ASML Holding Q3 2025 earnings conference call
Key Takeaways (AI-Generated)
Financial Performance
- Q3 2025 total net sales €7.5 billion within guidance, net system sales €5.6 billion
- EUV sales €2.1 billion including one High-NA system, non-EUV sales €3.4 billion
- Gross margin 51.6%, net income €2.1 billion representing 28.3% of sales
- Net system bookings €5.4 billion split €3.6 billion EUV, €1.8 billion non-EUV
Business Highlights
- Reappointed Roger Dassen and Frederick Schneider Monterey, appointed Marco Peters as CTO
- Achieved over 300,000 wafers run on High-NA systems, maturation ahead of schedule
- SK Hynix received first High-NA system EXE 5200 for advanced DRAM devices
- Shipped first 3D integration product XT:2600i offering 4x productivity improvement
Financial Guidance
- Q4 2025 total net sales expected €9.2-9.8 billion, gross margin 51-53%
- Full year 2025 total net sales around €32.5 billion, gross margin around 52%
- 2026 total net sales not expected below 2025 levels despite China decline
- Long-term 2030 revenue opportunity €44-60 billion with 56-60% gross margin
Opportunities
- AI-driven demand creating positive momentum with more logic and DRAM customers
- High-NA technology maturity progressing ahead of low-NA EUV introduction timeline
- Mistral AI partnership to embed AI across portfolio for enhanced performance
- 3D integration product offers 4x productivity improvement for advanced packaging
Risks
- China customer demand and sales expected to decline significantly in 2026
- Uncertainty around tariffs and customer capacity planning affecting order timing
Full Transcript (AI-Generated)
Operator
Thank you, Jim. Welcome, everyone and thank you for joining us for third quarter 2025 research conference call.
Christophe Fouquet
Let me start by saying how pleased I am with the recent announcement of the reappointment of both Roger Dassen and Frederick Schneider Monterey to the Board of Management. We also announced last week the appointment of Marco Peters as our Chief Technology Officer. His appointment is part of our robust succession planning process and with over 25 years of experience at ASML, Marco brings a proven track record in technology leadership.
Marco will take on the responsibility of driving our technology roadmap forward in support of our customers and I look forward to our continued collaboration. In addition, ASML Supervisory Board announced that it intends to appoint Marco to the Board of Management as of the company next Annual General Meeting to be held on April 22nd, 2026.
Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the third quarter results as well as provide some additional comments on the current business environment and on our future business outlook.
Roger Dassen
Thank you, Christophe and welcome everyone. Let me start with our third quarter accomplishments. In the third quarter of 2025, total net sales were €7.5 billion which is within our guidance. Net system sales were at €5.6 billion, which includes €2.1 billion from EUV system sales including one High-NA system and €3.4 billion from non EUV system sales.
Net system sales were driven by logic at 65% with the remaining 35% coming from memory installed base management sales for the quarter came in as guided at €2 billion. Gross margin for the quarter was also within guidance at 51.6% for operating expenses. R&D expenses came in a bit below guidance at €1.1 billion due to the timing of spending and SG&A expenses basically came in as guided at €303 million.
The effective tax rate for Q3 was 17.8%. For the full year 2025, we continue to expect an annualized effective tax rate of around 17%. Net income in Q3 was €2.1 billion, representing 28.3% of total net sales and resulting in an EPS of 5.49 euros. Turning to the balance sheet, we ended the third quarter with cash, cash equivalents and short term investments at a level of €5.1 billion.
Moving to the order book, Q3 net system bookings came in at €5.4 billion, split between €3.6 billion of EUV systems and €1.8 billion of non EUV systems. Net system bookings in the quarter were slightly weighted towards logic at 53% with memory accounting for the remaining 47%. In Q3, ASML paid the first interim dividend over 2025 of 1.60 euros per ordinary share.
The second quarterly interim dividend over 2025 will also be €1.60 per ordinary share and will be made payable on November 6th, 2025. In Q3 2025, we purchased shares for a total amount of around €148 million. As of September 28th, 2025, ASML has acquired 9 million shares under this program for total of €5.9 billion.
ASML does not expect to complete the €12 billion share buyback program in full within the 2022-2025 time frame. We intend to announce a new share buyback program in January 2026. With that, I would like to turn to our expectations for the fourth quarter of 2025. We expect Q4 total net sales to be between €9.2 billion and €9.8 billion.
We expect our Q4 installed base management sales to be around €2.1 billion. As previously discussed, we expect Q4 to be a very strong quarter as was the case of Q4 of last year. Gross margin for Q4 is expected to be between 51 and 53%. The expected R&D expenses for Q4 are around €1.2 billion and SG&A is expected to be around €320 million.
For the full year, we continue to expect total net sales to be around €32.5 billion with a gross margin of around 52%. With that, I would like to turn the call back over to Christophe.
Christophe Fouquet
Thank you, Roger. As Roger highlighted, we finished the third quarter with good financial results. Looking now to the market, there's been positive news flow across the industry in recent months that has helped to reduce the level of uncertainty that we were reporting last quarter. First, there were a number of announcements around the continued investment in AI infrastructure that supports demand in both leading edge logic and advanced DRAM.
Second, the positive momentum around AI seems to extend to more customers in both logic and DRAM. Third, we see continued momentum around customers adopting more EUV layers in both logic and DRAM, migrating multi patterning deep UV to single exposure EUV and continuing to support litho intensity. On the other hand, we expect to see China customer demand and therefore our China total net sales in 2026 to decline significantly compared to our very strong business there in 2024 and 2025.
We believe that the impact of these dynamics will only partially affect 2026. However, overall, we do not expect 2026 total net sales to be below 2025 in this environment. We also expect the 2026 EUV business to be up, driven by the dynamics in advanced DRAM and leading edge logic and the deep UV business to be down compared to 2025, driven by the dynamics with our Chinese customers.
We will provide more details on our 2026 outlook in January. Turning to technology, there's been a lot of good progress this quarter with latest achievements on EUV presented at industry conferences, the release of new 3D packaging lithography system and the announcement of our strategic engagement with Mistral AI for EUV.
We presented a number of papers at recent SPIE and SEMICON events that highlighted the progress we have made in helping drive down cost of ownership on our customers most advanced processes. With regards to the maturity of High-NA, we shared data showing that we have now run cumulatively over 300,000 wafers on the system at our customers.
Also, our customers have shared very positive data showing that the maturation level of the platform is well ahead of where low NA EUV was at the same stage in its introduction. Further, SK Hynix announced this quarter that they started to take delivery of their first High-NA system, the EXE 5200, positioning High-NA as a critical enabler for future advanced DRAM devices.
We are also happy to report that this quarter we shipped ASML's first 3D integration product, the XT:2600i. The XT:2600i is an i-line scanner designed for applications that include advanced packaging and offers up to four times the productivity compared to existing solutions. 3D integration is of increasing importance to the roadmaps of our customers and the semiconductor industry and our customers have been sharing with us the need to innovate in order to meet their future requirements.
The discussions with our customers on those requirements point to a good opportunity to transfer some of our holistic lithography technology to 3D integration to meet their future needs. The XT:2600i is the first example of several opportunities we are evaluating. With the XT:2600i, we are able, as said, to multiply the existing productivity by up to a factor of 4 using a unique optical design.
As mentioned, we shipped our first system this quarter and expect to ship this tool to quite a few more customers in the coming quarters reflecting the strong interest in this technology solution. With that, I ask Roger to provide some insight into our recent engagement with Mistral AI.
Roger Dassen
Thanks Christophe. In September, we announced that we closed a strategic partnership with Mistral AI, a pioneer company in generative artificial intelligence with a strong business to business focus. While Mistral AI is recognized for its leadership in large language models that assist in areas such as software coding development, it's not normally associated with hardware.
Software plays an increasing role in driving the precision and speed of our tools. Our partnership with Mistral AI allows us to embed AI across our entire holistic portfolio in order to increase the performance and productivity of our systems and the yield of our customers processes. Also, we believe this collaboration will allow for faster innovation, resulting in improved time to market and lower development costs when delivering state-of-the-art solutions to our customers.
In addition to the collaboration agreement, ASML has invested €15 million in Mistral AI's Series B funding round as lead investor, resulting in ASML holding around an 11% share in Mistral AI and having a seat at their strategic committee. It allows us to become even more closely connected to the AI ecosystem.
Christophe Fouquet
Thank you, Roger. Looking longer term, as we shared in our capital market day, we start to see that the end market dynamics is leading to a product mix shift towards more advanced logic and DRAM. Those applications require a more intensive use of advanced lithography systems. We expect that to continue the combination of our strong productivity roadmap on low NA and the introduction of High-NA supports further cost of ownership reduction and the conversion of more multi patterning layers to single EUV exposure especially on DRAM advanced nodes.
In line with our 2024 capital market day, we expect a 2030 revenue opportunity between €44 billion and €60 billion with gross margin expected between 56 and 60%. With that, Roger and I will be happy to take your questions.
Operator
Thank you, Roger. Thank you, Christophe. Now the operator will instruct you 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 instructions and then the first question please?
Thank you. As a reminder, to ask a question, you will need to press *1 on your telephone and wait for your name to be announced. To withdraw your question, please press *1 again. We will now take the first question. And your first question today comes from the line of Francois Bouvignies from UBS. Please go ahead.
Francois Bouvignies
Thank you very much. My first question is on what you said Christophe, that you saw positive news in the last months that helped reduce uncertainty and I was wondering, can you elaborate on this, because obviously you get these 5 billion orders, which is helping, but I guess one quarter of orders doesn't give you the full visibility on 26 completely.
So do you have more visibility in terms of the full capacity they need for 26 now that gives you more numbers around all of that and all the layers. So just trying to understand what changed versus last quarter or you just rely on positive news out there and you try to extrapolate just trying to understand this dynamic. Thank you.
Christophe Fouquet
Yeah, Francois, I think first, I refer to a lot of positive news on the AI infrastructure and I think you all know that usually this doesn't translate immediately into orders for us. So this takes quite some time. But if you look at the sum of the announcements, I would say this creates a pretty positive backdrop of opportunity for AI moving forward.
The second one is also quite important. So I think we mentioned the fact that we see now that more customers will benefit from the AI opportunity. I think it's important for many reasons, the first one being that in order to respond to this huge demand, this huge amount of good news on the AI infrastructure, you need to make sure that the market capacity would be high enough.
And I think that seeing more customers entering logic opportunity or the DRAM opportunity is a pretty good news for the long term. And to know exactly how this will affect the next few years, it's still difficult to say. I think as I said before, only part of that would be effective next year. And for the rest, I think it's far too early to say on our side.
Francois Bouvignies
Makes sense. Thank you. And the follow up is on China. I mean that has been a key driver of growth in the last few years. And you mentioned it will go down significantly. So it's again a bit on the visibility side here. I guess you see the strong backlog. I would imagine three to six months lead times because it's deep UV.
So I would expect you not to see much beyond Q1 26. So is it some conservatism because you see the strong backlog and maybe a soft Q1 26 or you really do you have the full picture already on 26 how it's looking?
Roger Dassen
Well, I think that we have about the same clarity that we had last year about this time. And I think around that same time, we still tried to provide you a bit of our view of the market. I think on China, we have been very consistent that we saw that the level of business in the last 2-3 years was very high and in no way normal.
So I think we have been experiencing a very high cycle in China, especially through the last couple of years. And again, our expectation and the visibility we have right now is that next year we go back to more reasonable business.
Francois Bouvignies
Thank you very much for your answers.
Roger Dassen
You're welcome.
Operator
Thank you. Your next question comes from the line of Krish Sankar from TD Cowen. Please go ahead.
Krish Sankar
Yeah, thanks for taking my question. I have two of them. Roger, you kind of mentioned about the recent AI investment strength. Some of that will come in 2026. I'm kind of curious given your long lead times, how to think about linearity of your revenues or orders in 2026 and any early thoughts on what it implies for 2027?
Roger Dassen
Yeah, Krish, interesting question. I think we're, you know we said what we said on 26. I think it's way too early to make any comments on 27. I think you will see that orders came in strongly in the last quarter actually the quarter before that also came in strongly. So I think linearity of orders is an anomaly. I think we said orders always come in lumpy.
I think we've had a healthy run in the past two quarters. But I don't think you can talk about linearity. So way too early to talk about what this means for 27. I think going back to Christophe's earlier answer, I think the news flow that you got in the past couple of months, I think is positive news flow and is positive news flow, particularly in the medium term.
But then to translate that into concrete expectations for 27 is really quite a bit too early.
Krish Sankar
Fair enough, fair enough. And then the follow up for Christophe, you know, clearly you're seeing strength in DRAM. I'm kind of looking longer term. There's a view that when you go into 4F squared from 6F squared for DRAM architecture that's actually negative for EUV, the EUV layer count comes down. Can you just help us understand that?
Christophe Fouquet
Christophe, thank you. Yeah, it's a good question. It's a question we get a lot. The short answer is no. If we look at the number of EUV layers going from 6F squared to 4F squared, we do not expect the number of layers to drop. In fact, as 4F squared roadmap continues after the transition, we in fact expect the number of EUV layers to continue to grow.
And I make that statement after many discussions with our customers. On top of that, what I'd like to add is 4F squared has a bit of a more complex structure. So it's in fact needing overall more litho masks, more advanced litho masks. So there is a benefit also to some extent to advanced deep UV.
So in any case you still doubt about it, 4F squared is in no way a threat for ASML. We are looking forward to it.
Krish Sankar
Thanks for that color. Thank you.
Operator
Thank you. Your next question comes from the line of Joe Quatrochi from Wells Fargo. Please go ahead.
Joe Quatrochi
Yeah, thanks for taking the question. I was wondering if you could talk a little bit more about just the updated commentary for 26. Is that more that your more positive view a bit more DRAM related or equally balanced with logic and then same for more customers benefiting from AI infrastructure build out. Is that more of a DRAM comment?
Roger Dassen
Joe, I think it's related to both markets actually. So last quarter we talked about uncertainties. I think the uncertainties and Christophe went into the positive flow that has happened thereafter. One element of the uncertainties that we called out at that point in time was also the uncertainty around tariffs that was out there.
I think there is more clarity on that front right now, but that uncertainty also prevented customers from being very concrete as to what exactly they were going to do and what they were going to build their capacity. I think that has decreased and I think that has given rise to the commentary that we now make on 26.
But I would say in general, when we talk about the positive news flow on the leading edge leading to our expectation that EUV is going up next year. That is related both to DRAM and to advanced logic.
Joe Quatrochi
Thanks for that. And then as a follow up, I was wondering if you could maybe just walk through some of the puts and takes in your gross margin guide. I think what you're guiding for the December quarter is a bit better than what you're implying for the year. Is that something related to tariffs or mix or something else?
Roger Dassen
So it's, well, obviously volume is quite high, right. So that is a positive moving from Q3 to Q4. Mix has many elements to it. Of course we expect 2 High-NAs in Q4. So that is a negative. But on the other hand, we will also have a good low NA in there. We're a bit positive on the upgrade business as you could see, right, because that business picked up a bit.
If you take it all in all, we see a slight improvement at the midpoint in comparison to what we had in last quarter. So those are the dynamics I would say, fairly small movements, but all in all, leading at the midpoint to a slightly better gross margin than maybe we thought we were going to be.
Joe Quatrochi
Thank you.
Roger Dassen
You're welcome.
Operator
Thank you. Your next question comes from the line of Didier Scemama from Bank of America. Please go ahead.
Didier Scemama
Oh, yes, thank you for taking my question and good afternoon. My first question is about things that you talked about a little bit before. I just wanted to press you a little bit more. So we've all seen the press release of SK Hynix and Samsung following the visit of Sam Altman to Korea talking about a letter of intent of 900K wafer starts per month of HBM capacity, which is probably more than double the current HBM capacity.
So my question is this. My estimate would be that there are about 30 EUV tools in DRAM today, not all of them for HBM, but the majority. Presumably that would imply if we believe those numbers and many people think those numbers are absolutely grotesque, but let's do it for the sake of the argument. You would need something like 65 EUV tools just for HBM and then comes on top whatever Samsung Foundry, Intel and TSMC would need.
So I guess the question is A, what do you think of those numbers? And then B, do you have enough capacity for EUV low NA, let's say by 2030 to satisfy that potential demand?
Christophe Fouquet
Well, I think we don't want to get into the calculation because I think we said it already a couple of times. I think we're a bit careful with how the big announcements can translate into real capacity needs on the ground. I think the one thing I'd still like to stress one more time is we see the broadening of the customer base.
I think that's very important news in that matter because whatever you do with the first set of news, I think we can all agree that we need to make sure that the market will not be supply limited. And this has always been a risk with a limited amount of customers supplying AI chips both in logic and DRAM. So I think the broadening of the install base is very good news there.
And on the last question, we have said for a few quarters that we've been preparing for growth. So we're following those dynamics and I think we know now that EUV most probably will be stronger next year. So we've been preparing for that. We have as you know also worked on longer term capacity. So we continue to track basically the market carefully having in mind that we want to be able to follow the demand.
So I would say we don't have any concern there at this point of time.
Didier Scemama
OK, great. My follow up for Roger, perhaps just wanted to understand what I'm missing. So if we look, if we assume like let's say you book 5 billion of orders in Q4, you know, give or take, that would imply you exit calendar year 25 with a backlog of about 30 billion. Even if you straight line the High-NA tools in their expectations and call it 1.5-2 billion, that makes me comfortably above, let's say modest growth for next year.
So is there a large portion of the current backlog which has got maturity beyond 26? Is that the reason why you're still hesitant at calling 26 a strong growth year or high single digit growth year or even double digit growth year? Thank you.
Roger Dassen
Well, I mean, of course that's the big question, right. The big question is what is in the backlog that pertains to beyond 26 and that is a reasonable number. So as a result of that, your math doesn't work exactly right for 2026 because there is a pretty healthy number in there for beyond.
And we also know that there's always a question about a bit of pull in here, a bit of push out there and that makes it extremely hard to make at this stage any concrete projections on 26. But to your point, there is already a healthy order intake in the backlog that is beyond 26. Also as it relates to High-NA, I think that the High-NA contingent in there is actually pretty strong.
Didier Scemama
Would you say how many you expect to recognize next year High-NA?
Roger Dassen
No, that's a January topic.
Didier Scemama
I tried. Thank you gentlemen.
Roger Dassen
You did. Thank you guys.
Operator
You're welcome. Thanks. Thank you. Your next question comes from the line of Andrew Gardiner from Citi. Please go ahead.
Andrew Gardiner
Good afternoon. Thank you for taking the question. I might try Didier's question in a slightly different angle and see if I have any more luck. You've highlighted the news flow Christophe, we can all see it. It feels like you wake up every day to another massive announcement from somewhere within the AI food chain and you spend a lot of time talking about how that could create a theoretical backlog for you not yet orders.
But I'm just wondering you are a critical supplier into this market. You have the potential to be a bottleneck rather for the market. Now, of course, you don't want that to be the case, you're preparing for growth, etcetera. But do you feel like there's sufficient understanding through the chain, whether it's where you sit or perhaps your customers, how can you as a critical supplier make sure that the broader market isn't supply limited come 2027-2028 given the kind of announcements that we're seeing on a near weekly basis.
Christophe Fouquet
So first I think we wish we had a formula to translate all the announcements on what it means exactly for us in the next few years. I think no one has that. So I think that experience of 2022 has mostly taught us a lesson to be ready and to have maybe more flexibility because we know the market can swing.
So we've done a lot of work on that in the last few years. We have prepared buildings as we discussed before, which are usually the longer lead time items. And for the rest, when it comes to defining exactly the tools we want to produce, I think the lead time is a lot shorter. So we have more flexibility.
But I would say we have structurally maybe improved ourselves so that because we cannot answer those questions after the announcements, we at least have the flexibility. The other thing I'd like to add is of course our customers at the end of the day tell us what they need. And I think that's a constant dialogue we try to always reflect with you on a quarterly basis and I think we continue to do that.
So we are prepared. I think we stressed a few times we were preparing for growth. And this was also in light of some of this activity we have seen. And come January, we would be knowing even more about what's happening then. And then we'll continue to monitor the market. But I think we are, I will say a lot more prepared than we were a few years ago.
Roger Dassen
And I think Christophe, that is exactly right. We are very well prepared, particularly by having invested in the long lead time items that still by the way, means that when it comes to shorter lead time items, of course, you need to have a dialogue with your customers that gives you a timely heads up, right.
So because we need to kick our supply chain into gear, we need to hire the people, etcetera, etcetera. So we have a lot more flexibility than we used to have. But it is also critical for our customers to give us a timely heads up such that we can make sure that within the long term infrastructure that we have, we're also able to get to higher output levels and get supply chain and people in place.
Andrew Gardiner
OK, thank you, Roger. And I suppose without naming names, I mean, do you feel like your customers are giving you that heads up, right? Is there sufficient acknowledgement through the chain?
Christophe Fouquet
I think they do their very best. I will say it this way because they have the same challenge as we do. So I think they do their very best. And I think we're very happy with the transparency and the honesty around those discussions because all the time that's very helpful, also helpful in trying to really avoid the bigger surprises.
So I feel that this discussion really has improved in the last few years. And I think this is very helpful for them, for us, but also for their customers.
Andrew Gardiner
That's great. Thank you very much, guys.
Christophe Fouquet
You're welcome.
Operator
Thank you. Your next question comes from the line of Tammy Qiu from Berenberg. Please go ahead.
Tammy Qiu
Hi, thank you for taking my question. So first one is the High-NA kind of order pattern and demand ramp up curve. So as per my understanding, there hasn't been High-NA orders for about 2-ish, two plus quarters now. So I'm not saying that you're working on your backlog, but does that mean if orders only coming in from end of next year that you may actually have a, let's say 2027 or 2028 few quarters or a year of zero High-NA revenue.
So the ramp up curve of revenue of High-NA is going to be quite lumpy, is that correct?
Christophe Fouquet
Well, I think so you first summarized the stretch pretty well. So we are indeed working on High-NA out of the pretty healthy backlog. We have I think explained in the past that this backlog allows our customers to be covered for of course R&D pretty much done with most of those shipments, but also with the systems they want to use for qualification and insertion.
And for the rest, the next wave of orders we expect to happen basically when the data coming out of the qualification can confirm basically that the maturity of the tool is there. I think when it comes to performance mostly we have passed that milestone. And yeah, I think as we discussed last quarter, we expect that to happen most probably towards the second-half of next year.
And after that, now this being said, we do more than just waiting for orders with our customers. So it's not like nothing is going to happen in the next 18 months in terms of assessing the progress and therefore assessing the likelihood of the type of insertion we're going to look at.
So as we did, we just talked about the way we were preparing for growth on the EUV in the last few months and we did that without having necessarily the full clarity of the demand. We would be able to do that through the discussions with our customers, but in terms of orders, you look towards end of next year and in terms of shipments you look at 28 and beyond.
Tammy Qiu
OK, thank you. That's very clear. And second question, the same question is on China. So you mentioned that China revenue would be down significantly in 2026 and also that's because of demand. I'm wondering that because of the customers, I'm not sure about the demand, so they wouldn't want to commit. Therefore you being conservative or the customers told you for some reason their end market demand has been weak, so therefore they are buying less.
We don't actually currently see in Chinese market further weaken from where we are today. So I wonder what's the reason for that comment to be weaker significantly in 2026?
Roger Dassen
Yeah, I think the comment that Christophe made and I think he also said that goes back to also the comment that we made a year ago, right. So for quite a while we have been eating into our backlog that's really what happened. So for quite a while, the China sales were very high because we've been eating into a substantial backlog because of underserving the Chinese market.
So that was the reason why in fact, a year ago we said we expect the China sales to be more commensurate with the China percentage in the backlog, which at that stage was around 20% of the backlog. So that's what we said. So actually, as Christophe said, we were actually quite surprised that the China sales this year are as strong as they are.
But still the underlying assumption and our underlying perspective on the Chinese market is still the way it was a year ago. And that has to do with the fact that the Chinese market is a very specific one, right? It's focused on mainstream logic as we call it. And simply given the dynamics of that market, it is our assessment that the sales level that we currently see this year is very high in comparison to what we would think is a normalized level for that market.
So that's the reason why we've indicated this assumption of significant decline. So that's based on our understanding of the market. It's based on the dialogues that we have with our customers. Could that change? Absolutely. I think we've seen that this year that it changed in comparison to our perspective, but if you ask us for an honest assessment at this stage, how we think it's going to be in 26, it is as we communicate it.
Tammy Qiu
OK, thank you.
Roger Dassen
You're welcome.
Operator
Thank you. Your next question comes from the line of Stephane Houri from ODDO BHF. Please go ahead.
Stephane Houri
Yes, good afternoon everyone. Actually I've got two questions. The first one is about the advanced packaging product that you're highlighting in your presentation, the XT:2600i. Can you maybe say a little bit more about what it's doing, the price of the machine, type of clients who you're competing with in the market outlook? If you have a few information and I have another one.
Christophe Fouquet
Yeah, so let me give you a bit of context. So I think we mentioned that product in our press release also in the call, not necessarily because of the high price, high value of the product, but because this is the first product ASML is providing to its customers to support 3D integration. And I think that's mostly where the important news is.
I think we all know that when it comes to Moore's Law, our customers are asking us to drive transistor density still doubling it basically a factor of 2 every two years. I think that we also know that over time litho scaling has slowed down and that creates the need basically for more either stacking or packaging of transistors.
And our customers are really asking us to help there because what they want is also speed is also over time accuracy and I will say some of the technology we have been developing for our litho portfolio. So this is a bit the starting point. I think we also mentioned mostly we'll be looking at some more products there.
I think what's very interesting is the interest we see from our customers on this product. It's an i-line scanner to answer your technology question. So this is based basically on i-line technology, which of course we have had at ASML for many years. But in this case we have new optical design that's really enabled us to provide 4X improvement on productivity.
Competition are basically the people who do i-line scanners. So I think you know them, but what's very interesting is that if we look at next year, we have quite a few customers very eager to take this technology. And because we provide a nice technology, some good improvement. I will say that the business and the benefit we can get out of this product is quite a lot higher than we've done historically on i-line.
Stephane Houri
OK. And the follow up would be about the gross margin in 2026. I know you're not giving guidance and you will say more in January, but given what you have described i.e. less China, more EUV, but also at the same time more EUV High-NA what can we expect some increase in the gross margin next year?
Roger Dassen
Yes, Stephane, indeed I will give, we will give more clarity on that obviously in January. But I think you're right, product mix obviously is very important in what drives it. And then as you know what we ship to China today to a very large extent is immersion. Immersion comes with a very good gross margin, so less China business would be dilutive on that front.
But you're right, EUV comes in with very strong gross margin. So therefore if we predict EUV particularly low NA goes up, that would be a positive again on the other hand, and then there is the question on the number of tools that we're going to recognize for High-NA which of course is still dilutive to the corporate gross margin. So I think that's an important one.
And the other one is our expectation on the installed base business. The particularly the upgrade business is pretty important when it comes to gross margin. So it's all those moving parts exactly where they land that will eventually determine what the expectation is. But those are indeed the moving parts is product mix and it's the expectation on the composition of the installed base business, which first and foremost is going to drive that perspective.
Stephane Houri
OK, thank you very much.
Roger Dassen
You're welcome.
Operator
Thank you. Your next question comes from the line of Chris Caso from Wolf Research. Please go ahead.
Chris Caso
Yes, thank you. Good morning. I guess the first question is on installed base and if you could update us on your thinking as we go into calendar 26. Previously you had talked about having to back out some of the upgrade revenue as you go into 26. What's the current thinking on installed base as we go into next year?
Roger Dassen
Yeah, I think you're right, well that's first on the installed base for this year, right. So I think you will see that our expectation for the installed base this year has actually gone up a bit. If you look at what we guide for Q4, because originally we thought that the first half was going to be quite a bit stronger than the second-half.
And now that second-half is as strong as the first half, what you see there is that actually the service business is developing quite nicely. And so while we might have had a bit more upgrade business in the first half, the second-half is really benefiting from the service business. As you know, the service business is very much tied to the development of the installed base in EUV, right.
And with the increase in the installed base in EUV, of course that also drives further drives the service business. So that's an important one that I think you can sort of back of the envelope calculate what the impact of that is going to be for next year. And then the question indeed is how sustainable is the upgrade business.
So clearly didn't fall off a cliff in the second-half of this year. And we'll give you an update in January what the expectation is for 26.
Chris Caso
Helpful. Thank you. Just as a follow up and maybe summarizing some of the earlier comments about some of the more optimism you had with regard to some of the AI developments. I mean, it's safe to say that the bookings, total bookings haven't really increased here. Is this more a function of your customers are telling you based on some of these developments, there's sort of an expectation for stronger bookings in coming quarters because of the capacity needed to provide that as compared to what's in the backlog right now.
I guess this is the indicator of potentially stronger bookings if this comes to fruition.
Roger Dassen
Yeah. And I think Chris that is indeed the way to look at it. Our view on bookings, right? The bookings we always say is not necessarily a good proxy of the business momentum. I think the bookings that we had in this quarter are actually pretty decent as they were pretty decent in the previous quarter without being downright spectacular, but pretty decent for sure.
But indeed, I think most of the things, most of the positive developments that Christophe talked about, Christophe actually said it, they only partially affect 26. So most of this, so the AI investments, the fact that multiple customers of us are benefiting from AI, whilst in the past we always said it's only a limited number of customers that are benefiting from AI.
The technology progress that Christophe referred to the fact that we see more and more layers transitioning to EUV. So all that is good stuff, but all of that I would say is good stuff, not necessarily being cashed in for 26, but primarily beyond that. So I think that's the way to look at it. All good stuff. Definitely some of those having a partial impact on 26, but the great optimism is also I would say for what it does to the business in the longer term.
Chris Caso
Helpful. Thank you.
Roger Dassen
You're welcome.
Operator
Thank you. Your next question comes from the line of Tim Schultz-Melander from Rothschild and Co, Redburn. Please go ahead.
Tim Schultz-Melander
Yeah, hi, thanks for taking my questions. Maybe to begin with for Christophe on the High-NA technology maturity, could you maybe just talk a little bit about on what measures High-NA is kind of ahead of 0.33 at a similar point in time? And then just thinking out to sort of 2028 and that journey are you kind of halfway there 3/4 of the way there? And then I had a quick follow up for Roger.
Christophe Fouquet
Well, I think it's a good question. So typically when we look at the maturity of the system, I see there's two elements to it. The first one is when do we demonstrate the final specification of the tool that our customers. And when we look at the EXE 5200, we expect that to happen in the next few months, most probably this year. So that means that we validate the overall capability of the system. That's point number one.
And point number two is the availability of the tool, how much, what percentage of the time the tool can be used to run wafers. And I think the major difference between low NA and High-NA is that when we looked at low NA maturity back at the time we were ramping the product, the availability was really dragged down for many years by the source performance. The source was by far the biggest detractor of our maturity on the low NA tool.
Now I think you're fully aware that the source of High-NA is exactly the same as the one on low NA. And if we look at the availability number of the source itself, we are exactly matching the performance of low NA. So what is basically separating us from today to final maturity is just the platform itself. And there, our experience is that most probably in 12 months, 18 months from now, we will be in a very good shape.
So there's no show stopper in the way we look at it today when it comes to maturity of the tool and there's a few more months we have to work with our customers to validate that. But when I look at the technology, when I look at the reasons why we were struggling with low NA, those reasons are not with us with High-NA and that's why I think our customers are also eager to report that maturity. That's also what they see and that's also their logic there.
Tim Schultz-Melander
Great, very helpful. Maybe Roger, just in terms of profitability High-NA that you recognize revenue on, could you just maybe talk about, I know gross margins dilutive, but are we positive? What's the sort of runway there? And then maybe just thinking about the operating expenses, given the maturity of the High-NA platform, what's the outlook for the sort of cadence of R&D expense, the R&D burden for the business going forward? Thank you.
Roger Dassen
Yes. And so, yeah, High-NA is dilutive. The key thing that will make it less dilutive or the key thing that will drive up the gross margin is volume, right, because you have a significant cost base both in the factory and also in the field for High-NA, but that total cost base is only absorbed by a very limited number of tools. So it's volume that is ultimately going to drive up the gross margin.
So as Christophe was saying, you're taking stuff into high volume manufacturing in the 28-29 time frame, right. And that's where in all likelihood you're going to see meaningful numbers at that stage. You will see the gross margin profile improving. I did say at the Capital Markets Day that even by 2030 I still expect High-NA to be margin dilutive, right, because it takes quite a long time before you get on the maturity curve and before you get significant volume for this to meaningfully contribute, but at that time frame.
Once you get meaningful numbers at that stage, the dilutive nature of it will be limited.
Tim Schultz-Melander
So just a bit, but was it profitable at the gross margin level in the quarter or was it still loss making please?
Roger Dassen
You mean High-NA? High-NA is very low margins. It's very low margins. But you're talking very low positive margins. That's what you're looking at in terms of operating expenses, R&D, I would say we still have a formidable roadmap ahead of us.
So in spite of the fact that we have High-NA up and running, if you look at the roadmap, if you look at the significant breakthroughs that we think we can still push in terms of low NA, in terms of productivity of those tools, in terms of imaging quality there. But also the progress that we continue to make on some of the DUV tools that we talked about, we still have a pretty formidable roadmap.
I would say however, that we are looking at increasing, further increasing the efficiency that we get out of the organization. So from that vantage point, I do believe that you will continue to see us manage our both our SG&A and our R&D quite nicely because we do feel that out of the formidable team that we have here at ASML, R&D department, we can get even more value and efficiency there.
So I think you will see us navigate those numbers quite diligently and keep the increases at quite controlled.
Tim Schultz-Melander
Extremely helpful. Thank you.
Roger Dassen
You're welcome.
Operator
Thank you. Your next question comes from the line of Alex Duval from Goldman Sachs. Please go ahead.
Alex Duval
Yes, hi, everyone. Thanks for the question. You talked today about lithography intensity inflecting positively. I just wondered if you could clarify the timeline you're thinking about here and to what extent this is a function of progress having been made in the gate all around transition versus other factors?
And secondly, we've discussed on this call today about the degree of ambition around AI investment. But we've also seen news items talking about AI chip makers being more aggressive on the nodes they target for future chips. And that seems to be somewhat different to how one had thought about where they would locate themselves relative to the bleeding edge. So wondered if you could talk about the implications for ASML of a faster cadence of these more powerful AI chips over time. Many thanks.
Christophe Fouquet
Well, so maybe on the first question, I think nothing really new there compared to the last few quarters. I think on logic we spent a few times, the gate all around transition is happening without an increase on the number of EUV layers just because customers typically do first the transistor change before they start shrinking more aggressively again, which we still expect to happen at N4 and N10. So I think very consistent there with the previous view.
I think in DRAM we talked about 4F squared already today. We've got since the capital market day last year, we've got a lot of confirmation that indeed DRAM could get more aggressive in terms of EUV adoption for 6F squared, 4F squared as well as I mentioned. So there I would say the trajectory is very strong towards more use of advanced litho moving forward.
Now the second question is a good one. And I think we also mentioned last year in November that more AI applications will drive more advanced logic and more advanced DRAM. And I think mostly that part is still to be seen because we're looking at 12 months, which is a fraction of a node in terms of timing.
But I think what you see happening is what you describe is those applications, the value people can extract out of those applications can justify most probably moving to new nodes that are more expensive as you have noticed looking at the price of the wafer. But today can be justified by the value of AI.
And this has changed indeed the way people used to look at the industry, when we look at the industry driving mobile only, there was a lot of doubt on whether the next advanced logic node makes sense. I think that those doubts have gone away quite a bit. And I think that the size and the speed of the ramp of two nanometer node on logic are the very first proof of that.
But we would expect that trend to continue. We have not seen yet a real acceleration per se, but as we mentioned again the larger customer base for those products. And as you know, larger customer base also means that you get more competition and potentially also more motivation to move faster on those advanced nodes. So I think that question is a very good one and one that we all have to look at in the next 12 months.
Alex Duval
Super. Thank you so much.
Operator
OK, we have time for one last question. If you were unable to get through on this call, instead of questions, please feel free to contact ASML Investor Relations with your questions now. Operator, can we have the last caller please?
Thank you. Your last question comes from the line of Mehdi Hosseini from Susquehanna Financial Group. Please go ahead.
Mehdi Hosseini
Yes, thanks for squeezing me in. All the good questions have been asked. I just have a two follow up one for Christophe. Obviously we're all seeing the headlines with AI and everything and you have been highlighting how AI could drive incremental investment. But the way I see it, you're also constrained with increased concentration of customers, especially in leading logic and one customer is doing all the investment for the leading edge and that by itself drives more volatility in your bookings and backlog and even quarterly revenue.
And I'm not asking you to name that customer, but is that the right way of thinking about how AI is incremental, but it does limit your visibility and how to follow up?
Christophe Fouquet
Yeah, I don't think we need to mention the customer. Your point is clear, but I think we discussed that. I don't think there was any concern in terms of either visibility or in terms of sometime pricing power. That's a question we got a lot if we had only 1 customer. I think the only concern really when you have only one customer is are we going to be supply limited? Are we going to look at the market that is supply limited?
Because if you have one customer, well, the market will have the size of what that customer can deliver. So I think this was a bit our bigger concern. So I think that's a concern that most probably goes beyond ASML, right? That's what we discussed before, because it's great to get all those good news about AI infrastructure investment. But at some point of time you have to get the chips out.
And as we mentioned a few times already today, I think that the news in the last few months of mostly more customers being able to play in AI both for logic and DRAM, I think is a very interesting development for the entire market. And that applies also of course for us.
Mehdi Hosseini
Sure. And a follow up for Roger, how should I think about working capital intensity? Over the past several quarters, inventories have actually gone up, same with accounts receivable. As shipment strength improves, should I expect some improvement here with working capital and just overall cash from operations?
Roger Dassen
Yeah, I think working capital is going up, inventory is going up, to a large extent because of High-NA right with High-NA it takes quite some time before a system is being installed. As a result of that obviously that drives up the inventory level there. So I think that's a major element. The other element is down payments, right. So that's the other side of the equation. So to the extent that down payments kick in and that obviously is related to order intake. That's an important negative.
I would say those are probably the two most important elements in there. So when it comes to High-NA an important element there obviously is reducing cycle time that's a very important driver of driving down the working capital that is tied up in High-NA and that's something that we're very clearly working on. But of course there you need to have the volumes in order to make meaningful progress there.
So I think the working capital levels that you're currently looking at I think are sort of reasonable, I would say for the business that we have today, to the extent that we're able to drive down cycle time that I think is the single biggest driver of reducing working capital for us.
Mehdi Hosseini
All right, thank you.
Operator
Now on behalf of ASML, I would like to thank you all for joining us today. Operator, if you could formally conclude the call, I would appreciate it. Thank you.
Thank you. This concludes the ASML 2025 third quarter financial results conference call. Thank you for participating. You may now disconnect.
Details at ASML Holding IR
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