CORPORATES

CREDIT OPINION ASML Holding N.V. 17 December 2020 Update to credit analysis

Update Summary ASML Holding N.V.'s (ASML) A3 senior unsecured ratings are supported by (1) the company's unique position relative to other semiconductor equipment companies, given its market dominance in lithography (with a revenue market share of above 80%) and strong collaboration with its customers, illustrated by its high adjusted EBITDA margins, consistently RATINGS within 28%-33% over the last five years; (2) strong semiconductor equipment market ASML Holding N.V. dynamics, supported by the broad-based demand for semiconductors and the need for more Domicile Veldhoven, Netherlands advanced lithography as technology process nodes and chip design complexity advance; (3) Long Term Rating A3 the company's generally positive free cash flow (FCF) generation; and (4) its track record Type Senior Unsecured - Dom Curr of prudent financial policies, including the maintenance of a cash balance well above €2.0 Outlook Stable billion, which is likely to continue to support its strong credit metrics.

Please see the ratings section at the end of this report ASML's A3 rating also takes into account (1) the technological risks related to the next- for more information. The ratings and outlook shown generation extreme ultraviolet (EUV) and EUV high-numerical aperture (NA) lithography reflect information as of the publication date. technology; (2) its customer and supplier concentration, mitigated to some extent by its long-standing relationships and closely aligned production plans; and (3) the inherent industry volatility, especially in the memory segment, mitigated to some degree by a Contacts lean and flexible operating model, which should help contain the adverse impact on Dirk Goedde +49.69.70730.702 the company's profitability and cash flow generation from future downturns in the AVP-Analyst [email protected] semiconductor industry. Christian Hendker, +49.69.70730.735 Exhibit 1 CFA Operating performance is likely to remain strong, supported by the adoption of EUV in high- Associate Managing Director volume manufacturing [email protected] Revenue EBITDA FCF Carsten Johann +49.69.70730.966 16.0 Associate Analyst 14.0 12.0 [email protected] 10.0

8.0

€ billion 6.0

CLIENT SERVICES 4.0 Americas 1-212-553-1653 2.0 0.0

-2.0 Asia Pacific 852-3551-3077 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 LTM Sep-20 2020e

Japan 81-3-5408-4100 FCF (Moody's definition after dividend) in 2019 was affected by a one-off effect because of the implementation of interim dividend. Forecast represents Moody's forward view, not the view of the issuer, and unless noted in the text, does not incorporate EMEA 44-20-7772-5454 significant acquisitions and divestitures. Sources: Moody’s Financial Metrics™ and Moody’s estimates MOODY'S INVESTORS SERVICE CORPORATES

Credit strengths » Unique position relative to other semiconductor equipment companies, given its market dominance in lithography (with a revenue market share of above 80%) and strong collaboration with its customers

» Strong semiconductor equipment market dynamics, supporting future earnings and FCF generation, even if temporarily muted by implementation of interim dividend and high EUV related capex

» Track record of prudent financial policies, including the public commitment to maintain a cash balance of €2.0 billion-€2.5 billion, which is likely to continue to support its strong credit metrics (adjusted debt/EBITDA of 1.1x for the 12 months ended 30 September 2020)

Credit challenges » Volatility in demand for lithography equipment, mitigated to some degree by a flexible operating cost structure, with a substantial part of the cost of goods sold and R&D being outsourced

» Customer and supplier concentration, mitigated to some extent by its long-standing relationships and closely aligned production plans

» Technological risks related to the next-generation EUV and EUV high-NA lithography technology

Rating outlook The stable outlook on ASML's A3 rating reflects our expectation that the company will maintain its strong market position, the consistent execution of its product road map (including EUV technology) and its financial discipline through industry cycles. Factors that could lead to an upgrade » An upgrade would require the company to make further progress in its product road map, sustaining strong operating performance over the cycle.

» We would also expect further diversification of the company's product range, including an increased metrology and inspection presence, but also a significant increase in net recurring service revenue. We believe this should allow for reduced volatility in the event of a downturn.

Factors that could lead to a downgrade » A negative rating action is likely in the event that the company relaxes its financial policy and/or if successive quarterly material negative FCFs (including dividend payments) lead to a reduction in cash balances below €2.0 billion or a deterioration in adjusted gross leverage, sustainably in excess of 2.0x.

» Any evidence that the company is losing market share, for instance, because of emerging alternative technologies, may also exert downward pressure on the rating.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

2 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

Key indicators

ASML Holding N.V. Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 LTM Sep-20 Revenue (USD billion) $7.0 $7.5 $10.1 $12.9 $13.2 $15.4 Free Cash Flow (USD billion) $1.5 $1.0 $1.1 $2.2 -$0.3 $1.5 EBITDA Margin 30.5% 31.4% 32.7% 33.0% 28.1% 32.1% Debt / EBITDA 0.6x 1.6x 1.1x 0.9x 1.4x 1.1x EBIT / Interest Expense 51.4x 41.3x 41.0x 69.9x 68.2x 76.1x Cash / Debt 293.5% 119.7% 105.1% 128.9% 104.6% 93.2% FCF / Debt 116.3% 26.4% 30.2% 59.6% -5.2% 32.3%

FCF (Moody's definition after dividend) in 2019 was negative due to the implementation of a €1.3bn factoring programme during that year. All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. Source: Moody's Financial Metrics™

Profile ASML Holding N.V. (ASML) is the world's leading provider of lithography systems for the semiconductor industry in terms of revenue. It manufactures complex machines that are critical to the leading-edge production of integrated circuits. Headquartered in Veldhoven, the Netherlands, ASML generated revenue of €13.7 billion for the 12 months ended 30 September 2020.

Exhibit 3 Sales split by end use for the first nine months of 2020

Memory Installed Base Management 21% 27%

Logic 52%

Source: Company financials

Detailed credit considerations Unique position relative to other semiconductor companies, given its market dominance in lithography equipment and strong collaboration with its customers ASML dominates the global market for lithography equipment used in the semiconductor industry, with an overall market share above 80%. This market share has increased over the past few years and is likely to remain high because of the company's leading-edge technology. ASML has progressively outpaced its sizeable competitors. Both Nikon Corporation and Canon Inc. (A3 negative) lack the necessary volume in lithography to invest in R&D as much as ASML does. The company's market share is around 90% in the more technologically advanced ArF Immersion business and 100% in EUV.

Currently, there are limited viable alternatives to ASML's high-end lithography solutions for high-volume manufacturing that are capable of providing similar shrink capability and yields. The company is the sole supplier of next-generation EUV lithography technology, which facilitates the production of more complex chips and equally reduces customers' unit production costs, reinforcing the continuation of Moore's law. ASML's customers, such as Intel Corporation (A1 stable), Samsung Electronics Co., Ltd. (Aa3 stable) and Taiwan Semiconductor Manufacturing Co Ltd (Aa3 stable), contributed around €1.4 billion in cash to ASML's R&D under the framework of the Customer Co-Investment Programme over 2013-17 and invested an aggregate 23% equity stake in ASML in 2012 to support the investment in EUV technology. As the industry moved towards the commercial rollout of EUV, the customers have reduced their equity stakes in ASML; however, they continue to invest in the entire ecosystem involved in building the EUV infrastructure.

3 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

In recent years, the company has made strategic acquisitions and participations, which are crucial to successfully execute its product road map well beyond 2020 and further solidify its market position. The takeover of the light source maker Cymer in 2013 was crucial for EUV development. It cleared patent issues and paved the way for improvements in the power of the light sources, which was a major roadblock for increasing the production speed for EUV up to its commercially viable levels. In addition, ASML invested in a 24.9% minority stake, or €1.0 billion, in optical lenses maker Carl Zeiss SMT. The transaction closed in 2017, and ASML is committed to supporting SMT's R&D and capital spending of about €1.230 million over six years. This was an important strategic step to contribute to the development of higher-NA optical systems required for the next generation of EUV lithography, expected to be rolled out after 2020.

Moreover, we favourably view the broadening of the company's product offering into metrology and inspection tools. These tools generate higher margins because of their higher software content and enhancement of customer yields. The acquisition of Taiwan- based Hermes Microvision, Inc. (HMI) in 2016 strengthened ASML's metrology and inspection offering. ASML uses HMI’s E-beam metrology and inspection solutions as an add-on to its existing solutions, allowing its customers to improve process control during the lithography process and, hence, increase manufacturing yields, as the semiconductor industry moves towards smaller sub-10- nanometer technology nodes and three-dimensional integrated circuits. This requires tighter control of the manufacturing process.

Operating performance is likely to remain strong, supported by the adoption of EUV for high-volume manufacturing ASML continued to demonstrate solid operating performance in the first nine months of 2020 driven by strong demand for its EUV systems that are increasingly used in major devices. For the full-year 2020, the company expects an annual top-line growth of around 13% and a reported gross margin of around 48%, up from 45% in 2019 because of the combination of strong DUV sales, growth of more than 20% in Installed Base Management and improving EUV margins.

The healthy demand from ASML's customers is driven by the company's progress in the execution of its product roadmap, including EUV technology, which has entered the high-volume manufacturing stage in 2019. During the first nine months of 2020, ASML shipped 23 EUV tools and has a solid order pipeline, which indicates the increased customer confidence in EUV technology. For 2021 ASML has indicated it expects EUV revenue to grow by 20% and guides towards an improved gross margin profile of EUV tools because of increased efficiencies in manufacturing and tool efficiency improvements as well as higher EUV service sales.

Exhibit 4 Sales by segment

Memory Logic Installed Base Management 14,000

12,000

10,000

8,000

€ million 6,000

4,000

2,000

0 2015 2016 2017 2018 2019 YTD Sep 20

Source: Company financials

We continue to expect healthy annual growth rates for the semiconductor equipment market in the mid-single digits in percentage terms over the medium term, supported by the broad-based demand for semiconductors and the increasing complexity of chip design. At the same time, new leading-edge nodes with increased lithography intensity should overproportionally drive the demand for ASML's litho systems. Hence, we project that ASML will continue to grow its revenue and profitability and its adjusted debt/EBITDA will remain around 1.0x over the next 12-18 months.

4 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

Track record of commitment to prudent financial policies, which is likely to continue to support its strong credit metrics ASML has consistently demonstrated its commitment to maintaining conservative financial policies. Its gross leverage has been sustainably below 1.0x since 2010, and the company has been in a position of net cash as of fiscal year-end, even in 2009, when revenue shrank to €1.6 billion from a peak of €3.7 billion in 2007. However, the debt raised to finance a portion of the HMI acquisition and a 24.9% minority stake in Carl Zeiss SMT increased ASML's adjusted leverage to 1.6x as of December 2016 from its adjusted debt/ EBITDA of 0.6x as of December 2015. Nevertheless, the company deleveraged swiftly to around 0.9x adjusted debt/EBITDA in 2018 because of strong business performance, and we expect its adjusted leverage to decline further to remain at around 1.0x in 2020 despite the issuance of two €750 million bonds.

ExhibitAuthor: Please write out the unit “€ billions” in the left-hand y-axis. 5 ASML's adjusted leverage, and cash and cash balances

€, bn Cash & Cash Equivalents Debt / EBITDA 5.0 1.8x 1.6x 4.5 1.6x 4.0 1.4x 1.4x 3.5 1.2x 1.1x 1.1x 3.0 1.1x 1.0x 2.5 0.9x 0.9x 0.7x 0.8x 2.0 0.6x 0.6x 0.6x 1.5 0.5x 0.4x 1.0 0.4x

0.5 0.2x

- 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 LTM Sep-20 2020e

Sources: Moody’s Financial Metrics™ and Moody’s estimates

The company is committed to its conservative financing policy, illustrated by, among others, its commitment to maintaining a sufficient liquidity buffer in the form of a minimum gross cash balance of €2.0 billion-€2.5 billion plus a €700 million undrawn revolving credit facility. The appropriate size of the liquidity buffer is reassessed annually, taking into account multiple factors, such as capital spending.

In November 2019, ASML revised its capital returns policy to provide for dividend payments on a semiannual basis instead of annually. In addition, the company has announced a new share buyback program in the 2020-2022 timeframe. In total, ASML has announced to purchase up to €6.0 billion and already executed €1.1 billion until 7 December 2020. We expect share buybacks and dividends to remain a key feature of ASML's financial strategy; however, we expect the company to continue to balance shareholder returns within the context of FCF generation, its liquidity targets and the current business outlook, as it has done in the past. This was reflected in ASML pausing its share buyback programme (with a total consideration of €1.5 billion over 2016-17) in light of the acquisition of HMI and the investment in Carl Zeiss SMT, and the by putting the 2020-22 program on hold in Q1, Q2 and Q3 2020 due to COVID uncertainty..

5 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

Exhibit 6 Historical shareholder returns have been balanced against operating cash flow and liquidity

3.0 CFO less capex Dividend + share buyback

2.5

2.0

1.5 € billion

1.0

0.5

- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 LTM Sep-20 Sources: Moody’s Financial Metrics™

Volatility in demand for lithography equipment, mitigated to some degree by operational flexibility ASML is exposed to capital equipment spending of semiconductor device manufacturers. These companies tend to postpone or cancel orders in the weaker parts of the semiconductor cycle, affecting semiconductor equipment OEMs and their suppliers. In 2009, the semiconductor capital equipment industry experienced a sharp slowdown, resulting in a sharp decline in ASML's revenue (which fell to around €1.6 billion in 2009 from a peak of €3.7 billion in 2007) and adjusted EBITDA margin (which declined to around 3% in 2009 from around 28% in 2007), which, in turn, drove an increase in financial leverage to double digits in percentage terms in 2009. In 2010, revenue recovered as the industry resumed spending. However, as the semiconductor industry has long-term sustainable demand fundamentals, we do not expect future declines in performance to be prolonged because we expect end-customers to defer investment plans rather than sustainably reduce capital spending. In addition, we expect equipment sales to the semiconductor sector to be less volatile than the historical levels because of the increasing diversification in end-markets (data centre, mobile devices, artificial intelligence, autonomous driving, internet of things and others). During the recent outbreak of the coronavirus pandemic, ASML did not see major decline in orders.

Exhibit 7 ASML's historical revenue development

Revenue y-o-y growth (right axis)

16.0 200% 182% 14.0 150% 12.0 100% 10.0

8.0 50% € billion 32% 25% 22% 26% 6.0 11% 7% 8% 8% 11% 12% 0% -16% 4.0 -46% -50% 2.0

0.0 -100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 LTM Sep-20 2020e

Sources: Company reports and Moody's estimates

We also expect ASML's flexible cost structure to allow the company to absorb the impact of a pronounced setback in revenue on its operating performance. With a sharp decline in ASML's revenue and margins in 2009, its FCF was marginally negative at around €90 million (including €86 million of dividend payments) and liquidity remained solid, with cash and cash equivalents amounting to €1.1 billion. A substantial part of its cost of goods systems sold (about 80%) and R&D is outsourced. The company also has flexible personnel schemes. In addition, strong relationships with its major suppliers and the specialised nature of ASML's requirements in terms of lasers and lenses allow it to share the burden of business volatility down the value chain.

6 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

Technological risk related to the next generation of EUV and EUV high-NA lithography technology EUV technology is likely to reduce the lithography cost of critical layers as the industry moves towards more advanced nodes. For EUV to be used in high-volume manufacturing for memory customers, ASML needs to achieve a number of technological milestones to meet the required productivity targets. In 2020, ASML continued to make progress on productivity improvement of EUV technology and shipped further higher-productivity NXE:3400C systems for use in high volume manufacturing. ASML's NXE:3400C tool has an output of 170 wafers per hour, increasing the system’s productivity by around 35% (compared with its predecessor model, NXE:3400B) and will additionally allow for higher availability (over 90%) because of less maintenance time. ESG consideration ASML has low levels of environmental and social risks, consistent with those of the overall sector. The company’s financial policies are conservative, including low financial leverage and a very good liquidity profile. Liquidity analysis ASML's healthy liquidity buffer is a key credit strength. As of Q3 2020, ASML had cash and cash equivalents of around €4.4 billion, which included liquid short-term investments in respect of deposits and low-risk money-market funds (with tenors greater than three months but less than one year). It also has full access to a €700 million committed credit facility due 2025, with no financial covenants. The around €4.4 billion cash balance and Moody's projected funds from operations in excess of €3 billion are more than sufficient to accommodate dividend payments and share buybacks, as well as working capital and capital spending needs. Rating methodology and scorecard factors The principal methodology used in this rating was our Semiconductor Industry rating methodology, published in July 2018. The scorecard-indicated outcome is in line with the assigned rating.

Rating factors ASML Holding N.V.

Current Moody's 12-18 Month Forward View Semiconductor Industry [1] LTM 9/27/2020 As of 12/15/2020 [2] Factor 1 : Scale (20%) Measure Score Measure Score a) Revenue (USD Billion) $15.4 A $15.8 - $16.2 A b) Free Cash Flow (USD Billion) $1.5 A $1 - $1.2 A Factor 2 : Business Profile (20%) a) Business Profile Baa Baa Baa Baa Factor 3 : Profitability(5%) a) EBITDA Margin 32.1% A 31% - 33% A Factor 4 : Leverage & Coverage (40%) a) Debt / EBITDA 1.1x A 1x - 1.2x A b) EBIT / Interest Expense 76.1x Aaa 75x - 80x Aaa c) Cash / Debt 93.2% Ba 90% - 95% Ba d) FCF / Debt 32.3% A 20% - 25% Baa Factor 5 : Financial Policy (15%) a) Financial Policy A A A A Rating: a) Scorecard-Indicated Outcome A3 A3 b) Actual Rating Assigned A3

[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. [2] This represents Moody's forward view, not the view of the issuer, and unless noted in the text, does not incorporate significant acquisitions and divestitures. Sources: Moody’s Financial Metrics™ and Moody’s estimate

7 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

Appendix

Exhibit 9 Peer comparison ASML Holding N.V.

ASML Holding N.V. Lam Research Corp. Applied Materials Inc. KLA Corporation A3 Stable A3 Stable A3 Stable Baa1 Stable FYE FYE LTM FYE FYE LTM FYE FYE LTM FYE FYE LTM (in USD million) Dec-18 Dec-19 Sep-20 Jun-19 Jun-20 Sep-20 Oct-18 Oct-19 Jul-20 Jun-19 Jun-20 Sep-20 Revenue $12,924 $13,233 $15,402 $9,654 $10,045 $11,056 $16,705 $14,608 $16,268 $4,569 $5,806 $5,932 FCF $2,204 -$263 $1,529 $2,194 $1,332 $1,480 $2,560 $2,114 $2,297 $550 $1,103 $1,076 Total Debt $3,577 $5,065 $5,497 $5,224 $6,498 $6,331 $6,682 $6,657 $6,829 $3,909 $3,956 $3,905 Cash + Marketable Sec. $4,612 $5,296 $5,121 $5,431 $6,710 $6,658 $5,598 $5,321 $6,294 $1,739 $1,980 $2,043 EBITDA Margin 33.0% 28.1% 32.1% 29.9% 30.5% 31.2% 30.6% 26.7% 27.8% 37.4% 37.0% 37.8% EBIT / Int. Exp. 69.9x 68.2x 76.1x 21.3x 15.1x 16.6x 19.0x 14.1x 16.4x 11.2x 10.7x 11.5x Debt / EBITDA 0.9x 1.4x 1.1x 1.8x 2.1x 1.8x 1.3x 1.7x 1.5x 2.3x 1.8x 1.7x (Cash + Mkt Sec) / Debt 128.9% 104.6% 93.2% 104.0% 103.3% 105.2% 83.8% 79.9% 92.2% 44.5% 50.1% 52.3% FCF / Debt 59.6% -5.2% 32.3% 42.0% 20.5% 23.4% 38.3% 31.8% 33.6% 14.1% 27.9% 27.6%

Source: Moody’s Financial Metrics™

Exhibit 10 ASML’s historical credit metrics

EUR (million) 2015 2016 2017 2018 2019 LTM Sep-20 INCOME STATEMENT Revenue 6,287 6,795 8,963 10,944 11,820 13,761 EBITDA 1,916 2,131 2,927 3,614 3,326 4,416

BALANCE SHEET Cash & Cash Equivalents 3,409 4,057 3,288 4,034 4,718 4,408 Total Debt 1,161 3,390 3,127 3,129 4,512 4,731 (Cash + Mkt Sec) / Debt 294% 120% 105% 129% 105% 93%

CASH FLOW Capex = Capital Expenditures 413 365 413 677 959 1,101 Dividends 302 446 517 597 1,326 1,006 Free Cash Flow (FCF) 1,350 895 944 1,866 (235) 1,529 FCF / Debt 116.3% 26.4% 30.2% 59.6% -5.2% 32.3%

PROFITABILITY % Change in Sales (YoY) 7.4% 8.1% 31.9% 22.1% 8.0% 25.9% EBITDA margin % 30.5% 31.4% 32.7% 33.0% 28.1% 32.1%

INTEREST COVERAGE EBIT / Interest Expense 51.4x 41.3x 41.0x 69.9x 68.2x 76.1x

LEVERAGE Debt / EBITDA 0.6x 1.6x 1.1x 0.9x 1.4x 1.1x

Source: Moody’s Financial Metrics™

8 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

Exhibit 11 Main adjustments to ASML’s reported EBITDA are operating leases FYE EUR (million) 2015 2016 2017 2018 2019 LTM Sep-20 Total Reported EBITDA 1,873 2,087 2,870 3,413 3,248 4,319

Operating Lease Adjustments 45 45 57 70 78 97

Unusual Items 0 0 0 131 0 0

Analyst adjustments -2 -1 0 0 0 0

Total Adjusted EBITDA 1,916 2,131 2,927 3,614 3,326 4,416

Sources: Moody’s Financial Metrics™

Exhibit 12 Main adjustments to ASML’s reported debt include operating leases and derivatives FYE EUR (million) 2015 2016 2017 2018 2019 LTM Sep-20 Total Reported EBITDA 1,873 2,087 2,870 3,413 3,248 4,319

Operating Lease Adjustments 45 45 57 70 78 97

Unusual Items 0 0 0 131 0 0

Analyst adjustments -2 -1 0 0 0 0

Total Adjusted EBITDA 1,916 2,131 2,927 3,614 3,326 4,416

[1] As of 1 January 2018, ASML has early adopted ASC 842 leases, converting an off-balance-sheet liability into an on-balance-sheet liability. [2] Analyst adjustments relate to fair value of interest rate swaps related to eurobonds. Source: Moody’s Financial Metrics™

Ratings

Exhibit 13 Category Moody's Rating ASML HOLDING N.V. Outlook Stable Senior Unsecured -Dom Curr A3 Source: Moody's Investors Service

9 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

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10 17 December 2020 ASML Holding N.V.: Update to credit analysis MOODY'S INVESTORS SERVICE CORPORATES

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11 17 December 2020 ASML Holding N.V.: Update to credit analysis