The US earnings season kicks off again! Will performance exceed expectations?
阿斯麥2025Q3業績直播
Key Takeaways (AI-Generated)
Financial Performance
- Q3 2025 total net sales €7.5 billion within guidance, net system sales €5.6 billion
- Gross margin 51.6%, net income €2.1 billion (28.3% of sales), EPS €5.49
- Q3 net system bookings €5.4 billion (€3.6B EUV, €1.8B non-EUV)
- Cash €5.1 billion, purchased €148 million shares in Q3
Business Highlights
- Reappointed Roger Dassen, Frederick Schneider Monori to Board, appointed Marco Peters as CTO
- Shipped first 3D integration product XT 260C with 4x productivity improvement
- High NA system progress: 300,000+ wafers run, SK Hynix receiving first system
- Strategic partnership with Mistral AI, €13 million investment for 11% stake
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 ~52%
- 2026 total net sales not below 2025 levels, EUV up, DUV down
- 2030 revenue opportunity €44-60 billion with 56-60% gross margin
Opportunities
- Broadening customer base in AI applications for logic and DRAM markets
- High NA EUV technology maturation ahead of schedule for advanced nodes
- 3D integration products addressing customer roadmap needs with productivity gains
- Mistral AI collaboration embedding AI across portfolio for performance improvements
Risks
- China customer demand expected to decline significantly in 2026
- Working capital intensity increasing from high NA inventory buildup and longer cycles
Full Transcript (AI-Generated)
Operator
Good day and thank you for standing by. Welcome to the ASML 2025 Third Quarter Financial Results Conference Call on October 15th, 2025. At this time, all participants are in a listen only mode. After the speaker's introduction, there'll be a question and answer session. To ask a question during the session, you will need to press *1 and one on your telephone. You will then hear an automated message advising your hand is raised. To enjoy your question, please press *1 and one again. Please be advised that today's conference is being recorded.
I would now like to turn the conference call over to Mr. Jim Kavanaugh. Please go ahead.
Jim Kavanaugh
Thank you, operator. Welcome, everyone. This is Jim Kavanaugh, Head of Investor Relations at ASML. Joining me today at the call are ASML CEO, Christophe Bouquet and CFO, Roger Dassen. The subject of today's call is ASML's 2025 third quarter results. The length of this call will be 60 minutes and questions will be taken in the order that they were received. This call is also being broadcast live over the Internet at www.asml.com. A transcript of management's opening remarks and a replay of the call will be available on our website shortly following the conclusion of this call.
Before we begin, I would like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the Safe Harbor statement contained in today's press release and presentation found on our website at www.asml.com and in ASML's annual report on Form 20F and other documents as filed with the Securities and Exchange Commission.
With that, I would like to turn the call over to Christophe for a brief introduction.
Christophe Bouquet
Thank you, Jim. Welcome, everyone, and thank you for joining us for our third quarter 2025 results conference call. Let me start by saying how pleased I am with the recent announcement of the reappointment of both Roger Dassen and Frederick Schneider Monori 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 will 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.
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 customers. 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%, while memory accounts for the remaining 47% of systems.
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 1.6 euros 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 28, 2025, ASML has acquired 9 million of 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 2022-2025 timeframe. 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 Bouquet
Thank you, Roger. As Roger has highlighted, we finished the third quarter with good financial results. Looking now to the market, there's been a 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 DUV 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 DUV 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 announcements 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 technology 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 customer. 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 development.
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 260C. The XT 260C is an i-line scanner designed for applications that include advanced packaging and offer 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 260C is the first example of several opportunities we are evaluating. With the XT 260C, 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 asked 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 pioneering company in generative artificial intelligence with a strong business to business focus and widely recognized for its leadership in large language models that assist in areas such as software coding development. As ASML is 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 €13 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 Bouquet
Thank you, Roger. Looking longer term, as we shared in our capital markets 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 technology reduction and the conversion of more multi patterning layers to single EUV exposure, especially on DRAM advanced nodes.
In line with our 2024 capital markets 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.
Jim Kavanaugh
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 1 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?
Operator
Thank you. As a reminder, to ask a question, you will need to press *1 and one on your telephone and wait for your name to be announced. To withdraw your question, please press *1 and one again. We will now take the first question. And your first question today comes from the line of Francois Bouvinier from UBS. Please go ahead.
Francois Bouvinier
Thank you very much. My first question is on this, what you said Christophe that you saw positive news in the last months that helped you reduce uncertainty and I was wondering, you know, can you elaborate on this because obviously you get this 5 billion in orders which is helping, but I guess just one quarter of orders doesn't give you, you know 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 like more numbers around all of that and all the layers. So just trying to understand what changed versus last month or you just rely on positive news out there and you try to extrapolate just trying to understand this dynamic. Thank you.
Christophe Bouquet
Yeah, Francois, I think first, you know, I refer to a lot of positive news on the AI infrastructure and I think, you know, 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 backlog 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, you know, in order to respond to this huge demand of good news, this huge amount of good news on AI infrastructure, you need to make sure so 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 you know, the next few years is still difficult to say. I think as I said before, only part of that will be effective next year and for the rest, I think it's far too early to say on our side.
Francois Bouvinier
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 orders too. I would imagine three to six months lead times because it's DUV. So I, I would expect you not to see much beyond Q1 26. So is it, is it some conservatism because you see the strong base and maybe a soft Q1 26 or you really do you have, do you have the full picture already on 26 How it's how it's looking?
Christophe Bouquet
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 try to provide you a bit of view of the market. I think on China, we have been very consistent that we thought that, you know the level of business in the last 2-3 years was very high and in a way abnormal. So I think we have been experiencing a very high cycle in China, especially through you know, 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 Bouvinier
Thank you very much for your answers.
Christophe Bouquet
You're welcome.
Operator
Thank you. Your next question comes from the line of Krish Sankar from TD Cowan. Please go ahead.
Krish Sankar
Yeah, thanks for taking my question. I told them, Roger, you got to mention about the recent AI investment strength. Some of that will come in 2026. I'm kind of curious giving you 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, interesting question. I think we're, you know, we said what we said on 26th, I think. It's way too early to make any comments on 27. I think you will see that. You know, orders came in strongly in the last, 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. I think we've had a healthy run from the past 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 you know the news flow that you got in the past in the past couple of months, I think is a positive news flow and is a positive news flow particularly in the medium term. Now translate that into concrete expectations for 27 is really, you know, quite a bit. Too early.
Krish Sankar
Fair enough, fair enough. And then the question, 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^2 from 6F^2 for DRAM architecture, that's actually negative for EUV, the EUV layer count comes down. Can you just help us understand that, Christophe? Thank you.
Christophe Bouquet
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 to 4F square, we, we do not expect the number of layers to drop. In fact as 4F square 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, you know 4F square has a bit of a more complex structure. So it's in fact adding overall more litho masks, more advanced litho masks.
So there is a benefit also to some extent to advanced DUV. So in any case, you still doubt about it, 4F square is in no way a negative for ASML. We are looking forward to it. So thanks for that question.
Krish Sankar
So 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 slanted or equally balanced with logic and then same for you know more customers benefiting from AI infrastructure build out. Is that more of a comment?
Roger Dassen
Joe? Sorry, Joe. I think it's related to both markets actually. So last quarter we talked about we talked about uncertainties. I think the uncertainties and Christophe went into. The positive flow that has happened thereafter one element of the uncertainty 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, you know, 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, you know, to the commentary that we now make on 26th. But I would say in general, when we talk about the positive, 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 as a follow up, I was wondering if you could maybe just walk through some of the puts and takes on your gross margin guide. I think you know what you're guiding for for the December quarter is a bit better than what you're implying for the full year. Is that, you know, is that something related to tariffs or mix or something else?
Roger Dassen
So it's, it's well, obviously volume is, is quite high, right. So that, that is a positive moving from Q3 to Q4. Mix has many elements to it. It's, it's of course we, we well, we expect 2 EXE 5s in this in this quarter in Q4. So that is a negative. But on the other hand, we will also have a good, good low NA in there. We're a bit positive on upgrade business as you could see, right, because that business is a little bit up.
And if you take it all in all we see, you know a slight improvement at the midpoint in comparison to what we had in last quarter. So those are the dynamics I would say you know, the fairly small movements, but all in all, you know, leading at the midpoint to a slightly better gross margin than maybe we thought we were going to beat.
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
Yes, thank you for taking my question and good afternoon. My first question is about things that you talked about a little bit before, but 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 the letter of intent of $900 billion with a certain amount 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 get to, to satisfy that potential demand?
Christophe Bouquet
Well, I think I get into the calculation because I think we said it already a couple of times. I think we're a bit careful. Always how the big announcements can translate into real capacity and need 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 the very important news in that matter because whatever you do is 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, you know, we, 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 mostly 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, to follow the demand. So I would say we, 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 billions of orders in Q4, you know give or take, that would imply you exit calendar year 25 with a backlog just about 30 billion. Even if you strip out the high NA tools in their expectations and call it 1 1/2 two billion, that makes me comfortably above, you know, let's say modest growth for next year. So is there a large portion of the current backlog which has got maturities beyond 26? Is that 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
I mean, of course that's the big question, right. The big question is what is, what is in the backlog that pertains to beyond 26 And that is a, that is a reasonable number. So as a result of that, you know, your, 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 26th?
But to your point, there is already a healthy order, you know order intake in the backlog that is beyond 26. Also, as it relates to high NA, I think the high NA contingent in there is actually pretty, pretty strong.
Didier Scemama
Would you say how many you expect to recognize next year? High NA No.
Roger Dassen
Yeah. That's that's a January topic.
Didier Scemama
That's right. Thank you, gentlemen.
Roger Dassen
You're welcome.
Operator
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, in a slightly different angle and see if I have any more luck. The you've highlighted the news flow, Christophe. You know, 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 sort of you spend a lot of time talking about how that you could create a theoretical, you know, backlog for you not yet orders. But I'm just wondering you, you are a critical supplier into this market. You have the potential to be a backlog 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 of where you said or perhaps your, your customers, you know, how, 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 Bouquet
Well, so first, I think we wish we, 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, no one has that. So I think that you know the experience of sort of 2022 has mostly taught us a lesson to be ready and 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 define exactly, I mean 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 you know, 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, well, our customers at the end of the day tell us what they need. And I think that's a constant dialogue, dialogue we, we try to always reflect with you on a quarterly basis. And I think we continue to, to do that. So we, we are prepared. I think we stress a few times we were preparing for growth. And you know, this was also in light of some of this activity we have seen. And you know, come January, we will be mostly knowing even more about what's happened then and and then we'll continue to to monitor the market. But I think we are, I will stay a lot more prepared than we were a few years ago.
Roger Dassen
And I think Christophe, that is exactly right. We, we are very well prepared, particularly, you know, 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 that you need to have a dialogue with your customers that gives you a timely heads up, right. So because you know, of course, 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, you know, within the long term infrastructure that we have, we're also able to get to higher output levels and and and you know, 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 your customers are giving you that that heads up, right? Is there a sufficient acknowledgement through the chain?
Christophe Bouquet
I think they do their very best. I will say this way because they 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, the transparency and the honesty around those discussions because all the time that's very helpful, also helpful in trying to, to really avoid the bigger surprises. So I, I feel that this, this discussion really has improved in the last few years. And I, I think this is, this is very helpful for them, for us, but also for their customers.
Andrew Gardiner
That's great. Thank you very much, guys.
Christophe Bouquet
You're welcome.
Operator
Thank you. Your next question comes from the line of Tammy Qiu from Berenberg. Please go ahead.
Tammy Qiu
Thank you for taking my question. So first one is the high NA kind of order. And demand ramp up curve. So as I'm understanding there. There hasn't been high NA orders for about 2-ish two plus quarters now. So on the plan that you're working on your backlog, but does that mean if orders only coming in from end of next year, then you may actually have a, let's say 2020 somewhere like 2027 or 28 few quarters of or a year of 0 high NA revenue. So the ramp up curve of revenue of high NA is going to be quite lumpy. Is that correct?
Christophe Bouquet
Well, I, I think so you first you, you summarize the, the situation pretty well. So we, we are indeed working on high NA out of the, the pretty healthy backlog. We, we have I think explaining 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, 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, you know, we do more than just waiting for orders with our customers. So, you know, it's not like nothing is going to happen or so in the next 18 months in terms of assessing the progress and therefore, so assessing the likelihood of, you know, the type of insertion we're going to look at.
So you know as we did, you know we just talked about the way we were preparing for growth on the EUV in the last year two 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 you know orders, so you look yes, towards end of next year and in terms of shipments you look at 28 and beyond.
Tammy Qiu
OK, thank you. That's right clear. And second question, Second question is on China. So you mentioned that China revenue would be down significantly. Yeah, yeah, in 2026 and also that's because of demand. I'm wondering that's 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 we don't actually currently seeing Chinese market further weaken from where we are today. So I wonder what's the reason for that comment to be weaker significantly next year?
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, 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 at that stage goes around 20% of the backlog. So that, that's what we 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 that's still in the but, 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, you know that the Chinese market is a very specific one, right? It's, it's, it's focused on mainstream logic as as we call it and simply given the dynamics of that market. It is our assessment that you know, that the sales level that we currently see this year is very high in comparison to what we what we would think is a normalized level for that, for the for the, for the mainstream market.
So that's the reason why you know why we've why we've indicated this assumption of a 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, you know, we've seen that this year that is the change 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, in, in, in 26, it is as we as we communicated.
Tammy Qiu
OK, thank you.
Roger Dassen
You're welcome.
Operator
Thank you. Your next question comes from the line of Stefan Slowinski from Oddo BHF. Please go ahead.
Stefan Slowinski
Yes, good afternoon everyone. Actually I've got two questions. The first one is on the advanced packaging product that you're highlighting in your in your presentation the XT260C, 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 and the market outlook if you have a few information and I have another one.
Christophe Bouquet
Yeah, so let me give you a bit of context. So I think we, we, we, we, we mentioned that product in our press release also in the in, in the call, not necessarily because you know 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 overtime litho scaling has slowed down and that created 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 overtime accuracy. And I will say some of the technology we have been developing for our litho all for EUV. So this is a bit the starting point. I think we also mentioned mostly we'll be looking at at some more products there.
I think what's very interesting is, is the interest we see from our customers on this product, you know it's an i-line scanner to answer your technology. 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 enable us to provide 4X improvement on productivity competition are basically the people who do i-line scanners. So I think you 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 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 down historically on i-line.
Stefan Slowinski
OK. And the follow up would be about the gross margin in 2026. I know you're not giving guidance and you, you will say more in January, but given what you have described, IE less China, more EUV, but also at the same time more EUV high NA what, what can we expect some, some increase in the gross margin next year?
Roger Dassen
Stefan indeed, I, I will give, we will give more clarity on that obviously in, in, in January. But I think you're right, a product mix obviously is very in, in, in what in what drives it. And and then as you know, what we ship to China today to a very large extent is immersion. Immersion comes with, you know, a very good, a very good gross margin. So less China business would be dilutive on that front. But you're right, EUV comes in with with very strong gross margin. So therefore, if we predicted 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, for high NA, which of course is still dilutive to the overall gross.
So I think that's an important one. And the other one is our expectation on, on the installed base business. You know that particularly the upgrade business is, is pretty important when it comes to to to gross margin. So it's all those moving parts exactly where they land that will eventually, you know determine what their expectation is. But those are those are indeed the moving parts product mix and it's the expectation on the composition of the installed base business, which you know first and foremost is going to is going to drive that perspective.
Stefan Slowinski
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
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 feel well that's first over the installed base for this year, right, So I think. See that our recommendation for the installed base this year has actually gone up a bit. If you look at what we guide for, for, you know, for for Q4, because originally we thought that the first half was going to be, you know, quite a bit stronger than the second-half. And now that that's that second-half is as strong as the first half, what you see there is that actually the service business is is developing quite nicely.
And so while we might have had a bit more upgrade business in the first half that the second of the second-half is really benefiting from from from the service business. As you know, the service business is is very much tied to the development of the installed. Based on EUV, right. And with the increase in in the install based on EUV, of course that also. So you know, it drives closer drives of 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, for next year. And then the question indeed is how sustainable is the, is the upgrade business so clearly didn't fall off a cliff in the second-half of this of this year? And we'll give you an update in January. What, what what the for 26
Chris Caso
that's helpful. Thank you. Just as a follow up and, and, and maybe summarizing some of the earlier comments about, you know, some of the more optimism as optimism you had with with regard to some of the AI developments. I mean, it's safe to say that the, the bookings, you know, total bookings haven't, haven't really increased here. Is, is this more a function of, you know, your customers are telling you based on some of these developments, there's sort of an expectation for, you know, stronger bookings in coming quarters because of the capacity needed to, to provide that as compared to, you know what, what's in the backlog right now. I, I guess this is an indicator of, of potentially stronger bookings if, if this comes to fruition.
Roger Dassen
Yeah. And I think Chris that that is indeed the way to look at it. You know, our view on bookings, right? The, the bookings we always say is not necessarily a good, a good proxy of the business momentum. I think that bookings that we had in this quarter are actually pretty decent as they were pretty decent in the in the in the previous quarter without being down wide spectacular, but pretty, 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, so most of this, so the AI investments, the fact that that multiple customers of us are benefiting from AI, while, you know, in the past, we always said it's, it's only a limited number of customers that are benefiting from 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 you know, all of that I would say is good stuff, not just 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, you know 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 there in the long term.
Chris Caso
Thank you.
Roger Dassen
You're welcome.
Operator
Thank you. Your next question comes from the line of Tim Schulze-Melander from Rothschild and Co, Redburn. Please go ahead.
Tim Schulze-Melander
Yeah, hi, thanks for taking my questions. Maybe to begin with because stuff on the high NA technology maturity, could you maybe just talk a little bit about on, on what measures high NA is kind of ahead of .33 at a similar point in time? And then just thinking out to sort of 2028 and that journey are you, are you kind of halfway there 3/4 of the way there? And then add a quick follow up for Roger.
Christophe Bouquet
Well, I think it's a good question. So typically when we we look at the, the maturity of the system, I see there, 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, sorry, 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 #1 and point #2 is you know the availability of the tool, you know how much, what percentage of the time the tool can be used to run wafers.
And I think there are a 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 of maturity on the low NA EUV. 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, you know, today to final maturity is just a platform itself. And there, you know, our experience is that, you know, most probably in 12 months, 18 months from now, we will be in a very good shape. So there's no showstopper in the way we look at it today when it comes to maturity of the tool. There's 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 reason 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 they see and that's also their logic there.
Tim Schulze-Melander
Great, Very, 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 you know, 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, and these 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 capability both in the factory and also in the field for high NA. But that's, you know that that total cost base is only absorbed by a very limited number of tools. So it's volume that is ultimately going to drive of the the gross margin. So you know, as 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, you know you will see the gross margin profiles improving.
I did say the capital markets day that even by 2030 I still expect high NA to be margin dilutive, right, because because it takes quite a, quite a long time, you know, before you get on the maturity curve and before you get. Before you get significant volume for this to to to meaningfully contribute. But but at that time frame, once you get meaningful numbers at that stage that. Nature of it will be will be limited in terms of we.
Tim Schulze-Melander
What was that, sorry, just a bit, but was it, was it profitable at the gross margin level in the quarter or is it still loss making please?
Roger Dassen
You mean high NA yes, high is is very low margins, it's very low margins. But but you're talking you're talking you know you're talking very low positive margins. That's what you're looking at in terms of operating, operating expenses. R and D I would say we still have a formidable roadmap ahead of us. So in, in in spite of the fact that we have high NA up and running, you, you, you hear us. If you look at the roadmap, if you look at the significant breakthroughs that we, we, we think we can still push in terms of in terms of low NA, in terms of productivity of those tools in terms of imaging quality there.
But also the the progress that we continue to make on, on some of the the DUV tools that we talked about, we still have a pretty formidable roadmap. I would say however, that that we are in, 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 and A and our R&D quite nicely because we do feel that out of the formidable team that we have here at ASML in our R&D department, you know we we can get even more value and and efficiency there.
So I think he will see us here. Navigate those numbers quite quite diligently and keep the keep the increases. Quite controlled,
Tim Schulze-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. May, 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 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 Bouquet
So maybe on the first question, I think nothing really new there compared to the last few quarters. I think on the on logic, we spend a few time, you know, the, the gate all around transition is happening without an increase on the number of EUV layers just because customers typically do first the transition of change before they, they, they, they, they start shrinking more aggressively again, which we still expect to happen at A14-A18. So I think very consistent there in, in the previous view, I think in DRAM we talked about 4F square already today.
We've got since you know, the capital markets day last year, we, we've got a lot of confirmation that indeed DRAM could get more aggressive in terms of EUV adoption for 6F square, 4F square as well as I mentioned. So there I would say the the trajectory is, is very strong towards more use of advanced. So moving forward. Now the second question is a 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, you know, 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 that. The next advanced logic node makes sense. I think that those nodes, those doubts have gone away quite a bit. And I think that the the 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 also trend to continue. We have not seen yet a real acceleration per se, but you know we're we mentioned again the larger customer base for those products. And as you know, so 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, 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.
Jim Kavanaugh
OK, we have time for one last question. If you were unable to get through on this call and still have questions, please feel free to contact ASML Investor Relations with your question now. Operator, can we have the last caller please?
Operator
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 had a 2 follow up one for Christophe. Obviously we're all seeing the headline 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 learning logic and. 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 Bouquet
Yeah, I don't think we need to mention the 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 you know sometime pricing power. That's the 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, you know the market will have the size of what that market 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 you know, as we mentioned a few times already today, I think that the 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's 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 the some improvement here with working capital and just overall cash from operation?
Roger Dassen
Yeah, I think working capital is going up, inventory is going up, you know, to a large extent because of high NA, right. Well, with high NA it's it takes quite quite some time before a system is being is being installed as a result of that obviously that that that drives up the that drives up the the inventory level there. So I think that's a major element. The other element is, is down payments, right. So that that's the other side of the equation. So to the extent that down payments kick in and that obviously. Related to order intake, that's that's an important that's important.
I would say those are probably. The two most important elements in there. So when it comes to high NA. An important element in there obviously is reduced is reducing cycle time that that's a very important. Driver of driving down the the, the working capital that is tied up in in high 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 it to make it to make meaningful progress progress there. So I think the working capital levels that you're currently looking at I think are are sort of reasonable, I would say for the business that we have and 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 the of the reducing working capital for us.
Mehdi Hosseini
All right, thank you.
Jim Kavanaugh
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.
Operator
Thank you. This concludes the ASML 2025 third quarter financial results conference call. Thank you for participating. You may now disconnect.
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