ASML Holding NV (ASML.US) held its FY26Q2 earnings conference call. The company reported Q2 total net sales of EUR 9.3 billion, exceeding the high end of its guidance primarily due to higher-than-expected installed base management sales. System net sales were EUR 6.6 billion, comprising EUR 3.8 billion from EUV (including one High NA system) and EUR 2.8 billion from non-EUV tools, with a nearly even split between logic and memory customers at 51%/49%. Installed base management sales reached EUR 2.8 billion, surpassing guidance by approximately EUR 300 million, driven by upgrade business. The gross margin was 54%, above guidance, benefiting from the contribution of high-margin components. Net profit was EUR 2.9 billion, with a net margin of 31.3% and EPS of EUR 7.59. R&D expenses were EUR 1.3 billion and SG&A expenses were around EUR 300 million, with costs exceeding guidance due to the recognition of estimated costs for technology and IT transformation, mainly in R&D. The effective tax rate for Q2 was 17.5%, with a full-year expectation of around 17%.
For Q3, the company expects total net sales of EUR 11.0 to 12.0 billion, with a gross margin of 55% to 57%. Q3 installed base management sales are projected at approximately EUR 2.9 billion, with R&D expenses around EUR 1.2 billion and SG&A expenses about EUR 400 million. Driven by robust demand, the company has raised its full-year outlook. The 2026 full-year total net sales forecast is now EUR 43.0 to 45.0 billion, with a gross margin of 54% to 56%.
Management Insights on Guidance and Market Dynamics
Management stated that the upward revision in guidance is driven by continued strong customer demand combined with the company's enhanced output capabilities across the supply chain, manufacturing, and field installation teams. Multiple customers have increased their full-year capital expenditure plans, and ASML's ability to ramp production allows it to meet additional demand for extra lithography systems. The dynamics in the logic and DRAM segments are highly similar, with equally aggressive capacity expansion plans. Customers in both segments are entering long-term agreements with their own customers, providing greater visibility and confidence to commit to significant additional capacity.
Question and Answer Session Highlights
On the topic of High NA system value and potential Low NA pricing adjustments, management emphasized that each new generation of lithography system, including High NA, is designed with a strong focus on reducing patterning cost. The single-exposure design and performance of High NA tools offer cost advantages, but achieving this requires the platform to reach the right maturity level. The company is currently bringing the High NA platform to a maturity comparable to Low NA. Once achieved, High NA will provide cost advantages over existing technologies. This logic historically applied to Low NA as well. The key to making High NA cost-effective and superior to Low NA with multiple patterning is achieving the correct maturity, with recent news from Intel being a strong signal of progress. Regarding Low NA pricing, ASML continues to improve tool productivity, which provides significant room for potential future price increases. The company follows a value-based pricing model, and the higher value delivered to customers in the current environment offers greater pricing flexibility than in the past, though this does not translate into immediate price impacts due to long order lead times.
On capacity expansion plans, management clarified that the studied 30% increase in output by 2028, corresponding to 110 tools, is based on optimizing existing cleanroom footprint without requiring new cleanroom space. Efforts over the past 6-9 months have successfully increased output, and this approach will continue. The cited figures for 2027 and 2028 represent the current supply-demand balance. If customer demand significantly exceeds recent levels, the company would reassess the entire supply chain. The 30% unit growth figure is accompanied by productivity gains, meaning the actual increase in wafer capacity output is closer to 45%, further augmented by a comprehensive suite of upgrades for the installed base.
Regarding product mix and margins, management noted that the D-model EUV systems are nearing the end of their production cycle, with manufacturing expected to conclude this year. Consequently, next year's EUV mix will shift towards E and some F models, which carry higher average selling prices (ASPs) and productivity, leading to a more favorable gross margin structure for EUV in 2027 compared to 2026. The company expects a stronger second half in 2026, driven by a more favorable product mix (more immersion and Low NA EUV), better EUV pricing, strong installed base business, and positive fixed cost absorption from higher production volumes, pushing H2 gross margins towards approximately 56%.
On pricing flexibility and value capture, management reiterated that in the current environment of high demand for the value ASML provides, there is potential to capture a greater share of that value, leading to improved pricing power over time. This includes value from throughput improvements, overlay, and imaging enhancements. Historically, throughput gains have been strongly correlated with ASP increases as customers pay for productivity upgrades, while other improvements are provided. The current dynamics allow for discussions with customers on receiving returns for additional value delivered.
Concerning installed base upgrade opportunities, management highlighted that the urgent need for customers to gain more capacity within existing fab constraints creates a very strong environment for system upgrades, which is expected to persist. The company has developed upgrade products for various versions of EUV Low NA and immersion systems, with high customer acceptance and even requests for acceleration and new products planned for 2027/2028.
On the High NA customer base, both logic and DRAM segments are seen as strong candidates, with qualification progress being comparable. While Intel, as an early adopter, is implementing it in production first, the opportunity in DRAM is also significant due to its volume. The transition is driven by both segments increasingly moving towards multiple patterning/Low NA over time.
Regarding the timeline for new capacity to become available for shipments, management described it as a combined effort involving freeing up cabin space dedicated to output, shortening cycle times internally, and collaborating with the supply chain. The discussed 30% annual increases are a proxy for the ongoing move rate improvements, achieved quarter by quarter.
On the transition from E to F models and customer choice between upgrading existing platforms or purchasing new F systems, management stated the current answer is "both." Customers want the fastest tools (driving the rapid transition to the 3800/F platform) and also want to upgrade existing systems for nodes they are currently running. The F model is targeted for the 1.4nm node due to timing alignment but is also an option for 2nm capacity needs.
For 2026, the confirmed number of High NA EUV systems remains 4 to 5 units.
On operating leverage, while not providing quantitative guidance, management affirmed that OpEx (SG&A and R&D) is being managed well. With the existing R&D team and recent restructuring, the company believes it can extract more value, implying improving operating leverage in future quarters and years without the need for significant headcount increases as in the past.
Finally, on manufacturing footprint and optical component fungibility, management clarified that the capacity increases discussed are planned within existing facilities. While a new campus will break ground this year, it is for post-2028 needs and not required to meet the shared numbers. Regarding component commonality, there is no fungibility between High NA and Low NA optical components (manufactured by ZEISS), as they require completely different manufacturing tools, so High NA tools cannot be used to increase Low NA output.