Eric Meurice - Chairman, President & CEO Peter Wennink - EVP & CFO. Craig DeYoung - VP of IR

Antoine Badel - Credit Suisse Thomas Brenier - Société Générale Nicolas Gaudois - Deutsche Bank Jay Deahna - JP Morgan Chase & Co. Titus Menzies - Jefferies & Company Aiello - Lehman Brothers Jonathan Dutton - UBS Securities Simon Schafer - Goldman Sachs Andrew Griffin - Merrill Lynch Robert Maire - Needham & Company Mehdi Hosseini - Friedman, Billings, Ramsey Mark Fitzgerald - Banc of America Securities

Ladies and gentlemen, thank you for standing by and welcome to the ASML 2006 Fourth Quarter and Annual Results Conference Call on January 17, 2007. Throughout today's introduction, all participants will be in a listen-only mode. After ASML's introduction, there will be an opportunity to ask questions. (Operator Instructions). I would now like to turn the conference over to Mr. Craig DeYoung. Go ahead please, sir.

Thank you, operator. Good afternoon and good morning, ladies and gentlemen. This is Craig DeYoung, Head of Investor Relations at ASML, and I would like to welcome you to our investor call and webcast. The subject of today's call is, of course, ASML's 2006 fourth quarter and annual results conference. Hosting this call today, I have Mr. Eric Meurice, ASML's CEO and he is joined by our CFO, Peter Wennink. I would like to draw your attention to the Safe Harbor statement contained in both our press release and presentation, and we will be applying that Safe Harbor to today's call. You can find the press release and the accompanying presentation on our website at www.asml.com. The length of the call will be 60 minutes, and at this point I would like to turn it over to Eric.

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Thank you very much, Craig, and good afternoon and good morning. Thank you for attending our conference call. We would be dividing the introduction to this call in two parts. The starting feature will start with a review of our 2006 performance, with added comments on our outlook for 2007. I will then try to beat Peter's positive picture with my introduction on longer-term growth trajectory. Following the introduction we will open up for questions. So, Peter.

Thanks. Thank you, Eric. Welcome to everyone on the phone. First of all, I would like to review our Q4 results highlights, and in that regard, I am really happy to report that of course our 2006 results are the best ever. In reviewing our results in detail, you have seen that we reported records for revenues, operating margins and for the net profit. Q4 revenues showed a record of over EUR 1 billion, and contributed significantly to the 42% growth for the total year. Our operating costs only grew 13%, which was completely driven by increased R&D spending and this has resulted in an operating margin on the year of 24.2%, which is an increase of 6.4 percentage points over 2005, and that all has resulted in a net income of 17.4%. Those are very good numbers and we believe that next to the favorable industry conditions of last year, our 2006 results were significantly influenced by the following three drivers. Now first, there is our continued market share growth. This has been clear result of our relentless R&D spending, focusing on time to market of new technology and on increasing our product value of ownership. Secondly, we've been focusing on cost reductions and cost containment for several years now. And I believe the result is clearly showing in the improved gross margin and in the level of selling, general and administrative costs that keep decreasing as a percentage of our sales and is currently running lower than 6%. Now, I would add to that lastly that return on invested capital has been our major performance yardstick and our cash cycle days on the inventories have improved from 188 days at the end of 2005 to 111 days at the end of last year. If you combine that with our improved profitability, we believe that the company is currently comparing very favorably on this metric against many of our industry peers. 2006 was also the year in which we started our first ever share buyback program. We succeeded in buying back 8.3% of our outstanding share capital. And since we feel confident in our ability to keep generating solid profitability and accompanying cash flows, we will use this instrument of the buybacks also going forward to return money to our shareholders, which brings me to the outlook for 2007. Industry analysts predict [IC unit growth] for semiconductor industry at approximately 10% in 2007, as well as up to 5% growth for the equipment sales. Our own analysis shows also potential for growth in multiple segments of our market, and the implementation of immersion into the production by major Flash makers in 2007 will also fuel our growth in both market shares and in top line revenues. All this on top of a record backlog values of over EUR 2.1 billion. That leads us to conclude that 2007 will be a growth year for ASML. And with regards to bookings, our track record of the last three quarters is as -- has proven some difficulty in providing accurate bookings guidance for Q1 of 2007. There is a certain level of uncertainty about the timing of orders for few large customers, which is having a big impact on calling the quarterly bookings. Many customers are making complex technology and product transitions for Q3 and Q4 shipments, which will lead to orders entries in Q1 or in Q2. Under these circumstances, we prefer not to speculate and that's why we are not specifically guiding for Q1. I can just confirm like we said in our press release, that our order book for Q1 will be healthy and we will be supporting our 2007 growth expectations. That's as far as I would go for the outlook on 2007, and Eric, if you can take the remainder of introduction.

Thank you very much, Peter. As you can see, we feel optimistic about our mid-term horizon and I would like to focus now on the ASML longer-term growth trajectory which overlaps on the short-term positive picture that Peter described. As we have said on several occasions, we simulate regularly future lithography market needs based on integrated circuit unit market growth rates assumptions. If we take in assumption of about 9% IC unit growth, and this is a simulation assumption, which is average. And if we put this into our simulation model, we project a total lithography market of about EUR 7 billion by 2010, compared to approximately EUR 5.5 billion today. This overall market growth potential sustains a similar capability to reach its EUR 5 billion revenue target in the same timeframe. The following three factors contribute to achieving this potential growth. First, the lithography spent by our customer per, I would say, IC unit produced increases with the semiconductor technology roadmap. Obviously, the expected growth in IC unit in itself creates a need for lithography tool. But another driver is a shrink roadmap. This ever accelerating roadmaps create demand for more complex tools, which have a higher ASP and a higher value content like tighter overlay, [true tool] management, for instance, and with relative lower throughputs during the first year, thus generating a higher litho value purchase. Moreover, these additional nodes require more processing layers resulting in more litho passes, more usage of those machines. For instance, typical logic design which requires today 35 to 37 layers at the 65 nanometer node will require in the future up to 40 layers, that is more than 10% above today at the 45 nanometer node. Similar increases will occur for Flash and DRAM. These conditions combined are causing lithography system expenditures by our customer to increase the percentage of wafer fab equipment spent. Today that percentage is approaching 18%, so 18% of wafer fab equipment spent is litho tools. This number was 14%, 10 years ago. The trend will continue as -- to grow. Secondly, we expect to continue to gain market share. ASML's revenue market share stands at approximately 61% at the end of 2006 due to significant new customer wins in multiple product segments and multiple geographies. This represents an approximate increase of about 4 percentage points over 2005. As mentioned by Peter, we believe that we will continue growing market share. Indeed the semiconductor industry has recognized ASML's compelling value of ownership advantages through the TWINSCAN architecture. With over 500 TWINSCAN installed worldwide at the end of 2006, we expect that our accumulated experience, the cost of architecture switching at our customer and our high-end growing level of R&D investment will keep us in the lead. We are particularly confident in the all important emergent segment where ASML is enabling customer development of future processes beyond 55-nanometer node in a variety of applications. With over 76 ASML emergent systems in the market today, including 23 of XT:1700i shipped to 17 customer and with more than 300,000 wafers were stressed already on these immersion tools in the market. We are in a clear leadership position worldwide. Mid 2007, we will start shipping our XT:1900i system, and evolutionary improvement of the XT:1700 of today, that will -- this new tool will allow imaging below 40-nanometer node. For the technology afterwards, double patterning technology, for instance, ASML, we recently launched the XT:1450, high throughput, improved overlay, dry system for production application at sub-60 nanometer node and double patterning development activities at the 32-nanometer node. In the field of EUV which comes next the expected lithography technology for volume production beyond 2010, covering probably up to 10-nanometer node. ASML has shipped in 2006 two pilot EUV systems to IMEC and to Albany Nanotech' for early process development work and industry infrastructure development. We have already received orders from three firms, three IC manufacturers for preproduction EUV system, with first shipment starting in 2009. The third factor, which contributes to growth, mid-term growth is our increased strategic scope. As you know, ASML announced plans last month to acquire Brion take through pending regulatory approval. We see numerous opportunities, we are combining ASML and Brion with reinforced both companies as growth and value potential in advanced semiconductor lithography. Brion is a largest and fastest growing pure-play company in computational lithography. This encompasses IC design verification, Critical Enhancement Technology otherwise called CET, and Optical Proximity Correction otherwise called OPC. These markets are small today, but will grow exponentially as critical designs become more and more complex as it goes down more as low curve. Further, customer require increasingly advanced litho tools with capability to optimize the scanner settings for specific applications. The customer benefit is an ability to maximize yield. It will also help ASML to create competitive differentiation in both businesses, its current business, the litho tools and the new business from Brion, the RET, OPC tools. So in summary, the message is as follows, we will continue our focus on execution as we’ve done now for the past years to secure market leadership, while delivering high return on invested capital. Two, we are optimistic about 2007 in view of market growth in general and our own market share growth outlook. And three, this mid-term, short-term, mid-term outlook is strengthened by our overall long-term growth trajectory, which is strengthened by our offer of the most advanced technology inline with our customer roadmaps, and by our expanding of our scope in a market with new opportunities. Now I think Peter and I will take your questions.

Before we get the questions, let me just remind you ladies and gentlemen, that when asking a question please clearly identify yourself and your organization. We also kindly ask that you limit yourself to one question with one follow -- short follow-up, if necessary that will allow the maximum number of callers to get a question asked. So, operator, I think we are ready then for the first question.

Thank you, sir. (Operator Instructions). One moment please for the first question. Today's first question is from Mr. Antoine Badel. Go ahead please sir. Please state your company name followed by your question. Antoine Badel - Credit Suisse: Yes. Good afternoon. Credit Suisse. On the operational expense front, you’ve given us some guidance for Q1 that shows an acceleration of SG&A and R&D spending, could you may be give us a little bit more guidance in terms of structural spending levels for the rest of the year?

Yes. For the R&D spend -- the R&D spend for 2007, we have guided Q1 and is up. For the total year, the R&D spend could be up as compared to the spending of Q4 between 10% and 15%. On SG&A, we don’t expect a major increase as compared to the guidance we have given you on Q1. Antoine Badel - Credit Suisse: Thank you. And I have a follow-up, you’ve reported your six straight quarter of sequential backlog increase, which is one more than the last cycle in '03, '04. Should we expect Q1 to see the first downtick in the backlog or is there any chance that it can continue growing?

When we look at the backlog and the order situation of Q1, I think we were specifically clear in what we said in the introduction that we are focusing in 2007, specifically on growth driven by our estimates on what we think the industry will do. Our market share gains, the introduction of immersion and specifically the 1900 in the second half of the year that will lead to growth for 2007. And it's particularly difficult, like I said in the intro, to exactly time when those few big customers will place their orders, whether it's in Q1 or in Q2 or in Q3 and Q4 ramps. So, I don't really -- I would not know that. So I think the answer that I gave should basically cover this. Antoine Badel - Credit Suisse: Thank you.

The next question is from Mr. Thomas Brenier. Please state your company name followed by your question sir. Thomas Brenier - Société Générale: Yes. Good afternoon, it's Société Générale. Maybe just a follow-up on the question of Nicolas, I just wanted to see how different is your environment compared to where it was in October, have you seen any changes? I understand, really why you don't want to give guidance for bookings in Q1. But I was just wondering if there is any change in the visibility compared to what you have seen in Q3 and Q4, and if you could give us the details between what's going on in memory, IDMs, and foundries, it would be helpful? Thank you.

Yes. Thomas, thank you. Fundamentally, no big changes. We guided last quarter and that we were confident about the possibility of growth in 2007. Here we are confirming the growth. The body language is a bit more positive, more optimistic because of the realization of orders coming from the DRAM segment. At this moment, we see our flash business which is front loaded. We said that three months ago there's no change. We see DRAM business strong and stable in Q1, Q2, and Q3. We see a strong and sustained business of foundry at the end of Q1 and then Q2, Q3 and potentially Q4. We see a pretty spread IDM business around the whole year and for ASML, we obviously see development in the R&D built-up sector where customers of any segment built their new recipes for the 45-nanometer node and beyond, using the latest technologies of immersion. In other terms, second half of the year, they will need the new tool that ASML will introduce, which is called the XT:1900 and we are obviously bullish that this will create significant sales, significant revenue in the second of the year.

Okay. That's on factuals. But as you look at the backlog at the end of the year, 64% is memory, 15% -- 15 percentage points of the 64% is really only flash. So the remainder is DRAM, and what we call hybrid types. So that actually shows that we have seen strong DRAM bookings and if we run those DRAM bookings and the anticipated shipments for next year in our models, we cannot see that we are going to create a big order capacity in the DRAM space. So, that is one of the drivers, if you would say, changes, that’s a more factual information on the backlog. Thomas Brenier - Société Générale: As a follow up to this, for the DRAM space are you seeing the same kind of pattern you have seen in the past few quarters on NAND that corresponds -- the orders correspond mostly to new fabs or are you seeing also some upgrades to existing fab?

Both. Both, although really fairly balanced the way we see it. Thomas Brenier - Société Générale: Thank you very much.

Next question is from Mr. Nicolas Gaudois. Please state your company name followed by your question. Nicolas Gaudois - Deutsche Bank: Yes. Hi, I'm Nicolas Gaudois, Deutsche Bank. First question is effectively on how you would look at the timing of the introduction of your new tool in dry, the XT:1450 whereby you are expecting to release this tool by the middle of this year and in the second half of '07, we will see the microprocessor segment starting to use the old patterning dry for critical. So, I was just wondering if the timing is basically not an accident and we should see a strong acceptance of this tool for your microprocessor customers.

Because there are only two microprocessor customers in the market, Nicolas, you will understand why I am cautious in my responses. The double patterning activity at this moment that we see is probably more in the R&D lab and it is a bit difficult for us to call production. As much as we are very fairly gutsy in calling the immersion ramps, because we have now a certain numbers of official ramps, in fact, that are started already last year and progressing this year. Double patterning at this very moment is a bit more difficult for us to call in terms of production ramp. The 1450 by the way has two functions. One is double patterning. It's the only tool that allows this in view of its overlay capability. But it's also a fairly good tool to have in production of single patterning, and so you -- the second reason for us to be a bit confused is to -- the usage of it. Nicolas Gaudois - Deutsche Bank: Okay, fair enough. And just as a follow-up effectively. If I look at your combined logic and foundry backlog in value at the end of December, it seems to be about 10% below where we were in Q4, [outside] the peak of our prior cycle yet to gain market shares at TSMC in Japan, Intel and amongst others. Will it be fair to say that although we are closer to Korea, but may be over spending a bit on memory? On your side there may be some under spending or under bookings effectively on the logic and foundry side going into '07?

Well, yes, I think you are mentioning not so much value statements. You are talking about percentage of the backlog. So, it is true that we are seeing a temporary increase of memory percentage in the total business of, I would guess, every equipment manufacturer, memory is a bigger segment at this very moment. It has two factual reasons for that. One is, there is a renewal of DRAM needs due to Vista, at least probably 80% of the need is due to Vista. Although, we also see some DRAM needs in the consumer arena. So, clearly you've got a nice upside in DRAM, which has happened. And then, we talked about the Flash business, which is building up to some level of capacity before it matures, I would say. So these are the two short-term reasons why the memory business represents 60 to 65% of our backlog. We expect in the mid term, long term to be back to 50%. Nicolas Gaudois - Deutsche Bank: But my question was specifically on value of the backlog. If you look at the value of logic and foundry again combined, if you look back at your numbers in Q4, it was actually 10% higher to where we are at the end of Q4 '06, and that's seems a bit counterintuitive if you look at continuing spending trends in the non-memory sector, but obviously your own market share gain. So, trying to gauge if effectively the ways underpinning about some under spending (inaudible) in the non-memory segments at this point in time?

Honestly, I would have to be reviewing the statistics of last year to be very, very precise with you. But clearly today, the foundry business is adjusting their capacity and their inventory levels being richer in backlog. But the activity -- the bookings activity allows me to say to you that we expect good business of foundry at the end of Q1, Q2, Q3 and potentially Q4. So, yes, there is probably a timing issue which explains the difference compared to last year. We also clearly in foundry have one of those segments that requires units or products with the shortest lead time, which means the foundry indications is not so much backlog question, it is really a billings question. If I remember by memory, in last year I think 66% of our business of Q1 was turns within the quarter and a lot of this was foundry. So in other terms, backlog is a fairly bad indication of the foundry real need, because it will come on very short term basis. Nicolas Gaudois - Deutsche Bank: Okay, understood. Thank you very much.

Your next question is from Mr. Jay Deahna. Please state your company name followed by your question. Jay Deahna - JP Morgan Chase & Co.: Hi, good morning, good afternoon. This is Jay Deahna from JP Morgan. My first question is, do you expect to taking orders for more immersion systems in 1Q than you did in 4Q? I noticed your ASPs of orders were little lighter than I would have expected, which suggest that i-line and KrF were a higher percentage of the mix. So, will you book more immersion in 1Q versus 4Q? And then, the second question is gross margins. Where do you expect gross margins to trend throughout the year, but more importantly over the next several years as you get beyond the upfront investment in Japan and start ramping? Can we see gross margins in the 43, 44% range, two or three years out, something like that? Thank you.

Jay, two strategic question. Immersion, we cannot answer that. This is one of the reason why we didn't want to guide in precision Q1. The lumpiness of those decisions and exact timing and the choice between the 1700 and the 1900 are reason that says it's a bit difficult to call. Obviously, our daily life is as follows. We have got other customer who needs an immersion machine, and we want to wait and give the last moment before they take the decision between the 1700 and the 1900. So, this is why we cannot say what exactly is the immersion number -- bookings number in Q1. We are certainly optimistic to have significant run rate of those, however. Regarding gross margin, I confirm with you that the maturity -- the maturation of our lithography business in terms of market share, as well as the expansion of our scope towards the value added, that was quoted, software and service value added around the litho machine calls for an increased gross margin towards the level that you’ve just talked about. Jay Deahna - JP Morgan Chase & Co.: Okay, great. Thank you very much.

Next question is from Mr. Titus Menzies, Jefferies & Company. Go ahead please sir. Titus Menzies - Jefferies & Company: Good morning gentlemen. Eric and Peter, this is Titus from Jefferies. A quick question on the orders which you have for the first quarter. How much of that is from the fact that your capacity maxed out a moment and you are trying to work through an expansion strategy to turn more equipments through the quarter? And how much -- if we look into the quarter, how much we may be try and gauge for the turns business for the quarter as well?

Good question. We are getting out of capacity limitations. Obviously in our business there is always capacity limitation depending on which product you're talking about in view of the returned things. But at this moment I am happy to confirm that our capacity is above the EUR 1 billion. We've done more than 1.46 billion in Q4 and we've proven that we can go above and we are moving our capacity up and up and up every quarter. So, we're getting out of that, and that means we are available for turns. Yes, there is opportunity for turns and I did mention that we do expect some pressure by foundry, but I don’t think it is wide request at this moment. So, we are not planning for significant upside of billings in Q1. Titus Menzies - Jefferies & Company: Thanks. And I guess one more follow-up question. In terms with lead time stretching, is that a factor which has gauged the product mix to shift down to KrF and i-line as customers are unable to get hold of the more advanced tools in the timeframe which they are hoping for?

No. The lead time is stretching due to our little past capacity limitations, has resulted in me taking a whole bunch of kick in the butt, technically speaking. But we've been able to manage most of the customers' enthusiasm without losing business. As you know, this is an area where the switching costs are so important that you don’t just change because you don’t have it. So, we’ve been able to manage effectively that lead time stretching and now this lead time is, of course, reducing and allowing in fact as I just said today, customers in particular in the foundry sector to be very short in their booking. And Peter has --

Yes, I am going to add something to that. As you can -- mentioned in the presentation, we have indicated that two-thirds of the backlog at the end of the year is shippable over the next six months. That one-third that is shippable in Q2 really relates to the new technology with long lead time, so that is a lead time stretch you could say that and it has to do with new fabs in -- which are going to be starting up in Q3, which basically I want to secure their first [likes]. So, I don’t think, just like Eric said, that we really see a lead time stretch, that the effect that we have now a percentage more for Q3 that’s outside the six months win that was really got to do with the new technology and the new fab projects which are specifically DRAM customers. Titus Menzies - Jefferies & Company: Clear. I guess this says -- I am saying carefully. That means the current environment suggests that we are looking at capacity of purchase coming through, rather than just technology purchase coming through?

No, we are going to have both. As we said -- or I responded to Jay, there is some discussions at the customers level about which is the optimum mix of machine for the ramp of immersion and 45-nano, etcetera, and this usually is something that they -- well, they optimize until the last moment to detect so many of this machines, so many of that, so many ArF, so many KrF, etcetera. So you’ve got all that playing, without saying, hey, guys you need to take decisions soon and fast, because you are going to loose your slots, and that’s what's happening at this moment and that's why [hedge too]. Titus Menzies - Jefferies & Company: Thank you gentlemen, and congratulations on a wonderful quarter.

Thank you.

We will move to the next question please. sorry.

Next question is from [Mr. Aiello]. Please state your company name by your question. Aiello - Lehman Brothers: Good afternoon. Aiello from Lehman Brothers. Just looking at your implied order intake by customer traffic and is it fair to assume that when your foundry orders return meaningfully, that they would come in and would be mature enough to offset the expected decline in flash orders in the second half since your DRAM segments continue to be strong?

Yes. We expect, in fact, a combination of good news for [hedge too], which is a combination of foundry, the IDM, and what we call technology buys. Technology buys goes to foundry, IDM and also memory, and that would offset any potential reduction of flash demand which come from the no more digestion. Aiello - Lehman Brothers: That's great. And then on depreciation, how should we model risk on your cash flow statement now going forward with your newly raised CapEx guidance?

Yeah. Well I think the depreciation will have a -- the depreciation resulting from this additional CapEx will have the result largely in 2008. So, based upon our 2006 depreciation, you could see an increased depreciation charge of around 10%. But most of the depreciation charge will hit us in '08, because it relates to the factory, which is 100 million to 120 million is due for completion by the end of this year. Aiello - Lehman Brothers: Thanks very much.

The next question is from Mr. Jonathan Dutton. Please state your company name followed by your question. Jonathan Dutton - UBS Securities: Yes thanks. It's UBS. Just a couple of questions if I may, in your 2007 outlook highlighted total spending of 5.5 billion, and with market share expanding by 40 basis points a year, potentially 65% in '07, would the right way to think about this be implied equipment revenues for you of about 3.6 billion?

We do not guide the whole of the year. We are growing and you can imagine that $1 means growth and you can be more aggressive. So it's again too early to be quantitative, but we are clearly on our trajectory of 5 billion. Jonathan Dutton - UBS Securities: Just a follow if I may, the 30% capacity increase that you are planning, what sort of market share does that imply potentially in the mix, if you do expand it to from 300 to 400 units?

Again, we use capacity and tool to satisfy customer. You can't say that capacity becomes immediately a revenue, capacity allows us to react very quickly to every customer and when you have the ambition to be a big partner to every customer in the world and therefore reach market shares of the levels of 65% to 70%, which is the case, you need to have the capacity level which allows everyone of those the key customers to come in the same quarter, which means that you have to have a capacity much of all the effect of EUR 5 billion target that I am talking about which is an average revenue level. So that capacity level will be in place at high capacity level, which allows therefore to meet customers' needs anytime, will be in place by the early 2008. So as of now up to 2008, we will continuously improve capacity, and by the beginning of 2008, we will have a significant capacity, which allows us to take EUR 5 billion of orders if they were to come as earlier than 2010. Jonathan Dutton - UBS Securities: And should we assume a linear increasing capacity through the year?

Correct. Through the year -- through the year 2007. But as I've said earlier, the factory will be completed around this time next year. So that means that full access to that capacity will only be next year. Now that in the current factory, we are moving up and up and up every quarter, because at the end it will be very clear. This is a business for people. This is not a business for CapEx. So the difficulties we have all these days, any difficulty is to move enough people with the right skill sets and that's why this continues and that's a good news, we can do this in a continuous fashion. Jonathan Dutton - UBS Securities: Great. Thank you.

Next question is from Mr. Simon Schafer. Please state your company name followed by your question. Simon Schafer - Goldman Sachs: Thank you. It's Simon Schafer with Goldman Sachs. Actually a follow-up question on the capacity issue. I was wondering whether you could comment on the maximum amount of lenders you are capable of sourcing right now. I would presume that obviously you are working hand in hand with some of your critical component suppliers to get that aligned. But how are they ramping that and will that be just into the near fashion in line with your own capacity expansion?

Absolutely. You are absolutely correct, we are working hand in hand with [ICE] and clearly, we have at this moment, in fact, extremely similar capacity level. Simon Schafer - Goldman Sachs: So, should we still assume kind of 70 maximum capability of sourcing lenders in the quarter for now up until your expansion takes effect?

No. First of all, even if you were trying, I guess, it's mix driven. So, you can't -- you can't even easily summarize the capacity level. So, call it, as I said to you, is we have a capacity now which is much above value of 1.1 billion per quarter.

And although Eric said this in the previous answer also that we are working in the factory to get the cycle time reductions through the factory that will actually with the current square footage of the factory will create up extra capacity. So that will create extra capacity and the same is being done in our -- basically at our key suppliers. Simon Schafer - Goldman Sachs: Understood, and actually a follow-up question on a previous question from [Aiello], just with respect to your assumption of mix of non-immersion tools this year, are we assuming or should we be assuming a handful of deliveries for the 1450 and otherwise, what should we assume for KrF versus i-line on a full year view? Will, it just depend on how slow flash -- how quickly flash may slow down and what it gets offset with later in the year?

Wow, this is again extremely tough question. You're talking about the art of our business here. We have a hit rate of planning the wrong thing which is pretty good. So it would be impossible to answer. We have got potential fluctuation on entry of those segments, which are significant. And even in the same segment, take flash if you want, you still have some calls about how much KrF, if any. You have some customers, who basically says, I want only immersion on i-line. We have got some customers, who basically says, I want only dry. And they are not even sure of themselves at this very moment. So, what's important and this is why, in fact, your questions on capacity were very much operational, is we need to create enough bandwidth for us and as Peter say, enough cycle time reduction so that we can easily adapt to any profile of mix. And the good news, by the way, is most of our margins are consistent to multiple mixes. So, we not -- it's not material. The mix we will reach is not material to the profitability of the company. Simon Schafer - Goldman Sachs: Yeah, thank you Meurice.

Your next question is from Mr. Andrew Griffin. Please state your company name followed by your question. Andrew Griffin - Merrill Lynch: Hi guys. Andrew Griffin from Merrill Lynch. Just another question about the capacity increase and also the increase in R&D, what does this do to your breakeven levels, if any, and could you just update us on where R&D can be pulled back to if there were a downturn in the cycle?

Yes. To answer the last question you have. The 20% to 30% -- between 20% to 30% flex in research and the development, I mean, having ramped from Q1 to Q4 23% in R&D cost for such a complex tool that you can only do if you have a flexible and an outsourcing kind of model. And that also means that we can pull that back if we need to. Now on the breakeven point, it was a big thing a couple of years ago when we said we had a target of 130, where we were lower than that, and that depends on mix clearly. Now, how does the impact of capacity increase -- what kind of impact this will have on our breakeven point? To be honest, we have run the simulations and it doesn't give any material impact at all, and the main reason is because of our top-line growth. Basically, when I look at the growth trajectory going forward, the speed of our tools is giving us a higher absolute gross margin and that is covering the higher absolute cost. So, the breakeven point is not that much impacted at all. Andrew Griffin - Merrill Lynch: Great, and just one final on the same subject. What roughly would the headcount increase be by the end of 2007?

Yeah. The headcount increase where we have to be careful for double counting because that will be if we compare the end of 2005, we were about 5,500 people, we could see, we could envisage a 10% growth in 2007, which -- a part of that growth is already included in the increased guidance we gave for research and development. And also, if we go to top-line, we need more output in the factory, we probably needed two more people in the factory also. So, you cannot just double count the 10%. It'll be spread over the factory, which will go into cost of goods, which we guide you on the gross margins. This will be in R&D, and we gave you the guidance there. And it will be in customer support because we increase our installed base, but our customers are actually paying for those people. So, that's the way that you should look at that 10% number. Andrew Griffin - Merrill Lynch: Very clear. Thanks very much.

Thank you.

And so on the subject, it is important that you understand that we are not managing the company on optimism. So, cost structure for us is a fundamental thing that we have to manage in a flexible fashion. We are not just saying because we are going to grow, we can go ahead and invest, that's not the case. We are always cautious that we have the capability to pull back on those different investments. So clearly there is a difference between us being optimistic about the top line and the need for capacity and us managing the cost structure. We have a cost structure, which is highly flexible.

Next question is from Mr. Robert Maire. Please state your company name followed by your question. Robert Maire - Needham & Company: Robert Maire, Needham & Company. When I look at the two new technologies, immersion and double exposure, or two new techniques I should say, could you give us your sense as to the growth rates of each through '07 and beyond? And there is one accelerating over the other and what do they look like in terms of percentage of sales and differences in profitability? I am just looking for some more detail as those two. And do you see a more perhaps finite life or double exposure than immersion? Looking for more detail on that.

Okay. First of all a quick note on the technologies, because all this is sometimes used with marketing terms by our customer. Double exposure already exists for long time as being used by people in the Flash memory, in the logic, etcetera. It’s a way basically to say you passed twice your wafer into the machine, but you design -- your reticle is a normal reticle. So, double exposure, it's over yield, improvement in technique or whatever it is and it may happen with our machines or it may not, I don’t know. In fact, what customer needs is machines that are fairly fast, and because if you do double processing, it costs money. And I do not know, and I don’t think that helps you more than just improving yield on given technology. Double patterning is a situation where you redesign, you design your reticle or you cut your reticle in two and you expose once and then you expose another reticle, and you hope that there two reticles basically will expose an image which match. And therefore you need machines which are very, very precise in what we call overlay. This is -- this technology is one that says, that potentially will allow post 40-nanometer, though in the 32-nanometer node, you will need that -- those type of technology. The alternative to double patterning at 32-nano is EUV. Robert Maire - Needham & Company: Okay.

So, having made that clear how do we see the things happen. As of now, immersion is the only technology that we will be really ramping in high volume with double patterning for, I would say, 40, 45, etcetera, would be just potentially the prototype type environment. But immersion at this moment at 55-nanometer node or at 45-nanometer node is the technology of choice of, I would say, most of the market. Now, that will start -- that has started already at the end of last year. That is, 2007 is the year of major starts and I really have customers at different speed. In 2008, you will have a certain numbers of needs for beyond 40-nano, some 32-nano, and that’s where we will have some double patterning happening, and there is going to be some double patterning dry and some double patterning immersion. We can’t answer which is which, but we expect again to be on a fairly low volume. In 2009, I could see some production in double patterning, while we start introducing EUV. EUV we will be serving to do some R&D recipes and build up of infrastructure. So, double patterning will be a necessity for customers who will already have their design ready at 32-nano, which is not obvious question by the way. So, if they do have ready, they have no other choice than going double patterning. And 2010-2011 will be the year ++ the time of overlap. There will be an overlap between double patterning and EUV, and we expect EUV to win the battle by 2011 and '12 in terms of economics. Robert Maire - Needham & Company: Okay. Just as a follow-up in terms of double patterning. I would assume you've probably done some modeling or some math as to obviously double patterning requires, I would assume, more steppers, given that the wafers are spending more time being exposed, even though it's only at the more critical layers. What does that mean in terms of revenue or number of machines required per wafer or per dye or per whatever numeric and how does that impact your revenue? Is that more of a revenue driver than immersion or --?

In fact, we did in our famous simulation tool all kind of scenarios regarding the different usage of double patterning, dry, immersion and/or EUV in different frames. And it's not very obvious that -- well, let me put is this way. The simulation that we put in place is the one that makes sense. So, what we see is exactly what I said. That is, at some point between 2009 and 2010, you are going to see double patterning as a most economical thing for the customers. Therefore, we will grow revenue by the fact there is double usage of our machine and then by 2011 or '12, EUV becomes most cost effective, but it's still an expensive technology. So it is cheaper than double patterning, but it would still be showing some additional revenue, which is as I said at the beginning in my introduction, where I said the more you go under (inaudible) whatever you do, whether you use double patterning or you use EUV, you are going to pay more. But EUV by then will be cheaper than double patterning. Robert Maire - Needham & Company: So, what does that means --

Robert, I am sorry. We need to move forward. Robert Maire - Needham & Company: Okay. Go ahead. Thanks.

Next question is from Mr. Mehdi Hosseini. Please state your company name followed by your question. Mehdi Hosseini - Friedman, Billings, Ramsey: Yes. It's Mehdi Hosseini, Friedman, Billings, and Ramsey. I have two questions. First, if you could provide the number of 1900 immersion tools that are in the backlog? And also as a sort of the clarification, what do you mean by healthy bookings in Q1? Does that imply flat, down, up? I just -- I think healthy is a very generalized term. So if you could just provide us with more color? I am not asking for any guidance, just to better understand you, I would like to hear more what do you mean by healthy?

I am going to handle the easy one, which is the 1900 backlog and I will let the specialist, Peter, to handle the healthy bit. We have in backlog 20 immersion tools, and at this point, I am not going to tell you the split between 1700 and 1900, also because it's a very -- how to say, moving mix. As I basically say, customer are hesitating, 1900 is a better machine with a higher throughput, but it is more expensive and it comes -- Mehdi Hosseini - Friedman, Billings, Ramsey: Would it be fair to say that it is more than one since you booked one in the Q3 timeframe?

Yeah, more than one.

Yes, of course. Mehdi Hosseini - Friedman, Billings, Ramsey: Is that less than five?

You are getting hotter, but it's still cold. But I will stop there. Okay. Healthy Peter.

Healthy, I feel healthy. As I've said at this morning during the press conference also, I mean healthy means the good, which is the right level of ordering to support our 2007 growth profile. And that's a general statement, but that's exactly what it is. Because if it says it is going to be up, it's going to be down, it's going to be flat, I don't want to go to that because of the issue that we have discussed during this call, is that with the 1900 and 1700 transition, the choices customers need to make there, it becomes with those big customers and the choices that they need to make pretty difficult for us to predict when they will give us the orders, but if there is one certainty it's that they will give us the orders. And the orders are basically driven by the fact that sub 40-nanometer production capability becomes available with the 1900i. We do expect growth from the industry. We have won several customers in 2006 that want to basically fill up their new fabs in 2007. So, they were all drivers for what we feel growth. But the timing of [when things will step] flash immersion ramp sub 40-nanometer in Q3 or in Q4 will happen, whether there is going to lead to orders in Q1 or in Q2, we don't know. And that is what we are trying to say. It's going to be healthy enough to support our growth for next year. Mehdi Hosseini - Friedman, Billings, Ramsey: Sure. When you talk about 2006 --

Mehdi, sorry we have to move on. We are going to try to squeeze one more question in. Thank you.

Next question is from Mr. Mark Fitzgerald. Please state your company name followed by your question. Mark Fitzgerald - Banc of America Securities: Thanks. Two questions on the Brion acquisition here. Logic guys are struggling with their cost design here, do you -- Brion is being able to slow the cost design going forward significantly?

This is the billion question, billion euro dollar question. Yes, we believe that the way to solve customer problems in design is going to try to give them leverage in the market, which they can optimize at the end. We were far from the design part of it, I mean, and so I can't really answer your question specifically how much we would save in the front end. And I also believe that the industry has to mature. Therefore, we have to do some looping test where we see how much flexibility we can give our customers in terms of how much they have to invest in optimizing design upfront or how much they have to invest this in optimizing the manufacturing data. So, we are going to do of course the best effort to -- how do you say, to move value into the post signoff part of the business, if I make myself clear, when the design is signoff then you optimize it. And if you can do a great job in optimizing a design post signoff, then there will be reduction of cost on the pre-signoff. And, we will benefit from the value generated by the same as Jay's question, is your margin going to go up or by our capability to sell more tools? So that is the whole logic of the Brion acquisition, and guess what, we feel extremely enthusiastic about what we’ve found so far. Mark Fitzgerald - Banc of America Securities: And can you give us any details of what this means for revenues, what they're doing at this point, and what the financial model looks like? Is there any --?

No. As you know, Brion is a private entity so whatever is in 2006 is on the -- private data and we've enclosed ourselves. So it would be preliminary to give you a business plan type idea after we close, it's too early. Mark Fitzgerald - Banc of America Securities: Thank you.

Operator, I think we'll close the call now that as my watch says we are out of time. So, I'd like to thank everybody for joining us today, and we look forward to seeing you around in the future, and now I'll leave it to you then operator to close formally.

Thank you sir. Ladies and gentlemen, this concludes the ASML 2006 fourth quarter and annual results conference call. Thank you for participating. You may disconnect now.

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