until we get the orders right. As we said, we're investigating, you know, the 110 scenario for EUV in low NA by 2028. Of course, we don't have orders for 410 EUV low NA 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 view. But 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.

Krish Sankar

Got you. 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 3600 Ds. But Roger, you mentioned that next year there won't be any D in the mix. 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.

Roger Dassen, Executive Vice President and CFO

Christian, at a certain point in time we're simply sold out when it comes to D models. So the D uses a specific UV from Zeiss and at a certain point in time we're just done and we expect to be done or maybe virtually done, but done this year. There might be one or two slipping into next year. But essentially we're done with this this year. And then from that moment onwards there is no DPOB left anymore. And therefore we'll build eat and Fs next year.

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 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.

Krish Sankar

Thanks a lot, Rudhi.

OPERATOR

Thank you. Your next question today comes from the line of Stephane Uri from owhs. Please go ahead.

Stephane Uri

Yes, good afternoon. So my question is for 28 where you say you have already large order volumes but not fully booked yet. Can you help us understand where you stand in terms of visibility out of the 110 unit targeted? How is it covered today? And can you talk about the lead times as we speak? And I have a follow up.

Roger Dassen, Executive Vice President and CFO

Well, the fact that we say that we investigate 110. We wouldn't investigate 110 if customers were telling us that. That would be a ridiculous number. 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.

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