ASML Procurement

1
Value Sourcing

• Hans Dijkhuis
• Sr. Mgr. Procurement

2
Agenda

• ASMLs environment
• ASMLs industrial history
• ASMLs product
• ASMLs market
• Customer expectation of ASMLs performance
• ASMLs Value Sourcing strategy
• Organizational Implementation
• External conditions ASMLs shared market
  commitment
• Summary

3
Key facts

• Founded in 1984
• Listed on Euronext and NASDAQ in 1995
• Over 50 facilities in 14 countries worldwide

4
ASML around the world
Global Headquarters Veldhoven, the Netherlands
U.S. Main Office Tempe, AZ
Asia Main Office Hong Kong
Over 50 Sales and Service offices located
worldwide
5
Commitment to customers
Philips Semiconductors
UMC
Motorola
STMicroelectronics
Micron
AMD
Hynix
Samsung
Infineon Technologies
Texas Instruments
TSMC
Sanyo
IBM
Rohm
Matsushita
Renesas
NEC
Toshiba
Fujitsu
Sharp
More than 50 of the worlds top chip
manufacturers areASML customers
6
ASML financial highlights
Total net sales worldwide H2 2004

• Year end 2004
• Net profit of 235 million
• Net sales of 2,465 million
• 282 systems sold
• Q4 2004
• Net profit of 109 million
• Net sales of 785 million
• 81 systems sold

Japan 2
China 10
Korea 14
Singapore 12
Europe 11
U.S. 16
Taiwan 35
7
Semiconductor industry timeline
1947 First transistor
1961 First IC
1940
1977 First microcomputer by Apple
1965 Moores law
90s World Wide Web
8
The planar production method originated Moores
law in 1965
Every 18 months the number of transistors on a
chip will double
9
Is there a limit?

• Moores law will continue into the future
• Lithography will be able to print 30 smaller
  features every 2-3 years
• This will be a major driver for the semiconductor
  industry
• Lithography companies continue to make
  breakthroughs

10
How semiconductors are made
11
Stepper exposure method
Reticle
Design
Lens
Wafer
Reticle
Source ASML
12
TWINSCAN the dual-stage advantage
13
Platform life cycle faster and shorter
35
EUV
50
157 nm
70
100
193 nm
130
Technology Node (nm)
160
248 nm
250
350
500
365 nm
700
1000
1985
1990
1995
2000
2005
2010
14
RD costs development costs double in half the
lifetime
( Millions)
2500
5500 Stepper
5500 StepScan
TWINSCANTM
EUV
15
All different technologies at the same time
16
ASML market place
17
ASMLs position in the marketplace
18
ASML market is very cyclical
Annual change semiconductor equipment sales
Semiconductor equipment sales
Year
Estimate Source VLSI Research
19
Trends in WW equipment bookings IC sales
20
Chip lithography market
2003
Canon
1984
Perkin Elmer
Canon
Hitachi
ASET
GCA
ASML
Nikon
Ultratech
Eaton
Total market 550 million
Nikon
Total market over 3 billion
21
Our Customer demands Competitive performance in
the supply chain through QLTC

• Quality
• Zero defects
• Logistics
• Delivery reliability
• Flexibility
• Up and down for 50 each quarter Move Rate
  between 2 and 8
• Short lead times, lowest inventory levels
• Parts availability gt 15 years
• Technology
• Timely technology roadmap fulfillment
• Access to technology and competencies
• Effective engineering change management
• Total cost
• Competitive pricing
• Meeting our customers Value of Ownership
• Open (total) costing
• Sharing and spreading risk and benefits of the
  business cycle
• Sharing costs of order push-outs and cancellations

22
Supply chain structure

• 90 of CoG from Supply Base
• 600 Suppliers
• 60 partners (80 value)
• Global Supply

23
Our Customer expects Competitive performance in
the supply chain through QLTC
ASML

• Quality
• Zero defects
• Logistics
• Delivery reliability
• Flexibility
• Up and down for 50 each quarter Weekly move
  rate between 2 and 8
• Short lead times, lowest inventory levels
• Parts availability gt 15 years
• Technology
• Timely technology roadmap fulfillment
• Access to technology and competencies
• Effective engineering change management
• Total cost
• Competitive pricing
• Meeting our customers Value of Ownership
• Open (total) costing
• Sharing and spreading risk and benefits of the
  business cycle
• Sharing costs of order push-outs and cancellations

Value Sourcing
24
ASMLs Value Sourcing strategy
The best Quality at the lowest Lead-time with the
required Technology at the lowest Total Cost
Quality, Logistics, Technology and Total Cost
25
Five principles of Value Sourcing

• 1. Securing ASMLs competitiveness
• 2. Achieving a highly appraised Supplier
  Performance in line with ASMLs expectation
  internal and external
• 3. A QLTC competent supply base
• 4. Balanced supplier dependency
• 5. Continuously adapting to changed expectations

26
Principle 1Securing ASMLs competitiveness

• Those products and services contributing to
  ASMLs competitiveness will NOT be outsourced.

27
Strategic outsourcing Board

• Aim
• Define an ASML outsourcing strategy
• Make-Buy decisions based on ASMLs expected
  competitive market advantage
• Policy
• ASML controls all elements contributing its
  competitive market advantage
• Make-Buy Board
• Marketing, Sales, Technology, Production(-engineer
  ing), Procurement

Cross functionality on QLTC
28
Principle 2 Highly appraised supplier
performance internally and externally

• Three supplier functions contribute to ASMLs
  Product Generation Process

Organizational Suppliers
29
Principle 3 A QLTC competent supply base per
product family

• Aim
• Define a product family strategy
• Have relevant and actual purchasing market
  knowledge of the specific product families
• Have relevant and actual knowledge of the current
  suppliers in their markets
• Policy
• Define desired performance profile for this
  specific family based on QLTC
• Form a small group of preferred suppliers
• Realize outsourcing
• Product family team
• Procurement, Quality, Logistics, Technology,
  Production(-engineering) and Finance ( Marketing
  and Sales, Customer Support)

30
Sourcing strategy selection

• Lenses
• Handlers/stages
• Lasers

• Optics
• Wafers

High
LEVERAGE ITEMS
STRATEGIC ITEMS
Multiple Sourcing per competence and Single
Sourcing per part
QLTC competitiveness Multiple sourcing

NON CRITICAL ITEMS
BOTTLENECK ITEMS
Solve, market test, ...
Clustering Multiple Sourcing

• Frame Assemblies
• Reticles

No Many Low
Full Few High
Technology. Ownership Number of Suppliers Risk
Supply Market

• Fasteners

31
Single, dual and multi-sourcing go together

• Dual/Multi-sourcing of competencies
• Competition and independency (Q L T are
  preconditions, Cost is the differentiating
  factor)
• Single sourcing of products and services
• Minimizing investments and technology resources
• Best-fit design into the suppliers processes
• QLTC
• Optimizing the learning curve
• Time-to-market and cost level

32
Supplier abilities
Selection

• Development innovation ability
• Technology capabilities
• Project management capabilities
• Performance risk awareness
• Production engineering capabilities
• Production operational ability
• Manufacturing capabilities
• Controlled quality
• Market fit flexibility
• Controlled 2nd tier supply base
• Business continuity
• Financial stability profitability and risk
  assessment
• Market competitive

33
Product family teams set the desired Supplier
Performance on QLTC
QLTC
QLTC
QLTC
QLTC
QLTC

• Supplier Profile
• Desired Performance

34
Principle 4 Balanced supplier dependency
Supplier Account Team staffed by both ASML and
the supplier

• Aim
• Realizing the desired supplier performance
• Policy
• LTA desired QLTC performance is met by a
  formally agreed roadmap
• Identify improvement opportunities, initiate
  continuous improvement programs and manage them
• Realization by the operational organization
• Supplier Account Team
• Procurement, Quality, Logistics, Technology,
  Production(-engineering) Customer Support and
  Finance

Cross functionality on QLTC of both ASML and the
supplier
35
Supplier Account Team Strategic focus within
supplier relation
Supplier Account Team
Strategical
Define Plan Follow up
Tactical
Operational
Execute
36
Realizing the desired Supplier Performance
Supplier Account Teams manage the actual
performance to the desired performance by
Continuous Improvement Projects

QLTC experts of both ASML and the Supplier
37
Status Supplier Account Teams February 2005

• Supplier Account Teams
• 41 active SATs
• 139 representatives from our suppliers
• 131 representatives from ASML
• 405 active improvement programs
• Q 114 / L 132 / T 91/ C 68

• Strategic Principles
• Long term relationships
• Shared risk reward
• Less than 25 dependent
• Global sourcing
• Dual sourcing of knowledge
• Single / dual / multiple sourcingof products

• Long Term Agreements
• 28 signed

38
Change must be measured Key Performing Indicators
Procurement Performance
April 2004
February 2005
REPORT LEVEL
Introduction

4
Progress on Buy Volume
6
Summary Actual Status 2004 Targets April
7
Goal Realization April 2004
8
Overall Vendor Rating (QLTC)
12
Q
- Material Quality Performance
18
L
- Supply Reliability (incl. repair)
24
L
- Order Leadtime Rating
28
L
- Actual Cumulative COG Value AT850C
32
L
- Balancing Order LT
vs
. Actual part value (AT850C)
33
L
- Relative Order Leadtime Development
34
T
- IP Status
36
C
- COG Twinscan AT850C
38
C
- COG Scanner 850C
44
C
- Purchase Price Variance 2004
49
NPR Procurement Performance
52
NPL Part Status
54
Account-team Members
57
LTA-Planning
58
List of definitions and non-common abbreviations
59
Confidential
Means Methods / April 04
3/17/2004
/ Slide
3
39
Principle 5Continuously adapting to changed
expectations

• Cross functional involvement of ALL operational
  stakeholders guarantees immediate feedback of
  both our customer- and procurement market
• Operational experts are working in the
  ASML-Supplier interface to secure QLTC, as agreed
  in the Long-Term Agreement.
• Annual review of desired profile

40
Summary Value Sourcing An outsourcing strategy
based on QLTC
3 questions have to be answered

• Does the product or service wed like to
  outsource effect our competitiveness?
• Is there a supply base where these specific
  products or services can be bought?
• Will ASML not become too dependent on that
  supplier after the outsourcing?

Outsourcing strategy in three steps . . .
41
ASML outsourcing model
42
Procurement Main Processes
A Preferred supplier management process
SUPPLIER
SUPPLIER
B Supplier strategic alignment process
SUPPLIER
STRATEGIC
C Supplier performance control process
TACTICAL
OPERATIONAL
D Supply Chain feasibility requirement
process
F Order fulfillment process
E New Product Introduction process
PGP phase 0
PGP phase 1
Operational phase
PGP phase 5
PGP phase 4
PGP phase 3
PGP phase 2
Prod. Life Ext.
PROTO
PILOT
VOLUME
GF requirements
GF Feasibility
R4V
43
Value Sourcing
44
Semicon market characteristics

• Quality
• Zero defects
• Logistics
• 100 reliable supply
• Flexibility
• structural 1 MR per 6 months
• burst 1 MR for max. 30 per year, 2 MR for
  max. 15 per year
• Short lead times, lowest inventory levels
• Parts availability gt 15 years
• Technology
• Timely technology roadmap fulfillment
• Effective Engineering Change Management
• Total Cost
• Competitive pricing
• meeting customers Value of Ownership
• open costing
• Order push-out and cancellations at shared cost

Both ASML and the Supplier must comply with this
market
45
Order Push-Out and Cancellation
ASMLs customer promise

Cost
Semicon Cancellation is agreed Starting on
time is OK, but why an order?
Time
Max. 12 weeks
0-4 weeks
ODD
46
Shared market commitment
Forecast planning for max 18 months

Cost
Each month, ASML communicates a non-binding 18
month forecast
Time
ODD (Original Delivery Date)
47
Shared market commitment
Forecast planning for max 18 months

Cost
Time
Max. 12 weeks
0-4 weeks
ODD
48
Shared market commitment
Forecast planning for max 18 months

Cost
Time
Max. 12 weeks
0-4 weeks
ODD
49
Shared market commitment
Forecast planning for max 18 months

Cost
The aim is real lead-time reduction and real cost
inventory avoidance
Lead Time Reduction
Time
Max. 12 weeks
0-4 weeks
ODD
50
Shared market commitment
Forecast planning for max 18 months

Cost
Annual performance targets secure competitiveness
Lead Time Reduction
Time
Max. 12 weeks
0-4 weeks
ODD
51
Commitment