ASML Holding (ASML) 20-F2020 FY Annual report (foreign)

In addition to historical information, this Annual Report contains statements relating to our future business and / or results. These statements include certain projections, business trends and other matters that are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify these statements by the use of words like "may", "will", "could", "should", "project", "believe", "anticipate", "expect", "plan", "estimate", "forecast", "potential", "intend", "continue" and variations of these words or comparable words. They appear in a number of places throughout this Annual Report and include statements with respect to our expected trends and outlook, strategies, corporate priorities, expected semiconductor industry trends and 2024 market opportunities and roadmap, expected trends in markets served by our customers, expected market growth and drivers of such trends and growth, expected financial results, including expected sales, EUV revenue, service revenue, expected trends in working capital, gross margin, capital expenditures including expected capital expenditures, R&D and SG&A expenses, cash conversion cycle, target and expected effective annualized tax rate, sales targets and outlook for 2021 and other statements under "-Trend Information", annual revenue opportunity and potential and growth outlook for 2025, expected growth in 2021, expected continued growth in free cash flow generation, investments in the future and cash returned to shareholders, our Strengths, Weaknesses, Opportunities and Threats (SWOT), expected demand for upgrades, semiconductor industry dynamics and industry opportunities, expected trends in customer demand and demand for particular systems and upgrades and expected trends in end markets, including Memory, Logic and Foundry, including the continuation of investment by Logic customers in ramping new nodes and stronger lithography demand from memory customers, expected benefits of High-NA and planned target to start shipment of High-NA systems and high-volume production of systems using High-NA by 2025, 2024 market opportunities for semiconductor industry end markets, expected innovation drivers, expected drivers of long-term stakeholder value, expected trends in DUV systems revenue, expected DUV sales and the expectation that DUV will continue to drive value for our customers and be used in production in most layers of their chips, expected benefits of Holistic Lithography and expected installed based management revenues, our supply chain strategies and goals, customer, partner and industry roadmaps, ASML’s applications business, expected development of High-NA and its benefits, including the expected timing for development of future generation EUV systems, expected growth in EUV revenue the expected benefits of the indirect interest in Carl Zeiss SMT GmbH and the acquisition of Berliner Glas, expected EUV margins and margin improvement in our systems and service via cost reduction and value delivery, expected productivity and benefits of our tools, systems, and projects, EUV productivity targets and goals, potential future innovations and system performance, expected shipments of our tools and systems, including demand for and timing of shipments, statements with respect to DUV and EUV competitiveness, the development of EUV technology and EUV industrialization, expected productivity upgrade releases, enabling high-volume production of next generation chips and expected designs of such chips and their benefits, and revenue recognition, predicted growth in wafer production, sustainability targets, goals and strategies, shrink being a key driver supporting innovation and providing long-term industry growth, lithography enabling affordable shrink and delivering value to customers, sustainability strategy, goals and targets, including circular procurement goals, targeted greenhouse gas emission and waste reduction and recycling initiatives and investments, repair center expansion and targets, our expectation of the continuation of Moore’s Law and that EUV will continue to enable Moore’s Law and drive long-term value for ASML well beyond the current decade, tax strategy, capital allocation policy, dividend policy, our expectation to continue to return cash to our shareholders through share buybacks and dividends including our proposed dividend for 2020 and statements relating to our share buyback program for 2020-2022, and statements with respect to the expected impact of accounting standards.

These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and our future financial results and readers should not place undue reliance on them. Forward-looking statements do not guarantee future performance, and actual results may differ materially from projected results as a result of certain risks, and uncertainties. These risks and uncertainties include, without limitation, those described under How we manage risk - Risk factors. These forward-looking statements are made only as of the date of this Annual Report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

It was a year that affected us all due to the global COVID-19 pandemic. The impact has been widely felt across societies and families, as well as in the ASML community. But it was also a year that brought new learnings. For me personally, for instance, if you'd asked me 12 months ago if I could lead a company of over 28,000 people of which over 80% were at home, I would have said: “Are you out of your mind? Of course that won't work!" But this is what happened in 2020 – and it has worked. We even managed to close the acquisition of Berliner Glas Group, and welcomed around 1,600 new colleagues into ASML.

While recognizing fully the severity of the pandemic, I also see 2020 as a year that underlined the importance of our work at ASML. Around the world people were abruptly confined to their homes and forced to work from their study, kitchen or bedroom. What was remarkable is that despite this widespread working from home, few companies experienced productivity loss.

And let's not forget the many colleagues in our factories, and those who went to customers' factories and worked under very difficult conditions. Those who had to take long-distance trips to serve our customers were quarantined for weeks and forced to stay in their hotel rooms. Their dedication is nothing short of amazing and reflects the true ASML spirit. For those who had to work from home, the trust we put in their hands was returned with incredible flexibility and commitment. We even had to urge our colleagues to take breaks to stay physically and mentally fit. All of this was possible because the digital tools that the high-tech industry has developed over the past two decades proved sufficiently mature to support individuals and, even more importantly, collaboration in virtual teams. ASML systems have contributed significantly to advance and make affordable the necessary electronic building blocks for this digital transformation.

During 2020, we collaborated closely with our partners in the supply chain to ensure we could continue to manufacture and ship systems to our customers. The situation was very dynamic and I am impressed with the way that we managed to deal with the many challenges. This is how, collectively, we limited the impact of COVID-19 on our company. We kept up our strong financial performance and we were able to continue to return capital through dividends and share buybacks.

The global economic consequences of COVID-19 had a limited impact on ASML' results. Declining consumer spending on smartphones and automotive was offset by increasing investments in 'working-from-home' electronics, datacenters and the communications network infrastructure needed to support an economy where data is an important driver of economic value and productivity.

ASML does not produce these electronic devices or the software and digital services that run over them, but our systems are essential to manufacture the semiconductors that power this ecosystem. ASML and other semiconductor equipment peers are an integral part of this global electronic ecosystem of many dozens of companies that generates $400 billion worth of annual taxable profit. It is the strong performance of our entire ecosystem that powered the demand for our products and services this year, and enabled us to deliver record results.

We divide our customers into two main market segments. First, the customers who produce Logic chips, who kept their steady pace of increasing investments in new production nodes. This explains the increasing demand for our most-advanced EUV systems, which customers need for the ramp of 5 nm chip production and the preparation for 3 nm chips. These advanced chips, the size of a thumbnail, contain up to a dozen billion transistors, which will power the latest and greatest smartphones, computers and other data-processing devices.

Second, the market segment of customers who produce Memory chips, who started the year in a 'wait and see' mode, but showed signs of recovery throughout the year. The Memory segment routinely experiences supply and demand swings, which you need to visualize as a continuously upward swinging trend.

The underlying growth in Memory 'bit' demand is the result of continuously rising data traffic that needs to be stored on servers and consumer devices. Our customers can meet this increase largely by shrinking the size of the memory transistors on their chips. They do this by adding more advanced ASML systems to make the smallest features on the chip even smaller. If the global economy is strong or when new data-hungry applications are introduced, the demand for Memory rises even faster. In this case, the Memory makers need to add new production lines or even entirely new fabs. To support the projected bit growth, we expect that customers will need to add more capacity, as observed in our Q4 results.

The digital transformation and wider technology trends significantly shape our roadmap and are driving our industry forward. Our Logic customers are very clear that they will continue their investments in ramping new, more advanced nodes. The pace will depend on the health of the global economy, and even more so on the value provided by the electronics and semiconductor industries, which are enabling the world's digital transformation. For the Memory segment, demand did not outpace supply in 2020, due to COVID-19 uncertainty. Based on our customers’ comments at the end of 2020, and improving market conditions, we expect to see stronger lithography demand from Memory customers in 2021 versus 2020.

Another significant revenue stream comes from service and upgrades of ASML systems installed at our customers’ fabs. We expect our service revenue to grow with a growing installed base, whereas our upgrade business is more dependent on the release of new upgrades and the interest and capability of our customers.

In summary, although we are currently going through a period of near-term uncertainty, the outlook for 2021 is positive, and the long-term demand drivers have only increased confidence in our future sustainable growth outlook towards 2025.

When I am asked what the future holds, my first response is that of course there are many uncertainties in today's world. We don't know what the effects of the COVID-19 crisis will be. In addition, geopolitical tensions and export control issues could have a significant impact on our industry. Looking specifically at our company, short-term business cycles and fluctuations in the global economy may have an impact on our business performance, even when the long-term megatrends provide us with a solid foundation. Most important is that we continue to put the customer at the heart of our business. Listening to the customer may sound obvious, but having direct interaction and communication with our customers is no longer possible for all ASML employees. We are making an extra effort to bring the voice of our customers to all ASML employees, through the online and off-line channels at our disposal.

Everyone at ASML is constantly reminded of the reality that ASML systems are at the heart of our customers’ fabs, and in many cases our systems are even at the heart of our customers’ business strategies. This is a tremendous responsibility that should weigh heavily on all our shoulders. This feeling of responsibility and humility starts with the people who design and develop new systems and solutions. It continues with the folks who assemble the systems in our factories and our service engineers in the field. It is carried all the way to our office staff who provide support to their colleagues around the world. As long as we cherish this 'customer-centricity', we will continue to deserve the trust that our customers have put in us.

It's clear there is increasing interest in companies’ ecological and social footprints. We continue to apply corporate responsibility standards in the pursuit of our business ambitions. Our innovation ecosystem, energy-efficient products, circular use of materials and a responsible supply chain are our key sustainability priorities. These are vital for the long-term success of our business and long-term value we create for all our stakeholders.

We continue to accelerate talent development and we promote a diverse and inclusive workplace that drives creativity and new ideas. We also drive collaborative innovation in environmentally friendly solutions for our customers. We are strongly committed to ethical business behavior, and we play an active role in promoting high standards of business conduct across the value chain. Outside the walls of our organization, we are committed to supporting schools with science, technology, engineering and math (STEM) subjects, particularly among female students, to support children and young adults to unlock their potential.

Our customers run very tight operations in gigantic fabs worth tens of billions of euros. A small disruption in the production process can disrupt their supply of chips for weeks. This means that the quality and availability of ASML systems are more important than ever before. In addition, as our industry grows, the impact that we and our customers have on our societies and communities also grows. All our customers have ambitious sustainability targets and they expect ASML to help them achieve those targets by, for instance, reducing energy consumption and also by being a responsible employer and good corporate citizen.

We welcome these ambitions, because they align perfectly with our purpose, our vision and our values.

Of course, our company was impacted by the pandemic too, and in this Annual Report, we will describe its effect on our organization, the challenges we faced, and how we overcame these to continue to run our business.

At ASML, as with many other companies, there was an intense period at the start of the year when we had to introduce, develop and communicate our crisis-management measures. In a very short time, we moved from a policy of 'stay home if you have flu-like symptoms' to 'stay at home, period'. Fortunately, and in accordance with strict safety measures, our colleagues working directly in the production of our scanners, in the clean rooms, logistics or other supporting departments were able to continue their work in otherwise deserted locations.

We have two very clear priorities in our crisis response and communications, then and now. Our number one priority is to ensure the health and safety of our people and their families. The second priority is to ensure business continuity: manufacture our products, provide service to our customers, and develop future products according to our roadmap.

In all our health and safety measures, we follow the guidelines of the World Health Organization and local health authorities. And although we developed an ASML-specific policy worldwide, we follow national government measures in the regions where we operate.

We know that COVID-19 is not behind us, but looking back on 2020, we can say we have delivered on our priorities.

We have also learned how important ASML’s company values are, and why we need them now more than ever. When the future is uncertain and there are no easy answers, these values of Challenge, Collaborate and Care have and will provide a strong foundation for everything we do. In 2020, we really lived our values, and they united us in many ways. They are our DNA. For example:

Throughout the year, our people were our top priority: keeping them safe by creating a secure workplace, providing mental and physical health support, and staying in close contact even when working remotely. Undoubtedly, this experience has made us stronger as a global team.

Then, although it was not always easy, we were able to continue to run our business and serve our customers. Our operational capabilities returned to normal in the second quarter. We were able to source the modules and parts for our products, complete installs and upgrades, and service our customers across the globe.

One of ASML’s strengths as a company has always been that its people pull together when we need to most. The past year certainly stands as testimony to this strength.

For all the ways we have moved forward as a society, the world faces crucial challenges for the future. We must change how we think and act on themes that impact everyone, like energy use, climate change, mobility and access to healthcare and nutrition.

As the innovation leader that makes vital systems for chip manufacturing, we are proud to not only be a part of these solutions, but also the ones who are making them possible. We can only play this role if we continue to challenge the status quo, tap into the collective knowledge of our global ecosystem and create an environment where people can contribute, learn and grow. At ASML, we believe our purpose is to unlock the potential of people and society by pushing technology to new limits.

The long-term growth of the semiconductor industry is based on the principle that the energy, cost and time required for electronic computations can be reduced by shrinking transistors on microchips. One of the main drivers of shrink is the resolution that systems can achieve, which is mainly determined by the wavelength of the light used and the numerical aperture of the optics. A shorter wavelength – like a finer brush used for painting – can print smaller features. A larger numerical aperture can focus the light more tightly, which also leads to better resolution. To enable shrink, what we do – lithography – is key.

As such, we are a focused supplier of holistic lithography solutions to all of the world’s major chipmakers. Our mission, together with our partners, is to provide leading patterning solutions that drive the advancement of microchips. Through our sustained investment in, and dedication to, research and development, we innovate at least at the same pace as our customers. We put our innovations in the hands of chipmakers as quickly as possible by engineering in parallel, not sequentially, while ensuring their quality, reliability, manufacturability, and serviceability.

To help solve humanity’s toughest challenges while at the same time addressing our own, we must continue to amplify ASML's core values that created our success – Challenge, Collaborate, Care.

We challenge boundaries, question the status quo and stand up for the ideas we believe in. We’re comfortable with discussion and debate, because it is often inherent to stress-testing and championing an idea. This is what enables us to push technology forward,

keep things simple and do things with care and attention. We always challenge ourselves to add value for our customer, ensuring we continually improve across key aspects, like safety, quality, efficiency and cost.

As a system architect and system integrator, we collaborate to tap into our collective potential. Together with our partners in our ecosystem, we expand our knowledge and skills, learn from each other, and share approaches to deliver the best results. What we do is unique, and we need each other to make it possible. As we continue to grow and our ecosystem of partners expands, this collaborative mindset becomes even more essential to success.

As we push technology further together, we have to do so with care. As an industry leader, we realize our impact extends from people, to society, to the planet. We care not only for those we work with, but for our customers, suppliers, the world we live in, and the communities where we do business. We believe in integrity and respect for people and their human rights. We take personal responsibility to create a safe, inclusive and trusting environment where people from all backgrounds are encouraged and enabled to speak up, contribute, learn, make mistakes, and grow. We also take care to create clarity in how we organize ourselves to achieve our goals, making sure we have a clear framework for what we do and how we do it.

These values will help our company and our employees to make smart decisions that will benefit all stakeholders. Our values and purpose, together with the great responsibility we have as an industry leader, make us keenly optimistic for the future.

Our company was founded in 1984 in Eindhoven under the name of ASM Lithography, a joint venture between Philips and ASM International. As they moved into their new space near the Philips factories at Strijp-T in Eindhoven, our first employees could never have imagined that in just three decades, ASML would be a global innovation leader.

We’ve grown from our humble beginnings to a global force through relentless focus on innovation, sheer customer focus through tough times, and a willingness to rely on others to come to a better result.

Although we’re constantly looking to the future, where we have come from is just as important to us as we evolve. These pioneering behaviors have been key to our success over the past 36 years, and they’ve become even more important to us as we continue to define our purpose and articulate the values that underpin everything we do. Understanding what made us successful in the past will help us maintain our success in the future.

Innovation is rarely a straight line. We've always known that it takes laser focus, multidisciplinary teamwork and a keen eye for how we can best help our customers. And even then, we've had to show grit. It took a decade of tenacity to get our technology off the ground. We've cared for this company like it was our own, and are proudly committed to its success. We believed then as we do now that even the biggest challenge can be overcome by chipping away, if necessary with hundreds of people over many years.

Lithography is a driving force in the creation of more powerful, faster and cheaper chips. Today’s most advanced processors, based on the Logic N5 node, contain billions of transistors. But shrinking transistors further is becoming increasingly difficult. We aren’t as close to the fundamental limits of physics as some would think. Next-generation chip designs will include more advanced materials, new packaging technologies, and more complex 3D designs, which will create the electronics of the future.

The manufacturing of chips becomes increasingly complex as semiconductor feature sizes shrink, while the imperative to mass produce at the right cost remains. Our holistic lithography product portfolio helps to optimize production and enable affordable shrink by integrating lithography systems with computational modeling, as well as metrology and inspection solutions. Our computational models enable our customers to optimize their mask design and tape-out time. This works through mask-correction software to prepare and modify the design for optimized exposures, while the inspection solutions help in analyzing and controlling the manufacturing process in real time.

A lithography system is essentially a projection system. Light is projected through a blueprint of the pattern that will be printed (known as a ‘mask’ or ‘reticle’). With the pattern encoded in the light, the system’s optics shrink and focus the pattern onto a photosensitive silicon wafer. After the pattern is printed, the system moves the wafer slightly and makes another copy on the wafer.

Moore’s Law, a prediction made over half a century ago, set the pace for our industry. Gordon Moore predicted that computing would dramatically increase in power, and decrease in relative cost, at an exponential pace. In other words, the number of transistors (tiny electrical switches) on an integrated circuit will double every two to three years at the same cost. This opens up two options to make microchips faster and more powerful: by using the same number of transistors on a chip at half the cost, or by doubling the number of transistors at the same cost. Even today the power of this prediction is the fundamental principle of the semiconductor industry and the driving force for innovations that benefit our daily lives.

At ASML, our job is to help the industry continue Moore’s Law. Our goal has always been to reduce the critical dimension (CD) – the smallest structure that a lithography system can print. This is defined by Rayleigh’s criterion, the equation on which all our innovation is based:

ASML's goal has always been to reduce the critical dimension. By reducing the wavelength and increasing the numerical aperture, our systems can print IC structures in increasingly smaller feature sizes. If our customers can print smaller structures, the chips can be smaller and the cost per transistor become cheaper, which in turn makes it more profitable for our customers.

Extending Moore’s Law is becoming increasingly complex and costly. What will always be needed is a way to mass produce IC designs at the right cost. That’s where the full scope of ASML’s product portfolio will continue to play a big role to ensure affordable transistor shrink. We continue to push our entire system portfolio to new productivity levels and imaging performance. Our EUV and High-NA lithography will enable tomorrow’s most advanced chips. In our computational lithography solutions, we’re bringing machine learning and big data to the forefront in predicting both lithography and metrology processes with 100% accuracy. Finally, we have developed an entirely new class of e-beam inspection systems to help our customers control defectivity in manufacturing in next-generation chip nodes, as those smaller structures can hardly be detected with optical inspection.

We continue to push our lithography systems to new levels of productivity and imaging performance so that chipmakers can continue to shrink nodes. However, as shrink continues, our customers face unprecedented engineering, material, structural and manufacturing difficulties. Our holistic lithography solutions integrate products from across our portfolio to help address these challenges. We help customers achieve their pattern fidelity requirements through increased control over the quality and consistency of the patterns being printed on the chip with our metrology and inspection systems and computational lithography solutions. In addition, we support our growing installed base with best-in-class customer support. Our highly differentiated solutions provide unique value drivers for our customers and ASML, working together to ensure affordable shrink.

More than two decades ago we started with the development of EUV technology. For sure it was "no walk in the park" and since the start we invested more than €6 billion in R&D, as well as acquired Cymer to accelerate EUV source technology, and helped to solve several technical challenges to enable the EUV infrastructure to meet our customers high-volume manufacturing requirements. This partially explains why ASML is the world’s only manufacturer of EUV lithography systems.

Our EUV platform extends our customers’ Logic and Memory roadmaps by delivering resolution improvements, state-of-the-art overlay performance and year-on-year cost reductions. EUV lithography uses light with a wavelength of just 13.5 nm. This is a reduction of almost 15 times compared to the other lithography solution in advanced chipmaking, deep ultraviolet (DUV) lithography, which uses 193 nm light. This allows our customers to use EUV single exposure instead of very complex multiple-patterning ArF immersion exposures, and allows them to further shrink the structures. Our EUV product roadmap is intended to drive affordable scaling to 2030 and beyond.

TWINSCAN NXE:3400C is our latest-generation EUV lithography system. It combines productivity, highest resolution, state-of-the-art overlay and focus performance, while also improving availability. Our next EUV model on this platform, the NXE:3600D, is planned for delivery in mid-2021 and will provide further productivity gains plus a significant improvement in overlay.

We are also developing the next generation of EUV lithography systems with a higher numerical aperture (NA), known as High-NA technology. Our customers have ordered R&D system to evaluate the high-volume production opportunities in the 2025 time frame. This technology will enable geometric chip scaling beyond the current decade, offering resolution and overlay capability that is 70% better than our current EUV platform.

Although EUV is entering the high-volume manufacturing era, DUV lithography still produces the majority of layers in a customer device today and will remain important for future devices. Therefore, ASML continues to develop DUV systems to improve value for our customers. We offer immersion and dry lithography solutions that help manufacture a broad range of semiconductor nodes and technologies. Our DUV immersion and dry systems lead the industry in productivity, imaging and overlay performance for high-volume manufacturing of the most advanced Logic and Memory chips, while continuing to deliver value for the matured nodes.

An enhancement to ArF lithography, immersion lithography maintains a thin film of water between the last lens element and the wafer, increasing NA and improving resolution to support further shrink. Our immersion systems are suitable for both single exposure and multiple-patterning lithography, and can be used in seamless combination with EUV systems to print different layers of the same chip.

TWINSCAN NXT:2050i is our current state-of-the-art immersion system and is being ramped up in high-volume manufacturing of the 5 nm Logic and third generation of 10 nm DRAM nodes. The NXT:2050i is based on a new version of the NXT platform, which includes new developments in the reticle stage, wafer stage, projection lens, and exposure laser. Thanks to these innovations, the system delivers better overlay control at higher productivity than its predecessor.

Our portfolio of dry systems offers tool types for all wavelengths currently used in the semiconductor industry, from i-line using 365 nm wavelength, KrF using 248 nm and ArF using light of 193 nm supporting the continued progress to enable shrink.

TWINSCAN NXT:1470 is our latest dry ArF lithography system. It is also the first dry NXT system, building on our successful immersion platform, and delivers improvements in matched machine overlay, productivity and its footprint in the fab.

TWINSCAN XT:860M is our most popular KrF system, supporting high-volume 200 mm and 300 mm wafer production at and below 110 nm resolution. For more critical KrF layers, the higher-NA TWINSCAN XT:1060K is our most advanced KrF lithography system, and offers best-in-class resolution and overlay.

TWINSCAN XT:400L is our latest i-line lithography system, printing features down to a resolution of 220 nm for 200 mm and 300 mm wafer production.

Delivering speed and accuracy, our metrology and inspection portfolio covers every step of the manufacturing process, from R&D to mass production. The information captured through our metrology and inspections systems helps us to control the thousands of knobs in the scanner to enlarge the process window and improve yield for our customers. Together with our computational lithography and patterning-control software solutions, these systems help chipmakers achieve the highest yield and best performance in mass production.

Our YieldStar optical metrology solutions can quickly and accurately measure the quality of patterns on the wafer.

YieldStar 385H offers the latest in-resist post lithography overlay and focus metrology, with enhanced throughput and accuracy. Overlay, how well one layer is aligned to its previous layer, is becoming more important as structures get smaller and error tolerance reduces. Compared to previous systems, key enhancements include a faster stage and faster wavelength changing. This enables highly accurate overlay measurements and tool matching using multiple wavelengths without impacting throughput.

YieldStar 1375F is the only optical tool on the market for fast, accurate in-device overlay and metrology. Capable of measuring multiple layers at once, it helps customers improve yield through post-etch process control.

Our HMI e-beam solutions allow customers to locate and analyze individual chip defects amid billions of printed features, extending the possibilities for process control. Historically, e-beam solutions were too slow to monitor volume production processes. However, ASML has made progress in various methods for increasing the throughput of e-beam systems.

Our pattern fidelity metrology option draws data from a wide variety of sources, analyzing it using predictive models to identify hotspots where defects are most probable or most critical. This insight is used to guide the e-beam inspection system and optimize scan strategies, increasing the effective productivity.

In addition, in 2020 we shipped the first multiple e-beam (multibeam) inspection system. The HMI eScan 1000 demonstrated successful multibeam operation, simultaneously scanning with nine beams. It increases throughput by up to 600% compared to single e-beam systems, thus reducing the cost of inspection.

Our computational lithography and software solutions revolve around creating applications that enhance the setup of the lithography system so chipmakers can print exactly what they want to print. Accurate simulation models of the lithography process are a foundational element for all these applications. These models represent a wide variety of physical and chemical effects. Machine learning solutions are now broadly used in the simulation models as well as in the applications.

The installed base of ASML systems continues to grow, with many systems finding second or even third lives at new owners in new markets and applications. To provide all our customers with the best possible value proposition, we offer an extensive Installed Base Management portfolio, including a wide range of service and upgrade options.

We develop and sell product options and enhancements designed to improve throughput, patterning performance and overlay. Through field-upgrade packages, it is possible to upgrade older systems to newer models in the field. This enables customers to optimize their cost of ownership over the system’s lifetime.

Meanwhile, our Mature Products and Services (MPS) business refurbishes used lithography equipment and offers associated services. We focus on the refurbishment of three product families: the ‘classic’ PAS 5500, the first generation AT systems, and the early generation NXT and XT systems. We are investing to be able to extend the lifetime of the PAS platform until at least 2030.

We support our customers with a broad range of applications, services, and technical support products to maintain and enhance our systems' performance. We have more than 6,200 customer support employees, including service engineers and applications specialists, who work to ensure the systems in our customers’ fabs run at the highest levels of predictability and availability. We offer 24/7 support, next-day parts delivery, an easy, centralized customer portal, and training for customer engineers.

Visit www.asml.com for more product details and specifications.

Our customers can be grouped into Memory and Logic chipmakers.

Memory chips can store a large amount of data in a very small area. They are used in an increasing variety of electronic products like servers, data centers, smartphones, high-performance computing, automotive or personal computers, and other communication devices. There are two main classes of Memory: NAND and DRAM.

With NAND chips, data can be stored even when a device is powered off. DRAM memory is used to efficiently provide data to the processor. These DRAM and NAND chips are typically made in dedicated Memory-chip factories.

Logic chips, which process information in electronic devices, are produced by two groups of manufacturers. The first group, known as integrated device manufacturers (IDM), designs and manufactures Logic chips. The second group comprises contract manufacturers known as foundries. Foundry manufacturers produce chips for ‘fabless’ companies, which focus only on chip design and distribution, but do not manufacture themselves.

Both Logic and Memory chips can vary greatly in complexity and capability. For example, the most advanced chips are powering leading-edge technology in artificial intelligence (AI), big data and automotive technology, while the simpler, low-cost chips are integrating sensing capabilities in everyday technology to create a vast IoT.

The chip market has grown by 5% per year on average over the past 20 years, but the factors driving this growth have radically changed. In the 1990s, personal computers (PCs), both desktops and later laptops, drove chip demand. In the first decade of this century, the market driver evolved from PCs to smartphones. These in turn produced new market drivers, data centers and cloud solutions, where data from PCs and smartphones is routed, processed and stored with the extensive use of specialized Logic chips, in combination with DRAM, NAND and HDD storage.

The transition to ubiquitous computing is enabled by what has been termed the ‘artificial intelligence of things’ (AIoT). AIoT is a smart and connected network of devices that seamlessly communicate over powerful 5G networks, allowing us to unleash the power of data better and faster than ever. This combination of artificial intelligence (AI) technologies with the internet of things (IoT) infrastructure will achieve more efficient IoT operations, improve human-to-machine interactions, and enhance data management and analytics. The potential of AIoT will gradually open up as IoT and AI increasingly intertwine, facilitated by 5G. The vast amount of data that people can access, and the insights this provides, will fuel semiconductor business growth and transformation.

Moore's Law is the guiding principle for the semiconductor industry, the motor driving the industry to transit from mobile computing to ubiquitous computing. This amplification continues to expand, facilitating three major trends in computing: applications, data and algorithms.

These three trends supports several segments and applications, such as:

Smart home devices such as thermostats, lights and smart TVs learn a user’s habits to provide automated home support for everyday tasks. Applications: energy efficiency, safety, entertainment, access control and personal comfort.

Smart industry devices use real-time data analytics and machine-to-machine sensors to optimize processes. Data generated from these devices helps foresee bottlenecks, preventing errors and injuries. Applications: autonomous manufacturing robots, automated supply chain management and predictive sensors.

Smart cities that integrated all levels of municipal services. Applications: open data for better urban planning, optimized energy consumption and increased public safety through smart traffic surveillance.

5G enables a new kind of network that is designed to connect virtually everyone and everything together including machines, objects, and devices. It empowers new user experiences and connects new industries.

Wearable devices continuously monitor and track user preferences and habits. Applications include fitness and health trackers, heart-rate monitoring and wireless headphones.

These supercomputers on wheels are enabled by electronics and semiconductors. Autonomous vehicles offer ADAS (Advanced Driver Assistance Systems) features that reduce accidents and casualties and allow us to stay connected continuously through infotainment systems.

A new generation of lightweight robots fitted with smart sensors enables humans and machines to collaborate closely and safely. Smart robots that are connected to a greater network can benefit from big data and collective learning making it possible to reduce manufacturing costs and improve quality of products.

Combining augmented reality and virtual reality technology will bring together the real world and digital elements and create the next-level user experience with potential applications in education and training, healthcare, entertainment. For example, imagine you can interact with your teacher and co-students as if you are in the class-room, but this time from your living room.

Using devices connected to patients (bracelets, watches, and more) allows us to collect data on the health status of patients to diagnose disease in advance, provide treatment (even remotely), and prevent critical situations. When joining forces with AI, machine learning can save lives.

Semiconductor technology plays a crucial part in shaping the interconnected and intelligent network future, and end markets continue to grow. The overview below shows the current market size and market opportunity for the entire industry based on external research of market outlook.

Several factors are shaping the semiconductor industry landscape. These are some of the major trends driving industry development, today and tomorrow.

Highly skilled people with a technical background are scarce in the labor market and competition is growing. Top-tier talent select their employer of choice, not the other way around. The global race for talent is becoming more crucial as the industry competes for a small pool of scientists, engineers and software developers with the skill set to develop innovative solutions.

The current trade environment presents significant challenges for the global semiconductor industry, and trade tensions and increased protectionism are likely to continue. US authorities took steps that further restrict US chipmakers and other companies from doing business with China. These actions are impacting the semiconductor industry’s ability to conduct business in the global marketplace.

In the rapidly evolving semiconductor industry, access to the latest technologies, chip designs and manufacturing processes is the basis for competition. R&D is an ever bigger priority and expense. Chipmakers are faced with supporting applications and end markets that are becoming increasingly complex. Traditional semiconductor companies are challenged to diversify their portfolio, due to the rise of tech platform companies moving to in-house chip design.

To capitalize the convergence of mega trends such as AI, IoT, 5G and autonomous vehicles, the industry is investing significant amounts in assets that can unlock value across the portfolio.

Climate change is an urgent matter around the world. It is a global challenge that requires global responsibility to limit a temperature rise to well below 2°C. Our industry has a role to play.

The semiconductor manufacturing process consumes large volumes of energy and water resources. Driving Moore’s Law in enabling shrink and, at the same time, improving computing power and storage capacity, fuels the demand for these resources. New architectures and a new way of looking at the entire ecosystem will be required to enhance energy and water-resource efficiency.

Acting on the global trends and developments in the semiconductor industry and in society is an important factor in the success of our business, as well as in creating value for our stakeholders. Using these external and internal factors, as well as current and future potential, we have evaluated our company's competitive position in the environment we operate in. The following table provides a brief overview of our strengths, weaknesses, opportunities and threats (SWOT). More information on how we manage the topic can be found in the reference sections.

We aim to use these forms of capital in the most effective way to generate long-term value for all of our stakeholders.

Our core values - Challenge, Collaborate, Care - are a key contributor to our culture aimed at long-term value creation and as such an important enabler in the execution of our strategy. Read more in: Our core values, Our people. We define our long-term value for all our stakeholders as follows:

Our large and sustained investments in research and development to execute our business strategy enable us to maintain our position as a leader in holistic lithography. Our innovations contribute to the long-term growth of the semiconductor industry, which benefits our solid financial performance and capital return policy.

As one of the world’s leading manufacturers of chip-making equipment, we invest in innovations that enable the continued shrink of microchips. With EUV and the next generation of EUV, High-NA, we secure the continuation of Moore’s Law. This allows our customers to develop ever-more powerful chips for new applications and devices. At the same time we help our customers to reduce their costs and environmental footprint by embedding circularity principles in our products.

As we grow and our innovations enter ever-higher levels of complexity, we want our suppliers to grow with us. We innovate together with our supplier network, sharing knowledge and tapping into each other’s technology expertise. Long-term relations, close cooperation and transparency with our suppliers are key to our success.

Our workforce has grown steeply in recent years. In the past five years, we have created around 12,000 jobs in the communities where we operate. For example, with 14,269 employees in Veldhoven (our headquarters) we are a major employer in the community. We are a proud employer of 120 nationalities, allowing for diverse points of view in our quest to develop the best ideas. Developing our people is crucial to the sustained success of our business, so we invest in their career development and well-being.

With our continuous innovations, we enable new technology that supports the growth and transformation of the semiconductor industry, using artificial intelligence to offer new applications and services to address society’s needs. Through our innovation ecosystem we nurture innovation by giving back to society, such as sharing our expertise with universities and research institutes, supporting young tech companies, and promoting STEM education worldwide. We also develop groundbreaking technology to reinforce our innovation footprint and minimize our environmental footprint. We do this by minimizing waste, maximizing the value of material we use, and taking every step possible to lower our carbon footprint.

To enable ‘edge’ – which brings computation and data storage closer to the location where it is needed – our customers continue to invest in developing more advanced semiconductor processes to create more powerful Logic and Memory microchips. At the same time, these also need to be more energy-efficient and cost-effective.

We innovate across our entire product portfolio at the same pace as our customers through large and sustained investment in research and development. To accelerate our product development, we engineer in parallel, not sequentially, all the while guarding the product’s quality, reliability, manufacturability and serviceability. This enables us to get our innovations into the hands of chipmakers faster. We collaborate with chipmakers to understand how our technology best fits their needs, including their challenges and visions of the future. It is through this collaboration and trust that we can build for today and develop for tomorrow.

To realize our long-term strategic vision within the semiconductor industry, we continue to drive our core strategy, which we define around five major pillars: Strengthen customer trust, holistic lithography and applications, DUV competitiveness, EUV industrialization and High-NA.

At the same time, we want to ensure a sustainable impact while providing the best value for our stakeholders – today and in the future. Staying focused on what matters for our business and stakeholders is the cornerstone of our strategy. Through a materiality assessment, we identify and assess the topics most relevant to our stakeholders and which sustain ASML's long-term business growth. (Read more in: Materiality - assessing our impact)

We are committed to sustainability. To accelerate our sustainability performance, we focus on five strategic areas of sustainability, to create long-term value for our stakeholders, shape a sustainable future, and contribute to the United Nations Sustainable Development Goals.

Our ability to innovate is crucial to our business success. Through our innovations, we help our customers achieve their goals and realize new technology and applications. We have a solid system in place to manage and enhance innovation, achieving significant breakthroughs in recent years.

In the same way, we work closely with our suppliers, trusting them to manufacture parts and modules for our systems. Many of them are deeply involved in developing new technology and achieving the innovations we seek. With some of these so-called ‘farmout suppliers’, we work as co-investors.

For example, we’ve been in partnership with Carl Zeiss AG for over three decades. This partnership runs according to the principle of ‘two companies, one business’ working together to drive operational excellence. To accelerate innovation in High-NA technology, we hold an interest in and support Carl Zeiss SMT in R&D and other capital investments for the design of optical columns in our lithography systems.

We co-develop expertise within a wide network of technology partners, such as universities and research institutions. Some of our partners include imec in Belgium, the technical universities in Twente, Delft and Eindhoven in the Netherlands, and the Advanced Research Center for Nanolithography (ARCNL), also in the Netherlands. In 2020, as in previous years, these partnerships delivered good results.

Since its start in 2014, ARCNL developed towards a mature research institute. With funding from UVA, VU, NWO and ASML this institute conducts fundamental research, focusing on the physics and chemistry that are important in current and future key

technologies within nanolithography and its application within the semiconductor industry. In 2020, we enhanced our collaboration with ARCNL and a close interaction is now established on all topics ARCNL is working on.

We collaborate with, among others, a colleague semiconductor equipment company Lam Research (US) to further improve our EUV technology. In 2020, Lam introduced a new dry photoresist technology for EUV patterning that offers significant improvement in EUV lithography resolution, productivity and yield. This new technology will enable lower dose and increased resolution. By using five to 10 times less raw materials, Lam’s dry resist approach generates significant savings for customers on running costs, while delivering a more sustainable use of our EUV technology.

Every day, more than 10,000 of the brightest minds in R&D take on the exciting challenge to innovate the most advanced lithography systems in the world. We manage this process by balancing our customers’ needs, product capabilities and technology solutions. To stay ahead, we invest heavily in R&D. In 2020, we spent €2.2 billion on R&D, compared to €2.0 billion in 2019.

The constant stream of new ideas is crucial to fill our technology pipeline that flows through the so-called ‘innovation funnel’. Here we select new ideas that have the potential to advance our products and customer application. Ideas that successfully pass the ‘proof of concept’ stage in our Research department are transferred to the Development & Engineering (D&E) department. D&E takes them on into our Product Generation Process (PGP) for product development. We then build and test system prototypes in the necessary environments. Prototypes that pass these tests may eventually lead to new product releases.

Our D&E engineers drive our machines forward by creating new components or subsystems, integrating them into the functional system, or developing new applications to help move the industry forward.

We continue to make solid progress in EUV. For example, in 2020 we successfully introduced a new vacuum chamber for the EUV light production, the so-called modular vessel. The success of this breakthrough modular vessel project was due to close collaboration with customers, technology partners and suppliers, and a dedicated effort to integrate competences.

This new modular vessel solves the issue of lengthy system downtimes when parts were virtually inaccessible leading to long down time of the EUV machine during regular maintenance requirements. Next to the new vessel architecture, the tin droplet generation and positioning received a complete design overhaul to enable the supply of tin to be refilled while the EUV source remains operational. This eliminated the need for a costly operation in terms of time, effort and man-hours. While systems without inline refill like the S3-GWE vessel need to shut down weekly for a six-hour tin refill, for systems with a modular vessel, the inline refill is a major time-saver improving availability and increasing value to the customer.

An important achievement in our DUV technology was the shipment of our first NXT:2050i system. The scanner is equipped with the new XLR 960ix laser developed by Cymer, an ASML company. This scanner is based on improvement in so-called ‘speckle’ performance, and moves both overlay and productivity forward significantly. The NXT:2050i enables the next-generation DRAM nodes, and is also crucial in meeting future requirements in Logic chip production.

The first shipment of our NXT:1470 was another milestone in DUV. It is the first lithography system that produces more than 300 wafers per hour. The NXT:1470 is also the first ‘dry’ DUV system based on our NXT platform, which was previously used for immersion products only.

To nurture innovation by our future talent pool and to fuel the innovation pipeline we collaborate and establish partnerships with various universities and institutes. This collaboration allows us to accelerate innovation and gives us access to a large pool of research scientists, high-tech students, and academics. It also presents opportunities for scouting new talent. In these partnerships, ASML provides financial support and shares knowledge.

In 2020, we continued our close involvement in the High Tech Systems Center (HTSC), set up by Eindhoven University of Technology (TU/e) to facilitate fundamental research with a focus on understanding the needs of the mechatronics and mechanical engineering industry. Since its launch three and a half years ago, the HTSC has supported the start of several new projects broadening the scope of our cooperation with TU/e towards electrostatic fundamentals and new developments in optical design. At the moment the strong cooperation between ASML and TU/e is evident through, among other things, the more than 30 PhD positions in which we, as an industrial party, are currently involved.

ASML also works with the Eindhoven Artificial Intelligence Systems Institute (EAISI), set up by the TU/e to make the Brainport region of Eindhoven a center for the application of AI in engineering. EAISI focuses on the use of data and algorithms in machines, such as robots and autonomous cars.

We are involved in the multidisciplinary project Eindhoven Engine, which accelerates innovation in the Brainport region. High-tech students, scientists and academics from a wide variety of disciplines cooperate with business-oriented partners to share knowledge. They also draw on the benefits offered by multidisciplinary collaboration in working toward identifying new and timely technology-based solutions.

We have a long lasting cooperation with Delft University of Technology (TU/Delft). For example, ASML is participating in the Imsys-3D program, a public-private partnership to create next-generation high-performance motion systems. The goal of this project is to use innovative computer algorithms to design optimal shape and dynamic properties of modules in our lithography machines, which can then be 3D-printed, offering never before realized efficiency.

We also cooperate with LINX (Lensless Imaging of 3D Nanostructures using Soft X-Rays), a collaboration between Dutch universities and both national and international industrial partners.

With the University of Twente we have, among others, a strong cooperation with the XUV Optics Industrial Focus Group at the MESA+ Institute for Nanotechnology. In 2020 we extended the cooperation contract with this group for another 4 years. We work together on high-tech optical applications of thin films. These industrial applications require fundamental physical insights to further boost performance of coating materials in a harsh EUV environment.

We monitor the level of engagement with our innovation ecosystem by measuring our investments in R&D partners. This includes investments in suppliers that innovate and help us develop system parts or modules. We also measure the degree to which we invite external technology experts to share competencies with us by the number of R&D partner agencies we engage with.

Our collaboration with and investment in our wide network of R&D partners enables us to share our expertise with the ecosystem. Together we build a strong knowledge network to create technological solutions that society can tap into. In our shared projects, partners in the ecosystem take responsibility for their own areas of expertise and invest in these to advance their own businesses.

We also cooperate with partners in research and innovation projects subsidized by the European Union. Horizon 2020, the EU’s program for financing European research and innovation projects, aims to secure Europe's global competitiveness through innovation breakthroughs, discoveries and world-firsts. It also seeks to drive economic growth and create jobs. In 2019, we participated in four EU subsidy projects: TAKE5, TAKEMI5, TAPES3 and Pin3s. In 2020, we successfully completed TAKEMI5. Its objective is to discover, develop and demonstrate lithographic, metrology, process and integration technologies enabling module integration for the 5 nm node.

In 2020, ASML began coordinating a new EU collaboration project, called IT2, aimed at exploring, developing and demonstrating the technology options needed to realize 2 nm CMOS Logic IC technology. This will extend the scaled semiconductor technology roadmap to the next node in accordance with Moore’s Law, and further support leading-edge manufacturing. The three-year program is valued at more than €90 million. Project activities cover the creation of lithography equipment, processes and modules, and metrology tools capable of creating and dealing with new 2 nm node 3D structures, defect analysis, overlay improvement and feature size reductions.

Our contribution for 2020 is nearly €28.5 million. In most of these projects, we work with universities, research and technology institutes and other high-tech companies to help enable the industry to move towards next-generation technology. The projects in the series are built around three main pillars: lithography, metrology and process development. It is mutually beneficial to support the companies around us that provide us with what we need. We push these projects and involve our ecosystem because it is important for us to build together.

By collaborating in European projects, ASML and its partners play a role in giving the region a degree of sovereignty by driving and accelerating fundamental research and groundbreaking innovation in Europe. This collaboration also generates significant business value, fuels job creation, and creates knowledge. This is borne out of, for example, the increasing number of patent requests per year, both for ASML and the other members in the various consortia, which reflects the success of the collaborations.

We want to innovate, but always with safety top of mind. It’s our duty to provide a safe work environment at all times. In our products and processes, we think about how to supply machines where all safety risks are mitigated to guarantee a safe place to work and deliver accordingly. We do this at every stage of a product lifecycle: research, development, production, transport, installation, maintenance, upgrades and decommissioning. And we make sure we cover all our stakeholder groups, including employees, customers, suppliers, contractors and visitors.

Safe products start with good design. As part of this philosophy, we try to eliminate the human factor as much as possible. We emphasize safety by design in hardware followed by safety by procedure. Prevention is key. We seek to ensure all the products and tools we develop comply with the world’s most stringent product safety regulations, and legislation applicable to the countries where we do business. In some cases, where there are no safety precautions available to address potential hazards, we develop our own precautions for the tools and products we develop at ASML.

We create safe products through our technical capabilities and design to guard against the human factor becoming a risk factor. One example of this is the way we interlock laser-beam activities to limit our employees' exposure to dangerous laser beams. This helps prevent workplace activities from turning into potential accidents.

We have clear systems and processes in place to support our approach to product safety. When we start designing our systems, our safety engineers conduct an initial Safety Risk Assessment (SRA). They take nine key risk areas into account that we have identified, and alert risk experts if they believe designs might pose a safety risk. Our product designers are trained to identify any safety issues in the early stages of the design process.

As we have grown, so has our product complexity and the number of geographical locations we operate in, and therefore it is becoming more complex to assess which safety legislation and regulations apply to our products and tools. At the same time, it is also more complex to determine the rules and procedures we need to follow to demonstrate this compliance. Some of our technology is so innovative and new that it is not always immediately clear which regulatory regime applies.

In 2020, we launched a legislation and compliance project in our D&E department. Through this project, we are further improving our ability to assess which legislation and regulations apply in each country we operate in, how to interpret them, and demonstrate how our products and tools comply. As always, we provide safety documents for our machines – including the results of the safety tests of parts, and the machines’ functioning – taking regulatory requirements into account. In some cases, government regulations stipulate that safety tests must be conducted in the presence of a licensed inspector. This presented several challenges due to global travel restrictions and quarantine measurements.

The legislation and compliance project has led to updates of the Safety System Performance Specification (Safety SPS) – the list of safety and compliance requirements our D&E department maintains for our products and tools. The Safety SPS is formally updated every three years and on an ongoing basis for changes in relevant legislation.

In 2020, we continued to run pilot projects aimed at ensuring our suppliers are abreast of all relevant safety specifications. The legislation and compliance project has led to updates of the Safety SPS, the list of safety and compliance requirements our D&E department maintains for our products and tools. We share this information with our suppliers prior to them manufacturing the parts, modules and/or tools for us. We expect our suppliers to also provide safety-related data and supporting documentation for the parts or tools they make for us. We screen suppliers to assess how they are meeting these safety requirements.

We completed a project aimed at adopting best practices related to the shipping of dangerous goods. This resulted in, among other things, the appointment of a specialist dedicated to the technical competence ‘dangerous goods’. We focused on increasing our knowledge of the thousands of potentially hazardous items we produce and ship worldwide every year. By identifying at an early stage which materials are hazardous, we can take measures for their safe handling and transportation in time, and with more efficiency.

We are committed to complying with EU guidelines for handling hazardous materials and chemicals, the so-called RoHS directive and the REACH regulation, even though the products we manufacture are currently excluded from the RoHS directive. We aim to, whenever possible, reduce and eliminate any use of hazardous substances and replace non-compliant parts with RoHS-compliant alternatives.

REACH regulations are ever changing, which presents a potential challenge. Each year, there are new additions to the hazardous substances list. As ASML machines consist of thousands of parts not manufactured at ASML locations, we need to keep in very close communication with our suppliers to identify the Substances of Very High Concern (SVHC) content of our products. However, our huge supplier portfolio and six-monthly updates of the SVHC list means this process is challenging. Currently, there are more than 250 hazardous chemicals that need to be assessed.

In 2020, our D&E department launched a project to update our REACH policy and further embed REACH compliance in D&E’s operations at all our locations and in our worldwide supply chain. Our REACH project, which will continue in 2021, includes training stakeholders to familiarize them with REACH requirements. The project also aims to align our policy and procedures with new EU legislation and the EU ‘SCIP’ database of hazardous materials.

We are now 36 years old, but it’s our startup mentality – one that is innovative, adaptable and purpose-driven – that has helped us grow into the multinational company we are today. We believe an inclusive and sustainable innovation ecosystem can unleash dynamic and competitive technologies that provide new solutions to society’s challenges. To nurture innovation by new generations of technological talents, we also recognize that our expertise is valuable in supporting entrepreneurs and startups.

Sharing our expertise is a way to strengthen our regional high-tech ecosystem. This region has a competitive edge globally, and we need to make sure we maintain this position. Building a strong regional foundation benefits not just ASML and associated partners, but also other companies and organizations. It also helps attract a broad base of talent to the region.

Our employees benefit from the work with startups too. Placing our people into startup teams during certain phases of programs is a way to further develop entrepreneurial thinking within our company.

In 2020, we provided around 1,550 hours of support to high-tech startups and scaleups. The total value of our in-kind support is around €0.6 million.

Through the Eindhoven Startup Alliance, we have supported startups and scaleups in their various stages over the years in collaboration with other tech-minded peers from our region. In 2020, we further developed and mapped out a new focus area started in 2019: becoming a startup venture-builder.

Every startup goes through similar phases as it strives to become the next world-class company: 'Dream' (ambition), 'Stand' (idea), 'Step' (problem statement and solution) and 'Walk' (value proposition). Each individual phase of this life cycle presents unique challenges. Through sharing our expertise, together with HighTechXL, we aim to support startups along their journey. We monitor

and assess their maturity through objective assessment and a set of deliverables per KPI, such as business model, finance, technology, sustainability and execution skills.

After successful completion of phase 'Walk', the startup evolves to a scaleup, ready to generate its first revenue and seeking ways to expand to a mature business model. We offer support to scaleups. By providing them access into our ecosystem and sharing our knowledge, together with the Make Next Platform, we help them grow into a sustainable company.

Insights we’ve gained in recent years showed that our past successes were based on working with scaled-up startups with a ‘deep tech’ component, and that these were difficult to find. The solution was to build our own in partnership with other technology providers. In 2019, we chose a promising – existing but innovative – technology, and selected a team of experts from the region to build a startup company based on this licensed technology (Read more in: Incooling combating waste heat).

In 2020, we further developed this initiative, reaching agreements with several companies and organizations, including TNO, imec, the European Space Agency and Fraunhofer, to work together to build new deep-tech companies. This shift in focus takes the existing high-tech startup accelerator HighTechXL, in which we have been a partner since its launch in 2016, and moves it into the next development phase.

ASML was involved in two HighTechXL FasTrackathons in 2020, focused on deep-tech venture building. Teams made up of around 16 different nationalities, and different ages, backgrounds, skills and competencies, came together to explore synergies and work towards bringing new companies to fruition.

In March, the FasTrackathon had to move online. The event was recreated as a virtual hackathon while keeping the collaboration philosophy of the original – introductions, team familiarizations, brainstorming, business plans and, finally, the pitches that are the first step toward strangers becoming effective startup teams.

Although we gained momentum with our new approach in 2020, progress was hampered. We had to organize ourselves offline, with associated challenges around communications and logistics. And while the spend rate of startup companies is relatively low, some ran into financial difficulty. ASML helped to arrange funding and subsidies for some of these. Overall, many startups had to rearrange their priorities.

Over the years, we’ve provided in-kind support to new companies at different stages of development. For startups that have moved beyond the stage of an idea, we offer support through two initiatives: the Eindhoven Startup Alliance, together with HighTechXL, and the Make Next Platform.

We set up the Eindhoven Startup Alliance in 2016 with six tech-minded peers from the region to boost innovation and entrepreneurship in the Eindhoven Brainport area. The alliance facilitates collaboration between multinational corporations, SMEs, research institutes and government. It supports promising new companies with the aim of accelerating their development and strengthening the ecosystem for high-tech manufacturing in the region.

Since its inception, the Eindhoven Startup Alliance has built a portfolio of about 70 startups. Of these, more than 60% are still in business, while about 16% have achieved the steep growth envisioned by the alliance and as such have been awarded the alliance’s ‘Star’ status. A supported high-tech start-up is assumed to have reached 'Star Level' once it's business value has multiplied by more than 10 times.

In 2019, the alliance narrowed its focus to those startups that build business cases on the most complex types of high-tech technology, a category the alliance dubbed ‘deep-tech’. Supporting startups that work with these sophisticated technologies creates more value for alliance partners and the Eindhoven region. In 2020, we moved forward with this new focus area.

The Eindhoven Startup Alliance had a total of eight companies using a licensed technology in the pipeline at year-end 2020. Our goal over the next five years is to establish about 45 startup companies through the alliance based on this technology licensing model. Our own target is to help at least 20% of startups reach the ‘Star’ level.

We encourage ASML staff to join alliance projects and help startups by sharing their expertise, which also benefits our innovation and business processes. Not only do our experts gain knowledge about new technologies, they also get the opportunity to experience the different stages of a young company’s evolution – from developing a product proposition to going to market and needing to find customers. We believe this makes our top experts better leaders and all-rounders.

We set up the Make Next Platform to help young technology companies that have moved beyond the startup phase and are ready to expand. This platform provides the future generation of tech companies with a unique opportunity to gain access to the networks, knowledge and expertise of the leading Dutch companies in the technology industry.

Together with ASML, the Make Next Platform partners include, for example, the engineering company Huisman, airport logistics specialist Vanderlande, and aerospace, defense, public transport and security-systems specialist Thales NL.

In 2020, support for scaleups took a different form. There was a more focused and urgent need for funding to see companies through the lockdown period. In some cases, ASML and the CEOs of founding companies arranged letters of support for the companies we support.

One of the scaleups we supported in 2020 was Medtech company IME Medical Electrospinning, which was admitted to the Make Next platform in March. The company is a global leader in electrospun medical devices and regenerative medicine. IME has developed the revolutionary MediSpin® XL platform for large-scale industrial production of reproducible and scalable fiber-based scaffolds for medical devices. The platform ensures control of the crucial parameters of the electrospinning process, leading to identical and consistent end-products. It also allows for non-stop production, while safeguarding the structure of the fibers and thus the quality of the medical mesh.

We also supported the Enschede startup Sound Energy, which has developed a sustainable machine that can cool industrial processes with sound waves using residual heat. In this way, the company creates an air conditioner that uses hardly any electricity. And for large factories and ships, its Thermo Acoustic Energy Converter can save up to 88% energy.

We support new companies at different stages of development. For those seeking to transform a high-tech idea into a business case, we offer help in kind. ASML experts make themselves available for an agreed number of hours to share knowledge and experience with these startups. We provide this support to winners of our ASML Makers Award. These are usually university students or young scholars who successfully pitched an as-yet embryonic high-tech innovation or prototypes.

In 2020, we granted the ASML Makers Award to a team of students from TU/e for their business case on a ‘Bicycle lighting solution’, aimed at encouraging cyclists to use bicycle lights by designing an easy-to-use product. The small, pocketable bicycle light is easily attachable to a keychain, so reducing the chance of loss and theft.

Our ambitions, commitments and programs as described in this chapter contribute to the following SDGs. For more information on the performance, see section Non-financial statements - Non-financial indicators.

As one of the world’s leading manufacturers of chipmaking equipment, we enable our customers to create the patterns that define the electronic circuits on a chip. Our customers are the world’s leading microchip manufacturers, and our success is inextricably linked with theirs.

We collaborate with our customers to understand how our technology best fits their needs and challenges. For this reason, we engage with our customers at all levels: building partnerships, sharing knowledge and risks, and aligning our investments in innovation. We develop our solutions based on their input, engage in helping them achieve their technology and cost roadmaps, and work together, often literally in the same team, to make sure our solutions match.

In 2020, the global COVID-19 pandemic shaped our approach to how we continue to support our customers. It drove us to devise creative support solutions and collaborate with our customers in a number of different ways, to make sure we could serve them around the globe without significant interruption.

From the start, our account teams stayed in constant communication with the regions affected by the pandemic as it unfolded. In alignment with our corporate crisis team, we ramped up our customer communications, providing more frequent status updates, usually through weekly or bi-weekly calls.

Despite travel restrictions, mandatory quarantine and manpower constraints, and thanks to our collaborative efforts across the company and our business partners, we were able to prevent any major impact on our customer business requirements. Customers around the world have recognized our additional support efforts and interventions during the pandemic. We were presented with several ‘customer awards’ in recognition of our rapid response to customers' needs and good overall customer service.

To us, customer intimacy is about the entire customer relationship across all channels, from the early stages of innovation onwards. We aim to foster loyalty, advocacy and continuous engagement with the goal of achieving complete customer satisfaction.

As ASML matures and grows, our innovations lead to more sophisticated solutions and interactions with our customers. As customer requirements become more complex, it takes longer to align, so we need to start earlier. Transparency is key in this process, and our customer intimacy strategy supports this.

It’s crucial to be in a true partnership with our customers, to share in the risks and rewards of what we do. Trust and a shared vision are at the heart of this.

To support and sustain our partnerships with customers, we have a structure of customer interactions across various channels in the organization, including, for example, customer alignment meetings. Here, members of our Board of Management, senior managers and customer representatives come together to make sure our product development plans are in line with their business goals and needs.

We run regular customer alignment meetings with our key customers. These meetings include our Executive Review Meetings, at which members of our senior management team and Board of Management discuss business and strategies with customers; Technology Review Meetings, at which our senior technology experts and CTO discuss technology plans and requirements with customers, and Operational Review Meetings, where we review topics related to our customers’ operational activities.

We have a dedicated Sales and Customer Management department, which is responsible for building and maintaining our customer relationships and ensuring all relevant ASML departments contribute to meeting their needs. We market and sell our products directly to our customers, without agencies or other intermediaries. Our account managers, field and application engineers, and service and technical support specialists are located throughout Asia, the US and Europe.

Another focus area is training – boosting the capabilities of the local customer service teams as well as enhancing local technical expertise. The travel restrictions, among others, highlighted just how essential the need is for well-trained engineers in the regions where we operate.

We opened two EUV technology training centers in 2020, one in Hwasung in South Korea and one in Tainan in Taiwan. Bringing service engineers up to speed on our technology is critical to the industrialization of EUV. The EUV training center enables both ASML and our customers to train EUV engineers locally in a safe and cost-effective way.

The new training center in Tainan features live EUV machine modules and comprehensive training courses to train EUV engineers for EUV customers, including EUV machine operating practice in the cleanroom.

Our Voice of the Customer program helps ensure our employees hear firsthand about our customers’ needs and challenges. This is especially important for employees without direct access to customers. To reach as many of our people as possible, the program makes use of different channels of communication: live presentations and Q&As with senior customer representatives, recorded customer interviews, online articles, and personal engagement with customer representatives based near our offices in Veldhoven. In 2020, travel restrictions and other mitigation measures related to COVID-19 limited our in-person interactions.

Our account teams adapted quickly, introducing alternative solutions such as more local Voice of the Customer initiatives and remote customer interviews. Local account and support teams visited our customers at their locations, interviewed them on video, and then shared feedback with teams at ASML. Except for live presentations with a bigger audience, we could adhere to our regular schedule of interactions throughout the year.

Another valuable customer feedback tool is our biennial Customer Feedback Survey, which asks our customers to rate our performance. We also use this opportunity to collect open feedback. The direct ratings and frank comments provide valuable insight into customers’ successes and challenges. It presents them with questions on the most important areas of improvement for our account teams and business sectors.

We ran the survey in 2020, and drawing on the results, identified improvement areas. Common themes include driving timely solutions to structural problems, improving quality and cost of ownership. We shared these findings with business sectors and other relevant internal stakeholders.

In line with our business strategy, we continued in 2020 to work towards securing our full product portfolio that will sustain our company into the future. This includes bringing EUV to high-volume manufacturing at customer sites, and securing our products in the mature markets and installed base and service offering.

Our product portfolio is aligned to industry trends and our customers’ detailed product roadmaps, which require lithography-enabled solutions. Our strategy is clearly resonating with our customers. They are showing their trust in us by investing in our newest technology, supporting the industry driver of shrink beyond the current decade.

ASML has achieved strong growth over the past few years, thanks to groundbreaking innovations and technology leadership. We’ve introduced several generations of cutting-edge chipmaking systems and built a strong market position in the semiconductor equipment manufacturing industry. As we mature as a company and build on this position, we are putting effort into ways to continuously improve the customer experience and help customers reduce the cost of ownership. Customers look at both the cost of the systems and running costs. As such, improving quality requires an end-to-end approach. We need to look at the whole chain to identify the real issues and find solutions. We seek to combine our innovation power with operational excellence.

The strong growth in our business operations and the evolution of the company drove us to review our work practices and determine where we can increase efficiency in our operational processes to improve the customer experience and unlock business value. We put ample effort in reshaping our processes and IT landscape. The Our New Enterprise (ONE) program is centered on improving our business processes and IT enterprise management system. It builds on the steps taken in recent years to improve our IT systems, which were built in the 1990s and not optimized for tailored customer solutions. This is a multi-year program, with the rollout being done in phases.

The ONE program addresses the complex processes that have resulted from a fragmented application landscape with numerous customized applications. The aim is to ensure flexibility while introducing standardization. ONE will enable ASML to function in a more unified and efficient way by simplifying processes to ensure a future-proof and more sustainable system. The program adopts a cross-sector, company-wide, and end-to-end approach that will enable us to deliver higher business value for our stakeholders, which we define as:

ASML is committed to providing a high level of customer satisfaction by delivering top-quality, sustainable products and services that consistently meet, or exceed, our customers’ expectations. Quality and operational excellence are essential elements of our technology leadership. This leadership is reinforced by a company-wide quality culture that creates an environment to excel. Together with our suppliers and partners, we ensure high-level performance for our products and services. As a learning organization, we continuously improve our offerings and processes.

The aim of our quality culture is to shorten Time to Mature Yield and ensure end-to-end quality of our products and services in several ways:

We have established a Quality Program Review Board, chaired by our Chief Operating Officer (COO), tasked with steering and monitoring on quality. We are also committed to internationally recognized quality management systems and standards. Our quality-management system complies with the ISO 9001:2015 standard, and in November 2020 we again received third-party re-certification for the next three years. This demonstrates our robust quality governance, effective quality management system, and quality compliance across the company.

In 2020, we were faced with an unprecedented global crisis, the effects of which reached into every corner of our lives and across every aspect of our business. From one day to the next, we had to change how we were used to doing things. From a people perspective, we had to transform how we organized ourselves, our way of working, our day-to-day lives at ASML, and how we attracted new talent to the company.

Operationally, we were able to continue with our business activities and priorities, but the way we worked, learned and interacted with each other and our stakeholders changed significantly. This was challenging, but there have been positive outcomes, such as new ways of working, the ability to collaborate remotely and, in some cases, faster progress with some of our plans.

Our primary goal is to make sure, as best as we can, that our colleagues and their families around the world stay safe. Our second goal is to make sure we continue to serve our customers. As an employer, we provide a safe work environment, but we rely on our employees to take personal responsibility to protect themselves and those around them, both at work and in their personal lives. And at all times, we follow government guidelines.

Gradually, we will work on defining how to resume regular business activities. We were and still are in different phases of these priorities in the countries and regions where we operate.

ASML’s workforce has grown steeply in recent years. This strong growth in total workforce, the large number of new employees, and the evolution of the company has driven us to review what we stand for as a company and determine how we can help our people embrace our values and familiarize themselves with our strategy and purpose. We need to provide a unified direction and anchor ASML’s identity deep in the organization.

Given the significant number of new employees who have joined the company in recent years, we need to be even more explicit about what we stand for, articulating the values that should guide the way we work together. Based on employee feedback, we’ve developed a representative set of values: Challenge, Collaborate and Care. These values ensure we are all working from a commonly understood base that can be applied across our organization, and guide us in our dealings with colleagues, customers, suppliers, shareholders and the communities we serve. (Read more in: Who we are and what we do - Our core values).

In 2020, with our refreshed company purpose and values statement in place, we focused on further deploying our culture and values framework, and implementing our values in our day-to-day work.

One of the ways we did this was to set up a Culture Ambassadors workgroup. This network of 120 cultural ambassadors from all levels of the organization has been tasked with helping leaders and employees anchor our corporate values and behaviors in daily

routines. Their role is to understand the values, live them by example, and connect with others in the organization to promote them. We see them as multiplicators within ASML, to help embed our culture and way of thinking. This process of embedding our values is an ongoing journey, but we will make good progress if we can begin to apply them every day.

Employee engagement is critical to the performance of our organization and our long-term success as a company. Boosting engagement depends on a wide variety of factors and activities, such as talent attraction and retention, onboarding experience, leadership, learning and development and labor practices.

Our we@ASML employee engagement survey is a crucial tool for collecting and measuring employee feedback. The insights our survey provides enable us to improve the employee experience and work on our policies and processes. Our ambition is to have a highly engaged workforce. We set ourselves the target of achieving an employee engagement score that is at least on a par with our peers.

We are proud of the progress we made on this in the challenging context of 2020. Our overall employee engagement level is high, up from 77% in 2019 to 80% in 2020 – 7% above our external global benchmark of 73%. We have shown improvement on topics such as quality, well-being, inclusiveness, and customer focus. Also impacting this upward trend is our positive response to COVID-19, which external research shows influences company engagement scores.

We still see clear differences in engagement levels, across regions and departments. And while the three priority areas from we@ASML 2019 – ‘Enabling Processes’, ‘Cross-team Collaboration’ and ‘Clarity of Expectations’ – have all improved significantly this year, they are still top of the agenda, as we still score well below the external benchmark. For example, following on from issues raised in the 2019 we@ASML feedback, the Brion executive team launched a new virtual event – known as Product Day in the US and Product Week in China – to better enable cross-team collaboration. Through these events, employees were able to quickly learn about products, share in customer successes, and foster collaboration to inspire new ideas.

We hired 1,932 new payroll employees in 2020, growing our workforce to 26,481 FTE at year-end, excluding the almost 1,600 FTE joining from the Berliner Glas acquisition. This is a sharp increase compared to the 14,681 FTEs we employed in 2015.

Our attrition rate – the percentage of employees leaving our company – was significantly below that of our industry, meaning we again met our target. After a few years of modest increase – though always remaining well below that of our industry – our attrition rate significantly decreased in 2020, standing at 3.8% versus 4.3% in 2019.

This shows that our efforts to create a unique employee experience, our employee engagement programs, and our onboarding of new employees are paying off. Of course, in 2020 this was also shaped by the COVID-19 pandemic, which may have resulted in people being less inclined to look for other jobs.

While attrition can open up a knowledge gap in the company, we also view it as an opportunity to bring in new talent and enhance existing talent. We strive for a healthy attrition rate, currently aiming for between 3.0% and 8.0%. For high performers, our target is to have a rate 50% lower than the overall attrition rate target. The attrition rate of our high performers was 1.7% in 2020, outperforming our target.

In an innovative, high-tech, fast-changing industry, it’s vital to strengthen and continuously invest in our talent pool to anticipate evolving business requirements and developments in the labor market. We empower our employees to develop their talent, pursue their career ambitions and to thrive. We strongly believe that personal development works best when our employees can invest in themselves. At ASML, we give employees the time, opportunity and support, while they put in the effort, passion and drive needed to enhance their development. We offer tailor-made training and development programs to help grow the highly skilled professionals we employ at ASML.

To maintain our technological leadership and pace of innovation, we need to ensure the right knowledge is available to our people at the right time. To do this, we have our own technical development centers in-house for our D&E, customer support, and manufacturing employees to tailor training to the specific technical needs of these departments.

Most of our trainings take place on the job, given the nature of our innovative business and co-value creation. Overall, we are promoting the 70-20-10 approach for learning interventions, meaning that 70% is on the job learning, 20% is through coaching, and 10% is learning through training courses. The average number of training hours in this last category, including development programs, was 28 hours per employee in 2020.

In 2020, we increased virtual training. We had been looking into adopting this over time but accelerated our efforts due to COVID-19. We dedicated a lot of time and effort to adapting this training during the year. There were some challenges as it was not possible to make all our training virtual.

For example, we postponed some of the development activities that have a strong networking component to them, ones where we needed to bring different sectors and countries together. Due to travel restrictions and different time zones, these activities were not viable.

In addition, we started working on redesigning specific development programs to establish an effective mix between remote and in-person training, addressing how we can bring people from different locations together, and how to make training more digestible for online purposes.

We are continuously looking into ways to improve how we can help employees identify opportunities for professional development within ASML.

In 2020, we started the discussion and thinking process around how our performance management approach and philosophy can better align with our refreshed culture and values. This forms part of a broader look at the future of performance management in the company. We know that if we want to deploy our culture and values in a certain way, we need to weave it into certain processes, including performance management, which we will start doing in 2021. Together with our executive committee, we started defining how to do this more fundamentally in coming years, looking ahead to a proposed go-live date for a new performance management approach in 2022.

The framework outlines and clarifies a leader’s role in business leadership, role-modeling the values within the company, and what it means to be a people manager and coach for employees. This Leadership Framework was officially launched in October 2020 at ASML’s Annual Global Leadership Conference, attended by around 3,000 leaders and people managers within ASML.

At the same time, we are deploying behavioral competencies to inspire and enable personal development. We have leadership programs where we fast-track the careers of our most promising managers through our Potential Acceleration Program. These programs ensure our managers are aware of what’s expected of them, and help them develop the skills and competencies they need to become better leaders.

As our global workforce grows exponentially, onboarding has become one of our key priorities.

A positive onboarding experience builds a sense of connection, helps employees fit in quickly, and boosts retention. We believe onboarding is a joint effort, driven by everyone. It is now two and a half years since our new onboarding program started, and the benefits of an aligned and improved onboarding experience are clear. We have decreased new hire attrition by 20% and pulse surveys show a 6% increase in how new hires positively rate their onboarding experience. More importantly, new colleagues have indicated a positive increase of 11% in how supported they felt by managers during their onboarding period.

Onboarding at ASML looked very different in 2020: the hiring managers and the new employees needed to adjust to a completely new way of doing things, yet pulled together to replace first-person interactions. To give new colleagues the best possible start, hiring managers and HR teams across the globe created a virtual onboarding experience. Previously, in-person elements like our Onboarding Day connected new colleagues with each other to learn more about all aspects of ASML. For now, they take place completely online, with teams finding creative virtual ways to make new colleagues feel welcome and part of their teams. Campus walkabouts for new hires at Veldhoven were adapted to a virtual setting, including gamification elements.

We began developing virtual games and business simulation tools to make onboarding more fun and efficient. Sectors, business lines and functions also continue to build on our global onboarding initiatives, making sure we’re providing one consistent experience across the company, further tailored to the various departments.

In 2020, we finalized all the building blocks of the program, bringing it to the framework stage.

With the demand for top-tier talent increasing year-on-year, employer branding is a vital strategy to ensure ASML gets its share of this talent. Our strong growth means we need to hire large numbers of employees. Highly skilled people with a technical background are scarce in the labor market and competition is growing. We see that top-tier talent selects their employer of choice, not the other way around. This is a general development of employees choosing their future employer, and it’s important for employees that a potential employer has a proper value proposition.

Developed in 2019, our employee value proposition defines who we are, what we stand for, and how we create a unique employee experience. It forms the basis of our recruitment strategy and Labor Market Communication program. In 2020, our Labor Market Communication team took feedback from this new employee value proposition and translated it into tailored strategies in the countries where we operate.

We view recruitment as an ongoing process, and continuously seek to improve and professionalize how we go about it. We use this information to fine-tune our target audiences and recruitment efforts.

More than ever, the internet is the optimal platform to communicate. Our labor market communications team is continuously working to optimize how we reach, inform and engage our target audiences online. To leverage recruitment efforts, we facilitate job postings and manage ASML’s presence on online social network channels. We also promote the ASML employer brand through online advertising.

Our efforts have been positively received. For example, in June 2020, ASML was named the winner of 2020 Top Graduate Employers of China by recruiters 51job.com and yingjiesheng.com. The award recognized ASML's long-term campus recruitment plan as being a vital part of our HR strategy. ASML has recruited college graduates for many years, supported dynamic campus talk and science knowledge sharing events, and earned broad recognition and a positive reputation among students.

In 2020, restrictions on travel and large group gatherings limited our ability to meet future talent in person. Various planned activities were either postponed or adapted to a virtual space.

Our Code of Conduct is our guiding principle to ensure all employees are treated fairly and equally without discrimination. We are committed to equal opportunities, regardless of gender, age, religion, nationality, sexual orientation, and so on. By putting the right person into the right position, we enable our employees to contribute to the company where they are most needed, and which allows them to develop with the company. Our Ethics Office and Liaisons, as well as a third-party Speak Up Service, ensures we uphold and correct any potential issues to maintain and protect an inclusive environment. Additionally, our corporate values further embed respect for our people and their differences within daily work experiences and interpersonal interactions.

In 2020, we made progress in gender diversity among all employees and senior management. Female employees now make up 17% of our workforce worldwide, having gradually moved up from 10% in 2010. We deploy many initiatives to promote STEM (science, technology, engineering and math) education among the future female talent pool. However, the effect of these initiatives takes many years to become visible in our performance. In addition, looking at the dynamics of our workforce, nearly 90% of job positions are STEM related, while peers in the high-tech industry have more diverse, non-STEM related job positions. Overall, the global STEM talent pool is scarce and it is even more challenging to recruit female talent. Our female senior management teams moved up from 9.6% in 2019 to 10.5% in 2020 to include greater gender diversity. Yet we still have work to do in this area.

Gender diversity is a general concern in the technology industry. Historically, there is a lower ratio of women compared to men in technology and science-related studies. Although ASML continuously seeks to recruit and retain women in our workforce, male candidates still make up most of the labor market in STEM (science, technology, engineering, and mathematics) fields. Aiming to close the gender gap in STEM across the world, we continue to implement organizational strategies to recruit, retain and empower women at ASML. To increase the number of females in our future talent pool, we run an intensive technology promotion program to foster interest among young girls. We also raise awareness of career prospects in a sector offering many development opportunities. Still, we need to improve our gender diversity, and we see an effective gender policy as a challenge. See Non-financial statements - Non-financial indicators for details on Diversity & inclusion.

In 2020, we worked on developing and formalizing our approach to diversity and inclusion.

To foster greater understanding and inclusion across our diverse populations, we have employee network groups – like Pink ASML to promote LGBTI people. We are a member of the Workplace Pride organization, which is an international platform for LGBTI inclusion at work. We also promote the inclusion of people with disabilities and other characteristics protected by law. Although we have worked a lot on this, we have not reached the level of integration we’d like to see. This remains one of our challenges.

In the US, we established an ASML US Diversity Council in 2020. This will serve as an advisory board and govern diversity and inclusion (D&I) programs, such as employee resource/affinity groups, diversity events, recognition and education across the US. It will consist of a group of leaders who act on behalf of ASML to develop and drive our D&I programs. The council will help ensure strategic accountability for results, provide governance and oversight on diversity efforts, and support company-wide communication on progress.

Building on the experiences in US we will install a Global D&I council. Like in the US, this council will consist of a group of leaders who act on behalf of ASML to develop and drive our D&I programs. The council will help ensure strategic accountability for results, provide governance and oversight on diversity efforts, and support company-wide communication on progress.

Although data shows we are improving, we are aware of certain areas where we need to improve, such as the percentage of female managers. Therefore, we will focus on improving ASML' attractiveness for female talents, and will set realistic objectives for improvement per sector. Also next year we will use more data to see where we still need to improve. and also use focus groups to learn more about what is behind the numbers.

We will also prepare a more detailed action plan to set minorities up for success, through actions such as sponsorship, mentoring and training on unconscious bias or managing diverse teams.

We want our remuneration to be fair and balanced. In our remuneration policy, we are committed to gender equality and we strive for global consistency while respecting what is common practice in local markets. We continuously review how our remuneration compares to the market benchmark for technology professionals in each region where we operate and, where necessary, make changes to our remuneration policies and levels. Each year, we analyze paid salaries for gender disparity. In 2020, as in previous years, we found no major differences in these salaries. See Non-financial statements - Non-financial indicators for details on gender payment.

At ASML, we are committed to meeting adequate living-wage requirements, meaning that employees earn salaries that meet their and their families' basic needs, but also provides some discretionary income. Our company has a predominantly highly educated workforce with relatively high levels of remuneration. In 2020, we conducted an analysis of how our lowest base salary compared to the local minimum wage and local ‘living wage’ in the countries and regions where we operate. We did not detect any gaps. On average, our salaries are significantly above local living wage.

We want to provide fair labor conditions and social protection for all our employees, regardless of their location and whether they are on a fixed or temporary contract.

We support the principles of the International Labor Organization (ILO) and we respect the rights of all employees to form and join trade unions of their own choosing, to bargain collectively and to engage in peaceful assembly.

We strive to comply with the relevant legislations in every country we operate in. In those countries where we have employee representation, we engage in regular dialogue with the different organizations representing our employees. In these conversations, topics are put forward and discussed by both the company and the employee representatives.

In the Netherlands, we have requested dispensation from the Metalektro Collective Labor Agreement (CLA) in order to develop our own CLA. Our unique position in the global market, our size and growth as well as our very unique group of employees, the large range of competencies and activities we bring together to deliver our products have created a need for our own direction in labor conditions. The purpose of a future ASML CLA is to offer a set of labor conditions that match the diversity and needs of all our employees.

The new CLA will be developed in close collaboration with the unions represented in the Metalektro. Once we have our new CLA in place, we will continue to work with the unions regarding labor conditions within the framework of our own CLA and maintain our active membership in various labor organizations, such as FME and PME.

At ASML, safety is not just a priority – it’s a core value. We owe our employees and others working for us a safe working environment. We do everything in our power therefore to provide injury-free and healthy working conditions for everyone on our premises and ensure all our operations are safe and secure. This includes employees, contractors, suppliers, customers, and visitors. We count on each other – every one of us working at and for ASML – to share this commitment.

Our employee and product safety commitment is captured in our Sustainability Policy, which applies to ASML worldwide. In addition, our ASML Environment, Health and Safety Guide aims to provide practical, useful and essential Environment, Health and Safety (EHS) information for our employees, contractors, and any other parties working for us. The guide explains our aims and objectives, and clearly describes the rules and policies we follow. It’s designed to create awareness and ownership.

We provide employees with EHS training to raise their awareness, encourage responsible behavior and familiarize them with EHS standards. For more information on product safety see What we achieved in 2020 - Technology and innovation ecosystem - Product safety.

Our highest level of preparedness is represented by ASML’s crisis management plan, which was crucial and effective in responding to the COVID-19 pandemic. A hotline with global coverage was established to provide instant support for our employees. At site level, ASML has documented emergency response procedures in place for each ASML location.

Ensuring health and safety is our first priority. Experiencing COVID-19 like symptoms can be a cause for anxiety and worry. Testing is an important measure in controlling the spread of the virus. The waiting times for regular tests via the public health services (GGD) were long, and we therefore sought a solution to help our employees. In the Netherlands we offered voluntary COVID-19 tests to our employees and their direct family members. These tests were performed by an authorized external provider, using test-sets that are high quality and compliant with all applicable laws, regulations and guidelines. Privacy is guaranteed during the performance of the tests organized by ASML.

The pandemic had no impact on EHS performance and initiatives. Operations continued and internal EHS audits were performed remotely.

We take responsibility for protecting our employees by making ASML a safe place to work. EHS is crucial to creating a safe and trusted working environment. We believe that all work-related injuries and occupational illnesses are preventable. As such, we are working towards a long-term ambition of zero injuries and work-related illnesses.

Our target is to prevent occupational health and safety incidents. To benchmark our performance against industry standards, we use a targeted recordable injury rate of 0.25, which represents world-class performance. But our ongoing ambition is zero, and this drives our continuous improvement in processes, working conditions and employee behavior. We use the highest possible professional standards, and continuous improvement is a key principle of our management system.

We are committed to a well-established EHS management system. Our EHS management system is based on the ISO 45001 and complies with these requirements. We ensure continuous improvement through internal EHS audits.

Incident management and risk management are key elements of our EHS management system. This process ensures we not only record incidents and injuries but also cases where we have unsafe situations or near-misses. These allow us to address high-risk situations before they can turn into actual incidents, and cause injuries to our employees. We investigate all incidents and near-misses to determine the root cause and take corrective action to prevent them from recurring or occurring in the future.

It’s impossible to completely eradicate risk, but we can work proactively at all levels to identify potential issues or concerns in the workplace and develop measures towards reducing these. We believe we need to do everything within our reach to minimize risk, and that it is our responsibility to provide our people with the right protection, procedures and processes to keep them safe.

To ensure that we implement our EHS guidelines effectively, we have a safety program in place. ASML’s Board has appointed the Chief Operating Officer (COO) as the lead for the EHS management system. We’ve also established a Corporate EHS Committee to oversee and approve ASML EHS strategy. Our line managers are responsible for day-to-day EHS management. Our EHS Competence Center gathers the best practices and defines the EHS standards for ASML, helping our managers to implement these standards at the workplace.

To improve our EHS performance, we encourage our employees to speak up whenever they encounter safety risks. Every employee is empowered to stop working if they feel unsafe. Together with their manager and EHS expert, a safe way of working will be defined, so the work can resume.

We conduct regular hazard and risk evaluations, with a focus on preventing employees’ potential exposure to hazards such as chemicals, fire, radiation, mechanical handling, and ergonomic risks. These provide us with further insights into the main hazard and risk areas at ASML. We can then take appropriate action to mitigate these risks.

At ASML, it is standard practice to inform our employees and anyone else accessing our premises and customer sites independently – including contractors and suppliers – about our safety culture requirements and to raise awareness around these. Training is one of the ways we prepare and inform our people about this safety culture. In 2019, we updated our EHS Fundamentals training, tailoring it to the needs of our people. The EHS training features real-world situations. It is compulsory for everyone working at ASML.

We updated our EHS Fundamentals with training focused on our five new life-saving rules. Introduced and rolled out in 2020, we view these as a step forward towards an independent safety culture. By December, 94.4% percent of eligible candidates had completed this mandatory training.

Our recordable incident rate decreased to 0.18 in 2020 (0.28 in 2019), outperforming industry benchmark of 0.25. The main reason for this decrease is the absence of office related injuries due to the work at home policy in 2020. In 2020, we continued our efforts to reinforce our safety culture program. As in previous years, we did not record any work-related fatalities or permanent disabilities. We register EHS-related incidents in line with the US Occupational Health and Safety Act.

As a global technology leader and employer, we are also part of the communities where we operate. Being part of a community means not only caring for our own employees but also looking out for those beyond our organization. We foster close community ties and encourage our employees to get involved and do their part as well. ASML needs the support of the community to be successful and will earn that support if ASML lets the community benefit from its presence and is considerate of the community's needs.

The total amount of cash commitments and in-kind support that ASML spent on charities, community engagement, organizations, and our own ASML Foundation in 2020 was around €4.0 million. In addition, our social community support during the pandemic amounted to €2.7 million.

Culture is the invisible bond that ties the people of a community together. To strengthen that bond, ASML supports initiatives and organizations that are vital for the community’s culture and help open them up for newcomers and the underprivileged. We focus on cultural icons in our communities: organizations and initiatives with significant importance to society, and with an impact and reach that goes beyond the local community.

We support local initiatives and organizations that are vital for our communities and that connect the people in our communities. Together with ASML employees we contribute and make these initiatives attractive and accessible and pay special attention to stimulate integration, promote diversity and empower the underprivileged.

ASML recognizes the need to prepare people of all ages for an increasingly digital future, and specifically the importance of STEM (Science, Technology, Engineering and Mathematics) competences to help all children reach their potential. We organize and sponsor numerous initiatives that aim to share our enthusiasm for and expertise in technology to inspire all generations. We partner with multiple organizations and educational events that promote opportunities and potential of careers in technology. Our employees act as role models and guides for these initiatives.

We execute our education programs through the following:

The ASML Foundation, which funds projects to improve the lives of young people with inclusive, quality education, is our charity of choice. In 2020, the Foundation donated around €1 million, supporting 22 projects in 11 countries. Although closely linked to our company, the ASML Foundation operates independently. Over the last three years, we have reached over 17,000 children.

Through funding and partnerships, the ASML Foundation aims to help disadvantaged children become more self-sufficient by supporting educational initiatives that develop their talent and unlock their potential. We promote the sustainable development of less-privileged children around the world by supporting inclusive and quality education for all and promoting lifelong learning. By doing this, we aim to make a sustainable impact on SGD 4 Quality Education, and contribute to SDG 5 (Gender Equality) and SDG 10 (Reduce Inequalities).

We want to make a difference in the community in the locations where we operate. As such, we mainly support projects and initiatives in ASML countries in Asia, Europe and the US. These projects address the specific needs in that region. In the US, for example, projects focus mainly on preventing school dropouts in less-privileged areas, and on promoting STEM, especially for girls. Projects in Asia differ per country. In developing areas in Asia, for example, there is a focus on education for girls to reduce inequality and also to prevent child marriages. In China, the focus is on STEM for girls in rural areas. In Europe and in the Netherlands, the foundation focuses on education for disadvantaged children, and children lacking in education, providing help that suits their specific needs. Tackling illiteracy in the Brainport region also became a key focus area for the ASML Foundation in 2020.

ASML employees support the ASML Foundation financially when they purchase goods from the ASML employee store and through donations. ASML Foundation is also responsible for ASML’s volunteering program: it coordinates the volunteering activities and keeps track of the volunteering hours that ASML employees contribute to education initiatives and other causes. ASML employees are allowed to take eight hours per year to do volunteer work; many volunteers also donate their own time.

The COVID-19 pandemic affected every age group, and every aspect of the lives and the world we live in - health, education, work, and so on. It is our duty to reach out and help our communities, and we're committed to supporting them during the pandemic. ASML also supports the coordinated actions of the national and regional authorities, as well as the efforts of other local organizations.

The table below shows the key performance indicators (KPIs) and the related 2025 targets. In 2019, we adopted a new sustainability strategy - as a result no comparative results for 2018 are available for new performance indicators. See Non-financial statements - Non-financial indicators for our performance indicators (PIs) and related results.

Our ambitions, commitments and programs as described in this chapter contribute to the following SDGs. For more information on the performance, see section Non-financial statements - Non-financial indicators.

At ASML, we rely heavily on our supplier network to achieve the innovations we strive for. Our goal is to ensure we get the products, materials and services we need to meet our short- and long-term needs. This supports our operations from the earliest moment of development to the end-of-life stages of our systems.

ASML invests considerable resources to develop and introduce new systems and system enhancements, such as EUV lithography, e-beam metrology and holistic lithography. As these are complex technologies, ASML focuses on a high value-added integration role to maximize the total system competence and shorten cycle times. To enable this focus on system-integration, ASML relies on an extensive supply base of around 780 Product Related (PR) suppliers and around 3,970 Non-Product Related (NPR) suppliers. Long-term relations, close cooperation and transparency with suppliers and partners are key to success.

With around 4,750 suppliers in our total supplier base, we distinguish between product-related and non-product related suppliers. Product-related suppliers provide materials, equipment, parts and tools used directly to produce our systems. This category comprises 780 suppliers and represents the highest percentage of our procurement volume, accounting for 68% of our total spend. From this total number of product-related suppliers, 188 suppliers are critical suppliers, accountable for 95% of the product-related spend.

We invest in developing our supply landscape to help suppliers meet our requirements with regard to quality, logistics, technology, cost and sustainability. Our supply chain strategy includes six priorities regarding the capabilities of our suppliers and how we work with them: we enable the product roadmap through the development and maintenance of best-in-class competencies and capabilities; efficient and dedicated operations that enable cost-per-wafer economics for our customers, having resilient suppliers able to adjust to volatile market cycles; close cooperation to secure early supplier involvement in the new product introduction process; a commitment to quality and expectation that our suppliers will proactively invest in and maintain a state-of the-art quality management system, and active contribution to our sustainability strategy.

On October 30, 2020, ASML acquired all shares of Berliner Glas Group, a key supplier to ASML for many years. Berliner Glas Group is one of the world’s leading providers of optical key components, assemblies and systems, high-quality refined technical glass as well as glass touch assemblies. Berliner Glas Group is headquartered in Berlin and has facilities at five locations throughout Germany, Switzerland and China. With the acquisition of Berliner Glas Group, we acquired technical capabilities that are critical to secure the future roadmap for our EUV and DUV products and will provide increased value to ASML's customers through strengthened collaboration and bundling our competences to accelerate our innovation.

ASML's continued growth, in combination with our ambitions, requires us to significantly improve our key business processes. To help achieve our strategic objectives, we decided to combine the activities of Strategic Sourcing & Procurement and Supply Chain Management into a single new sector, called Sourcing and Supply Chain (S&SC). This took effect on May 1, 2020. Jan Keller, a member of the ASML's Executive Committee and of the Operations Management Team, was appointed Executive Vice-President to lead this new sector. The aim of this new organization is to deliver the best possible supply chain for ASML, to have one ASML voice for our suppliers, and united representation within ASML to secure preconditions for suppliers' quality, logistics, technology, cost and sustainability (QLTCS) performance.

Continuously improving our suppliers’ performance and capabilities is at the heart of our sourcing strategy. We have a framework to communicate process requirements and compliance expectations to suppliers. One example is our supplier-profiling methodology, consisting of a supplier performance dashboard, a supplier capability self-assessment and a risk profile. The framework outlines our approach to supplier management and development towards the desired ASML supplier landscape. This provides an enhanced knowledge base to improve our dialogue with suppliers around their performance and development potential.

ASML always strives to select the best supplier that meets our requirements on all five capability dimensions. We monitor supplier performance in terms of quality, logistics, technology, cost and sustainability. When performance drops below annually set thresholds and does not recover upon request and within a reasonable time frame, ASML will take action to secure reliable future supplies.

At the start of the COVID-19 crisis, we rapidly established crisis management protocols. We created a global cross-sector team tasked with securing continuity of supply. We set up daily communication to inform our suppliers on ASML's COVID-19 restrictions and requirements. The team aimed to mitigate the impact of COVID-19 on suppliers by identifying and implementing solutions to secure supply to global ASML factories and field warehouses. The team reviewed, on a daily basis, supply shortages or pending restrictions that would affect our supply. We implemented solutions in close collaboration with our suppliers where required. Through the dedication of our suppliers and our people, we experienced only temporary shortages, and these were resolved before they could impact our 2020 output.

In 2019, we indicated that we would expand our Re-use program. In 2020, we introduced a dedicated cross-sector Re-use department, representing Factory, Customer Support, S&SC, D&E, Program and Finance. This department is hosted by Sourcing & Supply Chain. The Re-use team will establish an end-to-end process that supports the increase of parts, tools and packaging re-use, set-up of local and global repair centers, and improve the learning loop. Re-use strongly contributes to a circular economy and the reduction of operating costs. For more information, see Circular economy - Accelerating re-use of parts, tools and packaging and materials.

We rely on our suppliers to develop, manufacture and deliver the innovative and unique parts used in our lithography systems. Due to the highly specialized nature of many of our parts and modules, as well as limited set size, it is not always economical to source from more than one supplier. Our sourcing strategy therefore (in many cases) prescribes 'single sourcing, dual competence'. Our reliance on single sourcing requires us to proactively manage supplier performance and risk.

To that end, Sourcing conducts continuous performance and risk management of the supply base with the purpose to: i) Assure and improve performance, ii) Secure continuity of supply, iii) Protect our intellectual property and maintain a leading technology position, and iv) Prevent reputational damage. Five risk domains are assessed (Calamity, Ownership, Financial, IP & Information Security, and Compliance). In cases where risk exceeds the agreed threshold, mitigation measures are taken.

As suppliers operating in the same industry or market are typically exposed to similar risk, we evaluate suppliers’ risk and performance within the context of their supply market category. We will adjust our category strategies where required to meet ASML's short and long-term business needs.

In 2020, we continued to focus on improving business-recovery capabilities through the review of business-continuity plans focusing on increasing the quality of preventive measures and improving financial transparency through more frequent assessment of financial health for the most critical suppliers. In addition, we continued to expand our information security and cyber-resilience program with suppliers.

To improve business-recovery capabilities, we require suppliers to have business-recovery capabilities in line with the ISO 22301 standard. Supplier-recovery plans are requested, evaluated and, where needed, improved to prevent potential business disruptions. In 2020, we included 188 business critical product-related suppliers in our business-continuity program, and extended the scope with 34 non-product related suppliers.

Suppliers with access to top secret information or with privileged access to our IT systems are asked to improve information security through the ISO 27001 standard. In 2020, we included 143 suppliers in our information security program. ASML uses the ISO 27001 framework to support suppliers in a standardized way in their efforts to raise cyber resilience. Going forward, the maturity of our ecosystem will be further reinforced by establishing a 'circle of trust', a network of suppliers that jointly embrace the information security standards and raise their performance against these standards.

Other examples of successful risk mitigations are: getting long-term supplier agreements (LTSAs) and/or continuous supply agreements in place, ensuring the availability of IP in escrow, requiring suppliers to put their inventory in separate locations, requiring suppliers to implement fire prevention controls, and increasing buffer stock. For a further description of our risk management, see How we manage risk.

At ASML, we are committed to conducting our business in a caring and accountable manner, and being recognized as a responsible business partner.

Since 2011, we have been a member of the Responsible Business Alliance (RBA), the world’s largest industry coalition dedicated to corporate social responsibility in global electronics supply chains. We have adopted the RBA Code of Conduct (Code), which is a standard to ensure that working conditions in the electronics industry or industries in which electronics is a key component and its supply chains are safe, that workers are treated with respect and dignity, and that business operations are environmentally responsible and conducted ethically.

We promote the principles contained in the RBA Code to our suppliers and subcontractors, and expect key suppliers to participate in this common effort, by acknowledging and adopting the RBA Code. We screen our supplier base on sustainability performance using this standard from the RBA.

To underpin our commitment to a sustainable and resilient supplier network, we expect our key suppliers and their suppliers to comply with the RBA Code of Conduct as well. This requirement is included in our long-term product-related suppliers’ contracts. We encourage our suppliers to develop their own sustainability strategies, policies and processes, and actively pursue our suppliers’ adherence to this code.

We assess compliance with the RBA Code of Conduct through a risk-based approach. We scan all new suppliers for potential high risks and work with them during the onboarding process to remedy any issues we identify. We expect our strategic and high-risk suppliers to complete the RBA Self-Assessment Questionnaire (SAQ) each year to validate their compliance with the RBA Code of Conduct and to determine a supplier’s potential gaps in relation to the standards set forth in the RBA Code of Conduct.

In general, the RBA SAQ results show a relatively low risk level in our supply base, as most of our suppliers operate in countries with a strong rule of law and are law abiding.

A key performance indicator of our approach to ensuring a sustainable supply chain is the percentage of suppliers in scope who complete the RBA SAQ. In 2020, we expanded the scope of our RBA assessment to include non-product related suppliers and high-risk regions covering 80% of our total supply base spend. In 2020, 88% of the major suppliers in scope completed this questionnaire. Our target is to achieve a 90% completion rate by 2025, which puts us well ahead of our ambitions. If a supplier does not conform to our required standards, our policy is to discuss mitigating measures. Our second key performance indicator is to have 100% improvement plans in place for high-risk suppliers, as identified by the RBA self-assessment.

We also conduct supplier audits to address risks we identify in our regular risk assessments. These audits intend to verify supplier self-assessment and completion of improvement plans. However, in 2020 we did not conduct on-site supplier audits on sustainability criteria due to travel limitations and the focus on securing continuity of our supply chain as a result of the global impact of the pandemic.

Our robust risk-based assessment and audit process for suppliers covers human rights issues. In our due diligence process, we use the RBA Risk Assessment Platform to identify inherent risks in labor (including human rights), ethics, health & safety and environmental standards across our full supply base. In the event of a medium or high risk relating to labor being identified, we engage with the supplier and conduct a more detailed analysis. For major product-related and non-product related suppliers covering 80% of our spend, we expect them to complete the annual RBA SAQ. This SAQ covers more than 400 risk elements related to labor (including human rights), ethics, environmental and safety factors, control elements and management systems, including their performance. It helps us to determine a supplier’s risk profile on sustainability. When we identify compliance gaps, we engage with the supplier to determine corrective action plan(s).

In the 2020 RBA SAQ program, we identified one supplier with high risk on labor. This related to management systems rather than actual breaches of human rights.

As part of ASML’s commitment to enhancing sustainability, we want to play our part in realizing a circular economy model. We do this by reusing parts, increasing energy efficiency in our processes, and reducing scrap where possible. We see this as a responsibility to be shared between ourselves and our customers and suppliers.

Our procurement team plays an important role in implementing circular economy principles by promoting circular procurement at all times. We aim to raise awareness of circularity among our procurement managers, so they incorporate re-use and recycling in their way of thinking and procurement practices.

Our ambition for 2025 is to increase our circular-procurement practice. In 2020, we started a process of defining key performance indicators to measure progress in our circular procurement. The cross-sector Re-use program in ASML aims to re-use parts and

materials valued around €75 million. A key development is the setup of new circular processes and contracting with the majority of our first-tier supply base and align incentives for maximizing re-use value. Our focus for 2021 and beyond is to further expand our circular-procurement efforts. For more information about our approach to the circular economy policy and programs, see What we achieved in 2020 - Circular economy.

Like many companies in the electronics industry, our products contain minerals and metals essential to the manufacturing process. Examples of these are tantalum, tungsten, tin and gold (3TG), so-called conflict minerals. Although we do not use a significant amount of these minerals, we need certain 3TG minerals to make our products, and for them to function. Gold, for example, is used in coating critical electronic connectors, and tin is used for welding electronic components and creating EUV light.

At ASML, we are committed to a conflict-free minerals policy regarding the responsible sourcing of materials in our supply chain. We support international efforts to ensure the mining and trading of 3TG minerals from high-risk locations does not contribute to conditions of armed conflict and/or serious human-rights abuses in the Democratic Republic of the Congo (DRC) or its neighboring countries. We have adopted a series of compliance measures based on industry best practices. These include:

We comply with Section 1502 of the US Dodd-Frank Act and its application rules from the US Securities and Exchange Commission (SEC). We are committed to publicly disclosing information related to the use of these minerals in our products. For more information, see www.asml.com for our Conflict Minerals Statement and Conflict Minerals Report.

As we rely on our suppliers to develop, manufacture and deliver the unique parts and modules used in our lithography systems, the sourcing of these minerals goes beyond our Tier 1 suppliers. There are several tiers of suppliers between ASML and any smelter or refines of conflict minerals, and even more when tracing a mineral all the way back to the mines. This means that we do not have a direct purchasing relationship with mines, smelters or refiners.

Despite continuous efforts, we are unable to determine the precise origin of the 3TG minerals included in our products. This is due to several reasons: 3TG supply-chain complexity, the number of tiers of suppliers to trace the source, and the limited number of certified conflict-free smelters for all conflict minerals. To obtain correct data from our supply chain is a challenge, but we continue our efforts in this regard. In 2020, we started a project to refresh our responsible minerals sourcing policy and due diligence processes. Although we are not subject to these particular directives, we aim to incorporate EU regulations concerning supply chain due-diligence obligations regarding 3TG minerals.

Our ambitions, commitments and programs as described in this chapter contribute to the following SDGs. For more information on the performance, see section Non-financial statements - Non-financial indicators.

As we move away from the linear ‘take, make, dispose’ model, we believe the circular economy is key to ensuring the future success and competitiveness of the semiconductor equipment industry.

We are committed to minimizing waste and maximizing the use of resources, and believe that by doing so we not only limit our environmental impact but also generate business value. The modular design of our products lets us extract the most value we can from the materials we use, and repurpose our products across their life cycles.

While continuously innovating, we also want to ensure the increasingly sustainable use of materials across our processes and value chain to reduce our environmental footprint.

Given the modular designs of our products, we ensure that those in use at our customers’ sites can be upgraded to a higher performance level without having to replace the entire product. After use in the most advanced chip-making factories, we further extend the lifetime of our products by refurbishing systems and repurposing them for other customers and semiconductor environments.

Our initiatives in the service and upgrading of parts ensure that modules can be restored to and qualified as ‘as-new’ for re-use within our systems. This re-use practice is becoming increasingly important in our efforts to transition to a circular business model. In 2020, we set up a specific cross-sectoral Re-use department with full ownership of this objective to broaden and accelerate initiatives to re-use parts, tools, modules and packaging while reducing our total operational cost.

Reducing our environmental footprint and managing our waste – both from our operations and products – is key to ASML’s circular economy approach and our sustainability practices. There are several waste sources within our operations: these include office, packaging, and hazardous waste from the chemicals we use in our processes. Another source is product waste from parts resulting from upgrades or defective spare parts.

We highlight the environmental impact of waste in our sustainability strategy for the period 2019-2025. Our target is to reduce our ‘waste intensity’ – the amount of measured waste in kg per € million revenue – by 50% compared to baseline year 2019, and increase material recycling to 85% by 2025. These targets include hazardous and non-hazardous waste.

We are committed to reducing, reusing and recycling our waste as much as possible, rather than sending it on to an incineration plant or landfill. Based on Lansink’s Ladder Waste hierarchy, we manage our waste through proper classification, separation and safe disposal. For more information on our re-use of parts and materials, read in What we achieved in 2020 - Circular economy - Accelerating re-use of parts, tools and packaging and materials.

Our focus in 2020 was to gain better insight into all relevant waste streams, including assessing what happens with our waste at customer sites. We also conducted a feasibility study into whether it makes sense to send used packaging back to our manufacturing sites for re-use, comparing the carbon footprint of transporting this used packaging against the environmental gain of re-using it. The study showed that the weight of the packaging is the most relevant environmental aspect during transportation. These assessments led to a lifecycle assessment model for calculating the impact of waste and waste-reduction activities that we will start applying in 2021.

We use hazardous substances to produce and operate our products and systems. This makes us subject to a variety of governmental regulations relating to environmental protection (as well as employee and product health and safety), including the transport, use, storage, discharge, handling, emission, generation, and disposal of hazardous substances.

We are committed to reducing our hazardous waste, aiming to draw as much as possible from materials, and using no more than we need. The scope of our 2025 target to cut our waste intensity by 50% includes both hazardous and non-hazardous waste.

To achieve our target of cutting our waste per revenue by 50% by 2025, we plan to launch new initiatives in 2021. In 2020, we achieved waste reduction through several ongoing programs as listed in the table below. One of these programs consisted of a series of local waste-reduction initiatives, initiated by our employees, including plastic recycling, working with re-usable gloves in cleanrooms, and reducing the number of single-use coffee cups.

We are committed to re-using parts, tools and packaging whenever possible in our value chain to reduce and prevent waste, reduce costs, and accelerate learning. Working together with our customers and suppliers, we aim to remanufacture used system parts, re-using as if they were new parts and preventing unnecessary waste.

With an eye towards a more sustainable future, the department will increase our re-use efforts through their dedicated groups for re-use in D&E, Sourcing & Supply Chain, Customer Support and the Factories, and dedicated repair centers in Manufacturing and Customer Support. These will focus on extending local repair centers for service parts, tools and materials, and set up global repair centers to repair field and factory materials and to function as repair competence centers. Designing for re-use in the product design phase is also a key component of preventing waste and helps us meet our long-term goals.

It is not only about making sure that the sectors learn how to re-use and prevent scrap, but also about teaching them how to adopt re-use into their normal ways of working. The department’s end-goal is to ensure re-use is a default activity across everything that we do. Our dedicated cross-sector leadership will report into sector heads, who in turn will report to a newly set up Re-use Board, chaired by our Chief Operations Officer and our Chief Technology Officer.

Learning is also an important aspect of our Re-use department: by designing for re-use, and improving processes, we aim to close the learning loop and ultimately prevent waste in the future.

To achieve this, we need to leverage our organization to start working on re-use everywhere, in both big and small ways. For example, by replacing scrap beds in our factories with what we now call ‘re-use collection corners’, we encourage employees to think of used parts as having potential rather than being seen as waste.

Our re-use ambitions require a change of mindset. Communication is key to this, through a top-down and bottom-up approach. Setting the right example, talking to teams, attending all-hands meetings, leveraging our Re-use representatives across the sectors, and providing support where necessary. Senior management also play a crucial role in getting the message across, both to their internal colleagues and to our suppliers.

In 2020, we added an important step – a Customer Support triage process – to the steps we follow when handling used parts. We piloted this in the field in South Korea and in our factories in Veldhoven, and plan to roll this out in 2021.

This triage involves a new process to deal with a part that is not working, either because it’s worn out or defective. In the past, our teams would evaluate what was wrong with the part, note the results down through material notifications, and, where appropriate, send it back to the relevant suppliers.

The new focus is on processing the defective parts and thinking more critically about their potential. For parts that are not scrap, this means thinking about what we can do with them, either repairing them locally or sending them to the next level of triage.

We are increasing ASML’s re-use efforts by extending local repair centers for service parts and materials, and setting up global repair centers for factory materials.

We currently have local repair centers in South Korea and Taiwan and will be rolling out to China in 2021. Our ambition is to increase the re-use rate of our parts to 85% by 2025.

One of the ways to achieve this is by establishing more local repair centers, with each region getting its own. There are several benefits to enabling ‘simple’ repair and re-use activities in the field, including reduced logistics time, prevention of stocking of parts, and reduction of our environmental impact. We will also be setting up global repair centers in each factory hub in Wilton, San Diego, Linkou, and Veldhoven.

Our activities are closely linked to our supply chain. We are efficient at shipping new parts to the field for service and for new systems, but we need to place more attention on improving the return flow. To tackle this, we have set up a supply chain re-use team, which looks at re-use planning and reverse logistics to improve the flow of the part. We also operate a re-use supplier network, connecting with suppliers on re-use.

Overall, ASML is taking ownership of repairs, not only looking to the original owner, the supplier, but taking ownership if a supplier is not able to carry out repairs.

Our ambition is to increase the usage of As-New modules in our systems, to prevent unnecessary scrapping of well-functioning parts and modules. In 2020, we took an important step forward in our procedures by extending the program to service parts, taking us into the next phase of the As-New program.

As-New has been well received by our business sectors. There’s been an active pull on the program by the manufacturing lines wanting to see more parts qualifying for As-New.

We made good strides on re-use and are committed to continuing to reduce waste streams. To fully embed our Re-use vision however, there are several challenges to overcome and processes to be defined. These include:

In 2020, we have also added re-use to the different milestones in the product generation process (PGP). This means that re-use requirements are now part of the design specs. In the ramp-up phase, we want to plan with re-usability in mind when we order new parts. And in the volume release phase, we want to make sure the repair procedures are also reduced for volume, and not just the build procedures.

Our refurbished products business, known as MPS (Mature Products and Services), refurbishes and upgrades our older lithography systems to extend their lives and offer associated services. MPS’ customer base is wide and active in a variety of markets, especially in the More than Moore space.

MPS focuses on the refurbishment of three product families: the ‘classic’ PAS 5500 (around 2,000 systems and customers worldwide), the first generation TWINSCAN AT systems, and the first generation TWINSCAN XT systems. Given the growing market and wider application space of our PAS platform, ASML will invest significantly to extend the lifetime of our PAS platform to at least 2030. For TWINSCANs, we focus on measures to proactively manage the announced end of life by guaranteeing the availability of spare parts through 2021, with a program to extend that as long as possible on a best-effort basis.

We believe our approach supports our customers' ambition to extend their installed base lifespan, draw the best value from their capital, and underpins our broader circular economy approach.

Managing the continued availability of spare parts is key to the extended lifetime service we offer. A well-maintained ASML lithography system can last for decades and be used by more than one fab. Many ASML lithography systems start out in cutting-edge fabs – once that fab needs to upgrade, the lithography systems are given a new lease of life in a fab where the manufacturer requires comparatively less sophisticated chips, such as accelerometers or radiofrequency chips. Almost every lithography system that we’ve ever shipped is still in use at a customer fab today.

We are making significant investments to ensure continued supply for our PAS platform, either through redesigns, a parts harvesting strategy or finding an alternative with same form, fit and function. If this does not work, we are generally able to secure components through Last Time Buy – a supplier's 'last call' for a part or component before production switches to its successor. Over time, when that is no longer workable, we redesign parts.

Additionally, we track the spare parts we have in our portfolio, see how they are being used, and when we expect to run out of these parts. For the PAS systems, we use this information to update our priorities for redesigning parts. For the AT systems, we try to continue supplying parts by harvesting them from systems that are decommissioned by our customers.

Customers are continuing to use the current PAS 5500 installed base to produce devices on 200 mm wafers and below, and we foresee this demand growing. We set ourselves the ambition and target to provide our customers with a guaranteed service

MPS has a dedicated worldwide customer support network, which includes our own resources for field refurbishment and D&E. Our competence center in Linkou, Taiwan, concentrates mature product knowledge in one place. We have more than 250 specialized engineers in the field, working together with our customers.

Our service engineers are an integral part of our customer-engineering teams, which jointly execute service tasks, as well as being specialized in the more complex service activities that take place less often.

These service engineers report back on what they see happening in the field. We use this intelligence to keep our customers informed and establish if we need to devise a service product. Based on this, we continuously update our redesign plans.

As ASML’s technology and innovations evolve, the servicing of 20-year-old systems, and older, calls for expertise that is not always readily available. In some cases, customer and ASML engineers with PAS 5500 expertise are retiring, while, internally, engineers are attracted to our newer technology. It can be a challenge to maintain the competence of PAS 5500 service engineers, with expertise on the PAS systems, in the field. We seek to achieve this by developing a knowledge base, training and job rotation.

Ultimately, all ASML’s systems will become legacy products. So MPS is a key part of ASML’s offering, enabling our customers to get the best value from their capital investment and at the same time support the circularity principles we aspire to around the globe.

The table below shows the key performance indicators (KPIs) and the related 2025 targets. In 2019, we adopted a new sustainability strategy - as a result no comparative results for 2018 are available for new performance indicators. See Non-financial statements - Non-financial indicators for our performance indicators (PIs) and related results.

Our ambitions, commitments and programs as described in this chapter contribute to the following SDGs. For more information on the performance, see section Non-financial statements - Non-financial indicators.

Climate change has become an urgent matter around the world. It affects every country on every continent. It’s a challenge that requires global responsibility to limit a temperature rise worldwide to well below 2°C. It poses risks, but also opportunities for all companies.

At ASML, we’re committed to decreasing our greenhouse gas (GHG) emissions into the atmosphere and reducing our carbon footprint across our operations, as well as in our value chain by enhancing the energy efficiency of our products and utility installations that operates our manufacturing building and offices.

We aim to invent, develop and manufacture our products in a more environmentally friendly way, striving to ensure that our products are manufactured and can be operated responsibly across their entire life cycle.

Our renewable energy strategy sets out our ambition to achieve zero emissions across our operations. We aim at optimizing the efficiency of our utility installations in our buildings as well as our manufacturing process. While we’re increasing the productivity of our products, we're also working towards reducing their energy consumption to enhance our energy efficiency.

Climate change is a global challenge that requires urgent action by everyone. This also impacts ASML. We identify and assess the impact of climate-related risks and opportunities through an Enterprise Risk Management model. We assess risks both top-down (company-level) and bottom-up (organization and process-level). Read more in: How we manage risk - How we manage risk, How we manage risk - Risk factors.

We assess the risk related to climate change and its impact, using the assessment guidelines of the Task Force on Climate-related Financial Disclosures (TCFD). We defined climate-related risks relevant to us, as well as risks related to the transition to a lower-carbon economy. As national governments respond to the threat of climate change, political and regulatory risk increases. Our TCFD Recommendations: climate-related disclosure is available on www.asml.com.

We have seven manufacturing sites around the world. Veldhoven is the largest of these, representing 76% of our total gross greenhouse gas emissions (scope 1 and 2 emissions). A signatory to the Paris Agreement, the Netherlands has set its goal to reduce emissions by 49% in 2030, and expects a considerable contribution from industry to achieve this. Should carbon pricing be implemented, the financial cost of our energy consumption will increase.

The physical risks of climate change – e.g. extreme weather conditions, chronic heat waves (drought) and the rise of sea level (floods) – that could disrupt our operations and/or damage our assets are evaluated regularly in our Enterprise Risk Management process. The impact of these risks is deemed limited, as our main facilities and suppliers are not located in high-risk areas.

In addition, climate change may trigger issues concerning the availability of natural resources, and energy or health and safety matters. It may also indirectly impact the political situation in a country, which may cause supply-chain disruption in first tier and beyond. We see that these risks already exist in our industry. We monitor these, as changes can occur at any time.

With increased global awareness of climate change, managing the environmental impact of products is a concern for our customers and other stakeholders, and their preference may shift towards lower carbon-footprint products. While helping the semiconductor industry to continue to realize Moore’s Law, we are committed to taking every step to lower our carbon footprint.

To realize this, we have deployed a renewable energy strategy to reduce exposure to dependency on fossil fuel and enhanced energy efficiency in our operations by optimizing our global real-estate portfolio and efficiency of asset installations. Climate change and the increase in outside temperature will also force us to monitor the cooling capacity in our factory locations. If necessary, we may need to install more efficient and effective cooling systems, which will reduce overall energy consumption of the installed cooling capacity.

We are committed to taking every step required to lower our carbon footprint. Our sustainability strategy sets out our ambition to achieve zero net emissions across our operations by 2025. Read more in: Carbon footprint of our operations.

Climate and energy is a major focus area in our sustainability strategy to combat climate change. Being at the front end of the semiconductor value chain, our direct contribution and influence on low carbon end-use products is indirectly visible. Nevertheless, we recognize our responsibility in this entire value chain ecosystem. Read more in: What guides us, The role of lithography.

By providing more innovative leading-edge lithography systems to the IDMs and foundries, we contribute to a more sustainable semiconductor production process (clean tech). Besides the production process, our technology enables our customers to design and manufacture more powerful chips that consume less energy (low carbon) for the end-markets. Not only are we focused on the end products of our customers, we also a focus on energy efficiency in their semiconductor manufacturing facilities.

Growing consumer demand for faster, ever-more sophisticated devices in our increasingly interconnected world fuels the need for constant innovation and development in the semiconductor industry. Lithography is one of the driving forces in creating more powerful, faster, and cheaper chips. But just as the demand for enhanced chip functionality increases, so does the complexity of our lithography systems. Gross energy consumption of both lithography-equipment manufacturers and chip manufacturers is expected to rise, due to increasing IC demand and energy consumption of the systems needed to enable the production of higher-capability chips while consuming less energy per chip while in use.

Our ongoing challenge is to meet our customers’ expectations of increasing the performance of our products while also reducing their energy consumption.

Our product-efficiency strategy is based on making our systems more efficient and improving the conversion efficiency of wall-plug power into EUV light, while ensuring we use energy in the most efficient way. Our focus areas include:

We want to increase throughput, both by increasing a system’s source power and its efficiency by optimizing sequences, control schemes and other components, such as higher reflectivity mirrors and faster stages. The benefit to our customers is the ability to produce more wafers per day, as well as increasing capacity with the same number of systems. This enables customers to increase productivity without building a new fab, which translates into less overall energy use. Most of these enhancements are also offered as upgrades for the installed base tools.

A way to enhance energy efficiency in EUV relates to the conversion efficiency of laser radiation into EUV. Most energy is used in the conversion process, and it’s the key focus area for our design efforts to make our systems more efficient. If we can increase our conversion efficiency, we can decrease a system’s energy consumption at constant wafer output. Making this happen, while at the same time limiting the energy loss by reducing the collector degradation, pellicle transmission and mask defectivity are the key challenges for our R&D teams.

With our EUV systems now being used in high-volume manufacturing at customer sites, reducing their energy use has become a priority for us, our customers and suppliers.

In 2020, we measured the energy efficiency of our EUV 3400C, which showed significant improvement compared to its predecessor, the EUV 3400B. The energy consumption decreased from 1.4 MW to 1.3 MW thanks to more energy-efficient prevac systems, while productivity at 30 mJ resist dose increased from 107 wafers per hour (wph) in 2018 to 136 wph in 2020. We achieved a faster run rate (higher throughput) for the system by significant improvements in the transmission of the optical column and improved wafer management, reducing the so-called scanner overhead.

In 2020, we also completed a pilot project at our factory in Veldhoven aimed at reducing the energy used for the hydrogen abatement system. Our systems need hydrogen for protecting the optics in the scanner and the EUV source. We tested more efficient vacuum pumps that remove hydrogen from our systems, so our customers can install them as well.

By 2025, we aim to reduce the energy use per wafer pass of our future-generation NXE systems by 60% compared to the previous model, the NXE:3400B (baseline 2018).

To achieve this, we need to overcome several strategic technical challenges. These include: ways to create EUV plasma in the most efficient way; developing materials and coatings dealing with higher EUV intensities; and improving the heat management of optical components, including the heat management of the wafer itself, which heats up through the exposure light during the production process.

These technical challenges are particularly tough to solve, given that there is no precedent anywhere in the world. At ASML, we need to find these solutions ourselves and this type of experimentation presents all sorts of challenges. Solving these challenges requires ongoing innovation and relies heavily on the increased collaboration within our ecosystem of customers, suppliers and knowledge institutions.

EUV is characterized by single exposure. This means several exposures can be replaced by one single exposure (patterning of a chip). With EUV, the number of non-litho processing steps can be reduced by up to three to five times; this reduces the production cycle time significantly. The fab also benefits from reduced energy use for the deposition, etching and cleaning steps. Therefore, when our customers use EUV systems to create faster and more energy-efficient chips, the total energy consumption of the fab might remain about the same as before, but with a larger portion of the energy being used by (EUV) lithography creating faster and more energy-efficient chips.

Our next-generation EUV systems, High-NA (0.55NA), will enable further shrink and partly eliminate complicated exposure schemes involving several 0.33NA exposures by a single 0.55NA exposure. With High-NA, the number of non-litho processing steps can therefore also be reduced. This will effectively limit the energy consumption per wafer further.

Preliminary results show that the total energy consumption of a patterning strategy with EUV is not necessarily higher than that of the most complex multi-patterning DUV strategies.

The tables below provide an overview of our system performance achievements in terms of output and energy usage to achieve this output.

We are committed to minimizing our energy consumption, the environmental impact of our operations and our related carbon footprint. We are doing this by enhancing the energy efficiency of our buildings and, where possible, shifting to renewable energy. We also aim to reduce emissions in our value chain.

We manage the environmental impact of our activities through a strong governance structure, chaired by our Chief Operating Officer, and our ISO14001 certified management system. This is further supported by ASML’s sustainability strategy, and our Environmental Health and Safety (EHS) policy.

We review our environmental risks each year through our Enterprise Risk Management and business continuity processes. Read more in: Howe we manage risk. We also assess the risks related to climate change, using the guidelines of the Task Force on Climate-related Financial Disclosure (TCFD). Read more in: Climate change risk and opportunities. Our TCFD disclosure document is available on www.asml.com.

Electricity accounts for nearly 80% of the energy we use at ASML. Most of our electricity consumption relates to the manufacturing of chip-making equipment – from assembly to testing lithography and other systems – and maintaining consistent climate conditions, such as constant temperature, humidity and air quality.

We view 2020 as a landmark year, achieving our goals set out in our multi-year energy master plan for the period 2016-2020, and raised the bar for the next energy master plan for 2021-2025. Despite the increase in number of facility cleanrooms in recent years, we realized a 10% energy saving compared to the 2015 energy-consumption baseline. This translates to an achievement of 114 TJ savings by year-end 2020, which is above our target of 111 TJ savings. We also reached our goal to use 100% renewable electricity (scope 2). In doing so, we confirmed our commitment to minimizing the impact of our activities on the environment by reducing our environmental footprint and extending our commitment to renewable energy.

Over the past 10 years, we have executed nearly 100 energy saving projects worth cumulatively over 260 TJ savings, representing 28% of our energy footprint since 2010. Over the same period, our natural gas consumption has dropped in absolute term from 382 TJ to 293 TJ as a result of energy savings measures – and this despite the growth and constructions of new facilities (cleanrooms and offices).

Projects we have run over the past few years to achieve further energy savings are, for example, more energy-efficient technical installations and improvements in the production process. These included measures such as the recovery of exhaust heat, and efforts to reduce the energy consumption of our cleanrooms, where maintaining the right conditions is energy intensive. The projects were completed and implemented in our operations in 2020, with energy savings taking effect.

Following on from the closure of the energy master plan 2016-2020, we developed a Climate & Renewable Energy Sustainability program 2021-2025. Our target is to achieve carbon neutrality in our operations for both scope 1 and scope 2. While developing this plan, we reassessed in 2019 the scope of our energy and emissions reporting by assessing materiality per real estate location, and the environmental impact of activities at these locations.

In 2020, we achieved our goal of using 100% renewable electricity through a combination of buying green electricity and financing renewable electricity-generating projects. Our ambition is to increase the share of direct green energy purchases (so-called bundled renewable electricity) from renewable electricity produced close to our premises in the Netherlands, and reduce the share of certificates. For the US and Asia, our ambition is to purchase renewable energy attribute certificates (respectively RECs and I-RECs) and monitor the evolution of the renewable in those countries.

All three hydro-energy plants in Norway that we co-financed through our GO2 project over the past few years were finalized and in operation in 2020. They generate 26,000 MWh of energy per year, which is fed into the Dutch grid.

As we grow as a company, we strive to optimize our real-estate portfolio. The marked increase in working from home following Dutch containment measures also prompted us to take a closer look at the need for office space and determine whether we may need less space than anticipated. Optimizing the use of every square meter in our portfolio contributes to reducing our environmental footprint: each square meter saved is a square meter we don’t need to heat, cool, ventilate or light up.

When building new offices and manufacturing sites, we take the opportunity to make our buildings as environmentally sound as possible. With an eye on future growth, for example, our new campus in Veldhoven is designed with a strong sustainability focus. Its design and use of materials will be assessed on sustainability performance using BREEAM guidelines: we aim to achieve a BREEAM score of ‘excellent’. From 2020 onwards, we plan to adhere to BREEAM guidelines for all our new buildings.

We recognize that environmental impact goes beyond our operations. In general, most of the environmental impact of energy consumption in our industry comes from the use of products, and the greenhouse gas emissions in the downstream and upstream value chain.

We use the guidance from the Greenhouse Gas Protocol – the organization that provides widely used international standards for emissions reporting – for the calculation of these scope 3 emissions. In 2019, we conducted our first inventory of scope 3 emissions. In 2020, we focused on maturing the data used and parameter assumptions applied.

Results shows that the indirect emissions (scope 3) from upstream and downstream value chains account for around 98% of the total emissions footprint (scope 1, 2 and 3). Of this, indirect emissions in the value chain, the category ‘downstream' – use of sold products at our customers’ sites – accounts for 60%, and the category ‘upstream' – emissions related to the goods and services we buy – accounts for 30%. The remaining 10% of our scope 3 emissions relates to, among other things, activities linked to transportation, business travel, and commuting.

In 2020, we defined our scope 3 target for 2025. In this process, we gave our best estimate for projecting upstream and downstream emissions, guided by our financial growth expectations. For more information, see section Financial performance.

Taking into account the change in product mix (an increase in units of EUV systems), and the fact that our output in terms of unit product manufactured is expected to increase, the overall emissions in the entire value chain is expected to rise. By executing our sustainability strategy successfully, we can reduce the intensity of our scope 3 carbon footprint. The intensity is measured by the total scope 3 emissions (in kton) normalized to the total revenues (in € million).

Recognizing that we depend on our suppliers, and that most suppliers have not yet established greenhouse gas inventory mechanisms, we also encourage our value chain partners to work with us to jointly reduce greenhouse gas emissions.

We are committed to having an environmental management system (EMS) in place that helps us monitor our energy and emissions, improve performance, and enhance efficiency. Our EMS is integrated into our combined environmental, health and safety (EHS) management system. All our facilities operate on the basis of this EHS management system. Our EHS management system is ISO:14001 certified, and structured in accordance with ISO:45001 requirements. On November 2020 we received ISO:14001 re-certification for the next three years. This certification gives our stakeholders confidence in our commitment to achieving our environmental goals.

We measure progress in our emissions reductions by monitoring our scope 1, 2 and 3 emissions, representing three key performance indicators. Our participation in the annual assessment by the Carbon Disclosure Project, (CDP) a non-profit global disclosure program, also helps steer our environmental initiatives. Our score in the most recent CDP Climate Change 2020 assessment is C, which is the same level as the sector average.

In 2020, we received a fine for a missing environmental permit for our facility in Beijing. We are in the process of resolving the issue and obtaining the correct permit. Nevertheless, no environmental incident occurred.

Water consumption at ASML is more than 20 times less than most companies in the semiconductor industry. Nevertheless, we promote the responsible use of water throughout our company. Our water consumption in 2020 increased slightly to 860,000 cubic meters from 838,000 cubic meters in 2019, attributed to the expansion of the manufacturing facility in Veldhoven and an increase in product output. We use water from the municipal water supply.

While disruptions in access to water may represent a significant risk for some of our customers, water-related risk for ASML is limited. We have seven manufacturing sites, of which the four main facilities are Veldhoven (NL), San Diego (US), Wilton (US), Linkou (TW). Our main facilities are not located in water high or extreme stress areas as classified by the World Resources Institute (WRI). Our San Diego site, however, is in a region where access to water can pose a risk. The other facilities are located in Beijing (CN), Pyeongtaek (KO) and San Jose (US). Activities in these locations relate to the assembly of modules for our lithography systems.

The table below shows the key performance indicators (KPIs) and the related 2025 targets. In 2019, we adopted a new sustainability strategy - as a result no comparative results for 2018 are available for new performance indicators. See Non-financial statements - Non-financial indicators for our performance indicators (PIs) and related results.

Our ambitions, commitments and programs as described in this chapter contribute to the following SDGs. For more information on the performance, read Non-financial statements - Non-financial indicators.

This was a year where the world was consumed with uncertainty caused by the COVID-19 pandemic. We have experienced limited impact on our manufacturing capability, although there have been additional challenges with absenteeism, transportation and support logistics that we have had to manage. Some of the quarantine requirements have had an impact on our efficiency, while travel restrictions posed challenges at times for our service organization. Additionally, some of our suppliers experienced temporary closures resulting from governmental lockdowns in the first half of the year. Despite all of these challenges, we successfully worked with our customers and suppliers to find creative solutions to support our operations.

Customer demand remained strong throughout the year, seen through a strong order intake and record sales. Many investments of our customers are strategic and support their technology roadmaps. However, we did experience some impact in parts of the year. In the first half of the year, some customers asked us to expedite the delivery of EUV systems by shipping the systems before the normal Factory Acceptance Tests (FAT). This resulted in revenue recognition being delayed from shipment until after a successful Site Acceptance Test (SAT) at the customer site, each of which was completed before the end of Q3. Additionally, there have been some delays in fab readiness at customers, which delays timing of our shipments.

We successfully navigated these challenges, resulting in net sales growing by €2.2 billion in 2020 to €14.0 billion, higher than we expected at the beginning of the year, as a result of increased sales in the Logic market, Memory market, as well as our installed base management business. Logic grew by €0.8 billion, or 13%, compared to flat initial expectations This was due to customers continuing to see strong demand for both advanced and mature nodes in support of the build-up of the digital infrastructure, which includes secular growth drivers, such as 5G, AI and high-performance compute. We expect Logic demand to remain healthy for both leading edge and mature nodes, due to further broadening of the application space fueled by the global digital transition. Memory grew by €0.5 billion, or 20%, relative to our 30% growth expectations. While the growth related to the recovery of the Memory market was substantial as customers saw improving demand in data centers and consumer electronics, it was lower than expected as customers' allocation shifted more towards Logic throughout the year. We expect this recovery in Memory to continue into 2021 as lithography tool utilization is already high, while customers indicate inventory levels continue to come down with expected further tightening of supply throughout the year.

Net service and field option sales grew by €0.8 billion, or 30%, relative to our 20% growth expectations, driven by an increase in the sales of productivity and focus upgrade packages, in combination with a growing installed base. Our services and upgrades business will continue to scale as our installed base grows, with increasing contribution from EUV service revenue as these systems run more wafers in volume manufacturing. We expect significant demand for upgrades, as customers utilize upgrades to increase capacity and improve imaging and overlay performance required on future nodes.

In EUV, although our systems are still climbing the maturity curve, we continue to see increased customer confidence in the technology, which is translating into expanding layer counts in Logic and initial deployment of EUV in Memory. This led to EUV system revenue of €4.5 billion in 2020, an increase of €1.7 billion compared to 2019. We successfully increased our manufacturing output in 2020 to 35 systems, however due to fab readiness of our customers, we shipped 32 of these systems, recognizing revenue for 31 systems. The remaining 3 manufactured systems will ship in early 2021.

In our DUV business, we shipped the first NXT:2050i and NXT:1470 in 2020. The NXT:2050i is based on a new version of the NXT platform, where the reticle stage, the wafer stage, the projection lens and exposure laser all contain performance enhancements. With these innovations, the systems deliver increased customer value via improved performance in overlay and productivity, and are therefore critical in supporting their next node introductions. The NXT:1470 is the first dry NXT system building on the NXT immersion platform, enabling significant improvements in matched machine overlay and productivity. This will help our customers deal with the increasing cost of complexity when introducing new nodes. The higher output per fab area from an NXT system also maximizes fab capacity and therefore improves customer profitability.

Gross profit as a percentage of net sales increased from 44.7% in 2019 to 48.6% in 2020, mainly attributable to expansion in our EUV profitability and growth in our service and upgrade sales. We continue to drive profitability of our EUV systems and service business, and as a result have started to achieve over 40% system gross margin and positive gross margin on our service business in 2020. We will continue to drive margin improvement in both systems and service via cost reduction and delivering more value leading to higher selling prices. We expect EUV systems to reach corporate gross margins in the course of 2021, while we expect EUV service margins to improve towards corporate margins over the coming years.

We continue to invest in the future of ASML, with a significant increase in 2020 capital expenditures to €1.0 billion. The increase is in line with our roadmap to increase the value of EUV in high-volume manufacturing, the development of High-NA, investments in capital expenditures at our partner Carl Zeiss SMT, as well as programs supporting our holistic lithography solutions in DUV and Applications.

We incurred an increase in our effective tax rate to 13.7%, which is more in line with our expected long-term effective tax rate. Our effective tax rate was lower in 2019 due to one-time restructuring benefits and US Tax Reform regulations.

Liquidity and free cash flow were focus areas in 2020, similar to 2019, however in 2020 we faced additional risk and uncertainty due to the COVID-19 pandemic, which forced us to implement various cash preservation measures early in 2020 to mitigate this risk and uncertainty. Apart from COVID-19 risk mitigation, we started to see the benefits of our working capital improvement initiatives in Q4 2020, allowing us to grow our free cash flow by €1.2 billion in 2020 in connection with our €1.0 billion increase in net income. We achieved this growth while continuing to invest significantly in capital expenditures and R&D in support of our roadmap and planned capacity ramp, as well as being able to return excess cash to our shareholders through growing dividends and share buybacks, totaling €2.3 billion this year. We expect strong free cash flow, increasing investments in the future and significant cash returned to shareholders for next year.

Overall, it was another strong year for ASML, driven by continued strength in Logic, the start of a recovery in Memory, growth in our installed base management, the positive momentum in EUV, and sustained strength in our DUV business. The expanding end-market applications that fuel demand for both advanced and mature nodes provide a sound basis for continued growth, and we continue to be excited about the future.

The following table presents the KPIs used by our Board of Management and senior management to measure performance. For our five-year financial summary, read Other appendices - Appendix - Selected financial data.

We achieved another record year in 2020, with Total net sales increasing by €2,158.5 million, 18.3%, broken down as an increase in Net system sales of 14.7%, and an increase in Net service and field options sales of 29.7% compared to 2019.

We saw growth in both Logic and Memory markets, which is a reflection of our customers' drive to innovate and continue to invest in future technology nodes. Logic demand for the most advanced lithography systems remains healthy, and Memory demand picked up in 2020 after a decline in 2019. Customers have indicated they are seeing signs of recovery driven by healthy demand in data centers and consumer electronics. Growing insertion of EUV into DRAM manufacturing translated into recovery of the Memory market towards the second half of 2020.

The increase in Net sales is driven by EUV and Service and field options. We recognized revenue for 31 EUV systems in 2020 compared to 26 EUV systems in 2019. In addition to the higher number of units, the average selling prices in EUV increased as a result of the transition to the high productivity NXE:3400C model.

In addition to the growth in EUV, Service and field options sales were also a key driver for our overall growth in net sales. The increase is driven by an increase in the sales of productivity and focus upgrade packages, supported by a growing installed base. EUV contributed in a more meaningful way to net service and field option sales as our installed base continues to grow and our customers continue to run more EUV systems in their high volume production.

Our system sales across our DUV technologies increased from 203 units in 2019 to 227 units in 2020, however given the mix of technologies, DUV Net sales decreased by €0.4 billion in 2020. We successfully introduced our NXT:2050i and NXT:1470 in 2020, and DUV will continue to drive value for our customers and be used in production in most layers of their chips.

Gross profit increased as a result of both an increase in sales and profitability. Gross profit as a percentage of net sales increased from 44.7% in 2019 to 48.6% in 2020, mainly attributable to improvement in our EUV profitability and growth in our service and upgrade sales. We continue to drive profitability of our EUV systems and service business through cost reduction and by delivering more value for our customers.

This year has been exceptional for companies worldwide, including ASML. We faced increased risk and uncertainty, especially in the first half of the year due to the COVID-19 pandemic. At that time, despite having a healthy balance sheet, as well as flexibility in our cost structure, we felt it prudent to preserve cash to protect our own operations, but also in order to be able to support our suppliers as best we can in these extraordinary circumstances. These measures included the pause of our share buyback program in Q1, later resumed in Q4, as well as issuing €750 million of senior notes due in 2029 in May 2020 as part of our cash preservation measures. This offering was in addition to our previous issuance of €750 million of senior notes due in 2030 in February 2020.

Free cash flow in 2020 increased by €1.2 billion, driven by an increase in Net income of €1.0 billion and improvements in our working capital. Historically our EUV contracts did not include down payments, and actually provided extended payment terms for customers, given the maturity curve of our EUV systems. Now we are moving into a direction where we ask for down payments of EUV tools, reflecting the long lead times and early supply chain commitments that ASML has to enter into. We have started to see the benefits of this in 2020, and expect further improvement in 2021.

We continue to heavily invest in our next generation technologies in order to secure future growth opportunities which requires significant cash investment in net working capital, capital expenditures and R&D. However, our capital allocation policy remains unchanged. Cash that will not be required to support the future growth of our business, will be returned to our shareholders through growing dividends and share buybacks.

During 2020 we used €1.4 billion of Net cash for investing activities, mainly for purchasing €1.0 billion of Property, plant and equipment and Intangible assets. In addition we acquired Berliner Glas, during the fourth quarter for a purchase price of €257.1 million, having a net impact on our investing activities of €222.8 million after netting the cash received and contingent consideration. The remaining activity is due to the timing of maturities and reinvestment of short-term investments.

Net cash used in financing activities amounted to €0.8 billion in 2020. We continued to return a substantial amount of cash to our shareholders as seen through the annual growth of our dividend, paid semi-annually totaling €1.1 billion in 2020, as well as share buybacks made during the year of €1.2 billion. This cash used in financing activities is partially offset by the completion of two bond offerings during 2020 for a total of €1.5 billion.

We continue to hold on to our long-held prudent financing policy, which is based on three foundational elements:

Our principal sources of liquidity consist of cash and cash equivalents, short-term investments and available credit facilities. In addition, we may from time to time raise additional funding in debt and equity markets. We seek to ensure that our principal sources of liquidity will be sufficient to satisfy our liquidity requirements at all times.

Our liquidity needs are affected by many factors, some of which are based on the normal ongoing operations of the business, and others by the uncertainties of the global economy, the bulky character of our business and the specific characteristics of the semiconductor industry. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with our other sources of liquidity are sufficient to satisfy our expected requirements, including our expected capital expenditures, research and development expenses and debt servicing.

We invest our cash and cash equivalents and short-term investments in short-term deposits with financial institutions, governments and government related bodies that have investment grade credit ratings and in money market and other investment funds that invest in high-rated short and medium-term debt securities. Our investments are mainly denominated in euros and to some extent in US dollars and Taiwanese dollars.

Our objectives when managing our capital structure are to safeguard our ability to satisfy our capital providers by maintaining a capital structure that ensures liquidity and supports a solid investment grade credit rating. The capital structure includes both debt and the components of equity, in accordance with both US GAAP and EU-IFRS. The capital structure is mainly altered by, among other things, adjusting the amount of dividends paid to shareholders, the amount of share buybacks or capital repayment, and any changes in the level of debt. Our capital structure is formally reviewed with the Supervisory Board each year in connection with our updated long term financial plan and relevant scenarios. The outcome of this year’s review confirmed to maintain our historical financing policy in relation to our capital structure.

Our current credit rating from Moody’s is A3 (stable) and from Fitch is A- (stable), which is consistent with the credit ratings as of December 31, 2019.

ASML aims to distribute a dividend that will be growing over time, paid semi-annually. On an annual basis, the Board of Management, upon prior approval from the Supervisory Board, submits a proposal to the AGM with respect to the amount of dividend to be declared with respect to the prior year, taking into account any interim dividend distributions. The dividend proposal in any given year will be subject to availability of distributable profits, retained earnings and cash, and may be affected by, among other things, our view of potential future liquidity requirements including for investments in production capacity, working capital requirements, the funding of our R&D programs and acquisition opportunities that may arise from time to time. In addition to dividend payments, we intend to return cash to our shareholders on a regular basis through share buybacks or capital repayment, subject to our actual and anticipated level of liquidity requirements and other relevant factors.

This program was temporarily paused in the first quarter of 2020 in order to address the uncertainty related to COVID-19, and subsequently resumed in the fourth quarter of 2020. In 2020 we repurchased 3,908,429 shares (2019: 1,948,808 shares) for a total consideration of €1,207.5 million (2019: €410.0 million).

Our policy is based on a well-defined set of principles and internationally accepted standards. We support and adhere to the principles on tax transparency and responsible tax management as set out in the OECD Action Plan on Base Erosion and Profit Shifting (BEPS) and the EU Anti-Tax Avoidance Directives (ATAD I and II).

Our globally organized tax department is responsible for tax management. It falls under the supervision of our Board of Management via the CFO, who is ultimately responsible for the tax strategy. Our integrated global tax department is spread over three hubs in the three regions in which ASML operates and aligns on cross-border tax matters. ASML’s global tax department is well connected to ASML’s operations worldwide. This helps to ensure compliance with applicable local tax laws and regulations. Tax filing obligations are monitored via a central tax compliance dashboard. Controls are implemented and executed via our SOx and Internal Control Frameworks.

The Audit Committee of the Supervisory Board (SB) reviews our tax strategy and annually confers with our tax professionals to discuss tax policies and the impact of tax laws and regulations on ASML.

Training programs are in place in order to ensure that global tax department members stay aligned and up to date with latest developments in the global tax landscape. Additionally, tax department members regularly provide tax awareness sessions for stakeholders from business and other finance departments.

ASML aims to report on and pay taxes in accordance with all relevant tax laws and regulations. We commit to not only comply with the letter of these laws and regulations, but also with their intent.

We aim to be clear about all aspects of our tax position and to share these in a transparent manner, fostering a relationship of honesty, transparency and trust with the tax authorities. The latter is reflected in the number of bilateral advance pricing agreements (BAPA) we have with the tax authorities in our significant jurisdictions.

ASML’s technology is driving our profitability. Around 90% of our income is taxable in the Netherlands as most of our value creation through research, design and manufacturing activities is based there. The income from other activities, such as regional equipment sales and after-sales support, is subject to taxation in the countries where these activities take place – the main ones being China, South Korea, Taiwan and the US.

To drive innovation, Dutch corporate income tax law provides for the so-called Innovation Box facility. Based on this facility, qualified income associated with R&D is subject to an effective tax rate of 7% (increased to 9% as of 2021), as compared to the Dutch statutory rate of 25%. For more information see note 21 in the Consolidated financial statements.

Disclosures are provided in our financial statements and cover tax payments in our main markets. We provide country-by-country tax reporting in a transparent and accurate manner to the tax authorities. A high level overview of income taxes paid during 2020 is set out below (in millions).

ASML is active in over 60 offices located in 16 countries. The tax regulations in these countries are subject to change, among others due to recent developments in the international tax arena (e.g. BEPS 2.0). The tax regulations are often complex and subject to interpretation. Failure to comply with these tax regulations may lead to additional tax assessments, including penalties.

ASML’s tax strategy is aimed at maintaining a low tax-risk appetite, for which it has set up a comprehensive tax risk-management framework. As such, via the organizational structure of the global tax department, clear segregation of roles and responsibilities as well as a strict internal review and approval processes for tax filings, mitigates risks and facilitates alignment with external parties.

We aim to file all the required tax-relevant returns with the appropriate tax authorities in a correct, timely and complete manner. To ensure this happens, tax-compliance & reporting processes are monitored through ASML’s comprehensive corporate (SOx and Internal Control) and tax control framework. The control frameworks are regularly reviewed, tested and challenged by the ASML Risk & Business Assurance department. Additionally, in various areas automation is used for efficient and effective monitoring of tax compliance obligations, validation of tax relevant data and execution of tax compliance & reporting processes. In these ways, we continue to focus on further improvement and automation going forward.

We discuss potential tax risks and our tax positions with the Audit Committee on a regular basis. Additionally, in the Netherlands, we participate in a cooperative compliance program with the Dutch tax authorities.

Internal control on tax reporting is included in the overall internal control statement, which is part of the management report on internal control over financial reporting.

We expect 2021 to be another growth year supported by healthy Logic demand and growth in the Memory market. The expected growth is primarily driven by increasing EUV sales, as well as growth in our installed base business. The positive industry momentum around innovation and expanding new markets further strengthen our confidence in the 2021 outlook and our 2025 growth scenarios.

In Logic, we see the major innovation drivers that fueled increased demand for leading edge nodes in 2020, continuing to drive demand in 2021. This is evident in several customer announcements regarding ramp-up plans for 7 and 5 nm nodes.

In Memory, customers have indicated systems are operating at higher utilization levels. As customers are making the technology transition to support projected growth, additional capacity additions are expected to be required. Subsequently, this is expected to trigger equipment demand. As a result, it seems likely that we will see stronger lithography equipment demand from the Memory market in 2021.

Customers adopted EUV, and with increasing customer confidence in EUV, this is translating into more layers in their next nodes, for Logic production as well as the adoption in Memory. We continue to see demand building up for next years' shipments and expect a healthy order flow to continue. Due to this demand increase, we expect EUV revenue to increase around 30% in 2021.

We expect further growth in our Installed Base Management business as the demand for services will continue to expand as our installed base grows. Additionally, we anticipate an increased contribution to service sales from EUV as more and more systems start running wafers in volume manufacturing, as well as expect significant demand for upgrades, particularly in EUV, as customers utilize upgrades as a quick way to increase capacity.

Our expectations and guidance for the first quarter of 2021 can be summarized as follows:

The trends discussed above are subject to risks and uncertainties. See Special note regarding forward-looking statements.

In November 2018, we presented our long-term growth opportunity up to 2025 in which we modeled revenue scenarios within the context of different business sensitivities. We recognize our growth opportunity is primarily sensitive to market growth, with a projected annual revenue for 2025 between €15 billion in a low-market scenario and €24 billion in a high-market scenario.

Our next Investor Day is currently planned to take place on June 23, 2021 in London, where we will update our 2025 expectations for the market developments since 2018.

Our revenue potential is primarily based on organic growth. We continuously review our product roadmap and have, from time to time, made focused acquisitions or equity investments to enhance the industrial synergy of our product offering. Based on such reviews and the assessment of clear potential product and value synergies, we may also evaluate and pursue focused merger and acquisition activities in the future. Within this growth ambition, we expect to continue to return significant amounts of cash to our shareholders through a combination of growing annualized dividends and share buybacks.

We deploy our ERM framework through a well-defined governance structure and a robust ERM process. The Risk and Business Assurance function drives the ERM process and associated activities across ASML and its affiliates. It takes a systematic approach to identify, manage and monitor risks in pursuit of our business objectives by setting standards and enabling management to make ASML's governance, risk management, internal control and compliance more efficient and effective. The function also helps to identify opportunities that allow us to achieve our objectives and enable continuous sustainable growth.

ERM is a continuous process. Its related activities are periodically repeated to identify and address risks in a timely fashion, and its results remain relevant for decision-making purposes. Our Vice President of Risk and Business Assurance is responsible for leading the development and maintenance of the ERM framework and makes sure the ERM process is carried out. ASML has adopted the ISO 31000:2018 standard as the foundation of its enterprise risk management. In addition, the Vice President of Risk and Business Assurance, reporting to ASML's CFO, is responsible for leading the security, and internal control function and for the development and maintenance of the compliance process.

The Supervisory Board provides independent oversight on management’s response to mitigating critical risk areas based on regular risk reviews. The Supervisory Board’s Audit Committee provides independent oversight on the ERM process and the timely follow-up on priority actions based on quarterly progress updates.

The Board of Management is responsible for managing the internal and external risks related to our business activities and for making sure we comply with applicable legislation and regulations. The Board of Management has delegated its risk oversight to ASML’s Corporate Risk Committee.

The Corporate Risk Committee is a central risk oversight body, which reviews, manages and controls risks in the ASML Risk Universe, including information security. It also approves the risk appetite, risk-management policies and risk-mitigation strategies. The Corporate Risk Committee is chaired by the CFO and comprises senior management representatives from all sectors at ASML, including the CEO, CSO and COO.

The Disclosure Committee assists the Board of Management in overseeing ASML’s disclosure activities and compliance with applicable disclosure requirements arising under Dutch and US law and applicable stock exchange rules, and other regulatory requirements.

The Internal Control Committee, which includes two members of the Disclosure Committee, advises the Disclosure Committee and the CEO and CFO in their assessment of our internal control over financial reporting and disclosures, under the Sarbanes-Oxley Act. The Chair of the Internal Control Committee updates the Audit Committee, the CEO and CFO on the progress of this assessment. The Chair also includes this update in the report to the Audit Committee.

Risk owners monitor the development of risks in the ASML risk universe and drive risk response across the ASML organization according to requirements that are defined by the Corporate Risk Committee.

The ASML risk universe is a consolidated overview of the risks that may have a material adverse effect in achieving our business objectives. It consists of 38 risk categories grouped into six risk types. This allows us to have a consistent view across ASML when assessing risks.

We take into account a broad range of internal and external information sources such as macroeconomic and industry trends, relevant guidelines and legislation, and stakeholders’ needs and expectations in all areas. The risk universe is reviewed, updated and approved on a yearly basis, or more frequently in case of significant internal and/or relevant external developments.

Our ERM process provides a holistic approach combining both top-down (company-level) and bottom-up (organization- and process-level) perspectives. This helps us to ensure that risk identification, evaluation, and management are performed at the right level.

The results from periodic risk-assessments and potential impact of external trends are captured in the ASML risk landscape. As we operate in a dynamic environment, risk exposures are subject to change. The ASML risk landscape is reviewed, updated and discussed by the Corporate Risk Committee each quarter.

The execution of the risk assessments is done according to the risk management plan and any additional engagement approved by the Corporate Risk Committee. We define strategies to address relevant risks and take these into account when we define the corporate priorities. ASML defines risk responses with the aim to mitigate the risks up to the level defined by the risk appetite.

Our risk appetite depends on the nature of the risk. ASML’s risk appetite – the level of risk ASML is willing to accept to achieve its objectives – may vary based on the specific risk and is divided in five levels: Averse, Prudent, Moderate, High and Extensive. Our approach is geared towards mitigating the risks to the level defined in our risk appetite.

The table below presents examples of external developments that have affected the exposure of a series of risk categories in 2020, including examples of our responses. The list of risks and risk responses below is not exhaustive.

Our success in developing new technologies, products, and in enhancing our existing products, depends on a variety of factors. These include the success of our and our suppliers’ R&D programs and the timely and successful completion of product development and design relative to competitors. Our business will suffer if the technologies we pursue to assist our customers in producing smaller and more energy-efficient chips are not as effective as those developed by competitors, or if our customers do not adopt technologies that we develop or adopt new technological architectures that are less focused on lithography products. The success of our EUV technology, which we believe is critical for keeping pace with Moore’s Law, remains dependent on continuing technical advances by us and our suppliers. We invest considerable financial and other resources to develop and introduce new technologies, products and product enhancements. If we are unsuccessful in developing (or if our customers do not adopt) new technologies, products and product enhancements such as High-NA and multi-beam, or if competitors successfully introduce alternative technologies or processes, our competitive position and business may suffer, and we may be unable to recoup some or all of the investments that we have made.

We may incur costs related to inventory obsolescence, as a result of technological changes. Such costs may increase as the complexity of technology increases.

Due to the highly complex nature and costs of our systems, including newer technologies, our customers may purchase existing technology systems rather than new leading-edge systems, or may delay their investment in new technology systems to the extent that such investment is not economical or required given their product cycles. Global economic conditions affect our customers’ investment decisions, leading to uncertainties on the timing around the introduction of and demand for new leading-edge systems. Some of our customers have experienced and may continue to experience delays in implementing their product roadmaps. This increases the risk of slowing down the overall transition period (or cadence) for the introduction of new nodes, and therefore new systems.

We are also dependent on our suppliers to maintain their development roadmaps to enable us to introduce new technologies on a timely basis. If they are unable to keep pace, whether due to technological factors, lack of financial resources, the impact of the COVID-19 pandemic or otherwise, this could prevent us from meeting our development roadmaps.

Our lithography systems and applications have become increasingly complex, and accordingly, the costs and time period to develop new products and technologies have increased. We expect such costs and time periods to continue to increase. In particular, developing new technology, such as High-NA and multi-beam, requires significant R&D investments by us and our suppliers to meet our and our customers’ technology demands. Our suppliers may not have, or may not be willing to invest the resources necessary to continue the (co-)development of the new technologies to the extent that such investments are necessary. This may result in ASML contributing funds to such R&D programs or limiting the R&D investments that we can undertake. Furthermore, if our R&D programs are not successful in developing the desired new technology on time or at all, we may be unsuccessful in introducing new products and unable to recoup our R&D investments.

The lithography equipment industry is highly competitive. Our competitiveness depends upon our ability to develop new and enhanced lithography equipment, related applications and services that are competitively priced and introduced on a timely basis, as well as our ability to protect and defend our intellectual property rights. We compete primarily with Canon and Nikon in respect of DUV systems. Both Canon and Nikon have substantial financial resources and broad patent portfolios. Each continues to offer products that compete directly with our DUV systems, which may impact our sales or business. In addition, adverse market conditions, industry overcapacity or a decrease in the value of the Japanese yen in relation to the euro, could further intensify price-based competition, resulting in lower prices, and lower sales and margins.

We may also face competition from new competitors with substantial financial resources, as well as competitors driven by the ambition of self-sufficiency in the geopolitical context. Furthermore, we face competition from alternative technological solutions or semiconductor manufacturing processes, particularly if we are unsuccessful in developing new EUV technology, products and product enhancements in a timely and cost competitive manner.

We also compete with providers of applications that support or enhance complex patterning solutions, e.g. Applied Materials Inc. and KLA-Tencor Corporation. These applications effectively compete with our Applications offering, which is a significant part of our business. The competition we face in our applications business may be higher than for our systems, as there are more competitors and potential competitors in this market.

As a supplier to the global semiconductor industry, we are subject to the industry’s business cycles, of which the timing, duration and volatility are difficult to predict. The semiconductor industry has historically been cyclical. Newer entrants in the industry, including Chinese entrants, could increase the risk of cyclicality in the future. Certain key end-market customers – Memory and Logic – exhibit different levels of cyclicality and different business cycles. Sales of our lithography systems, services and other holistic lithography products depend in large part upon the level of capital expenditures by semiconductor manufacturers. These in turn are influenced by industry cycles and a range of competitive and market factors, including semiconductor industry conditions and prospects. The timing and magnitude of capital expenditures of our customers also impact the available production capacity of the industry to produce chips, which can lead to imbalances in the supply and demand of chips. Reductions or delays in capital expenditures by our customers, including as a result of the COVID-19 pandemic, or incorrect assumptions by us about our customers’ capital expenditures, could adversely impact our business.

Our ability to maintain profitability in an industry downturn will depend substantially on whether we are able to lower our costs and break-even level, which is the level of sales that we must reach in a year to have positive net income. If sales decrease significantly as a result of an industry downturn and we are unable to adjust our costs over the same period, our net income may decline significantly or we may suffer losses. Furthermore, as the value per system increases and we have grown, and continue to grow, in terms of employees, facilities and inventories, it may be more difficult for us to reduce our costs to respond to an industry downturn.

We derive most of our revenues from the sale of a relatively small number of lithography systems: (258 units in 2020 and 229 units in 2019). As a result, the timing of shipments, including any delays, and recognition of system sales for a particular reporting period from a small number of systems may have a material adverse effect on our business, financial condition and results of operations in that period. This risk is increasing due to the higher average sales price of EUV systems as compared to DUV systems.

In addition, we aim to derive more revenue from servicing and upgrading our installed base. However, we may not be able to increase revenues to the extent we planned as, for example, customers may perform more of these services themselves or find other third party suppliers for that service.

We rely on intellectual property rights such as patents, copyrights and trade secrets to protect our proprietary technology and applications. However, we face the risk that such measures could prove to be inadequate and we could suffer material harm because, among other things:

In addition, legal proceedings may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement. Any such proceedings may result in substantial costs and diversion of management resources, and, if decided unfavorably to us, could result in significant costs or have a significant impact on our business.

We are increasingly subject to attempted misappropriation attacks, including theft of our trade secrets, proprietary customer data, intellectual property or other confidential information by third parties or our own employees. For example, in the past we have been subject to the misappropriation of our software by certain employees.

In the course of our business, we are subject to claims by third parties alleging that our products or processes infringe upon their intellectual property rights. If successful, such claims could limit or prohibit us from developing our technology, manufacturing and selling our products.

In addition, our customers or suppliers may be subject to claims of infringement from third parties, alleging that our products used by such customers in the manufacturing of semiconductor products and / or the processes relating to the use of our products infringe on one or more patents issued to such third parties. If such claims are successful, we could be required to indemnify our customers or suppliers for some or all of any losses incurred or damages assessed against them as a result of such infringement.

We also may incur substantial licensing or settlement costs to settle disputes or to potentially strengthen or expand our intellectual property rights or limit our exposure to intellectual property claims of third parties.

We were subject to a number of patent infringement claims by Nikon between 2017 and 2019. While we settled the litigation with Nikon in 2019, we continue to face the risk that we may be subject to claims alleging the infringement of others’ patents or intellectual property rights or involved in patent litigation to defend our intellectual property rights.

Patent litigation is complex and may extend for a protracted period of time, giving rise to the potential for both substantial costs and diverting the attention of key management and technical personnel. Potential adverse outcomes from patent litigation may include payment of significant monetary damages, injunctive relief prohibiting our manufacturing, exporting or selling of products, and / or settlement involving significant costs to be paid by us.

Global trade issues and changes in and uncertainties with respect to multilateral and bilateral treaties and trade policies, including the ability to obtain required licenses and approvals and the effects of trade sanctions, export controls, tariffs and similar regulations and international trade disputes, impact our ability to produce and deliver our systems and services internationally.

Certain of our manufacturing facilities as well as customers are located in Taiwan. Customers in Taiwan represented 33.8% of our 2020 total net sales and 45.3% of our 2019 total net sales. Taiwan has a unique international political status. The People’s Republic of China asserts sovereignty over Taiwan and does not recognize the legitimacy of the Taiwanese government. Changes in relations between Taiwan and the People’s Republic of China, Taiwanese government policies, and other factors affecting Taiwan’s political, economic or social environment could have a material adverse effect on our business, financial condition and results of operations. Furthermore, certain of our facilities as well as customers are located in South Korea. Customers in South Korea represented 29.7% of our 2020 total net sales and 18.6% of our 2019 total net sales. There are tensions with the Democratic People’s Republic of Korea (North Korea), which have existed since the division of the Korean Peninsula following World War II. A worsening of relations between those countries or the outbreak of war on the Korean Peninsula could have a material adverse effect on our business, financial condition or results of operations.

We have a presence or do business in a number of jurisdictions, including the People’s Republic of China and Russia. In particular, our business in People’s Republic of China has increased in recent years and is expected to increase further. Such increased presence increases the risks we face, including risks relating to compliance with multilateral and bilateral treaties, delays in receipt of appropriate permits, compliance with anti-corruption and anti-bribery laws and regulations, our ability to effectively manage and control our growing business, attracting and retaining sufficiently qualified personnel, the protection of our intellectual property and information technology systems, and restrictions on repatriation of cash abroad. For example, we have experienced, and are continuing to experience, delays in processing work permits for foreign nationals, which could potentially delay development and support provided to customers.

The US administration has enacted trade measures, including import tariffs and restrictions on conducting business with certain Chinese entities, restricting our ability to provide products and services to such entities without a license. The list of Chinese entities impacted by trade restrictions, as well as the export regulation requirements are subject to change. Our business involves the sale of systems and services to customers in a number of countries, including China, where our business has grown in recent years, and includes sensitive technologies that may be the subject of increased export regulations, policies or practices. These and further developments in multilateral and bilateral treaties, national regulation, and trade, national security and investment policies and practices have affected and may further affect our business, and the businesses of our suppliers and customers. Such developments can impact our ability to obtain necessary permits, including permits for use of US technology and for employees producing and developing such technology. Such developments could also lead to long-term changes in global trade, competition and technology supply chains, which could adversely affect our business and growth prospects.

From time to time we acquire, and may in the future acquire, businesses or technologies to complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. For example, we recently completed the acquisition of Berliner Glas, a privately held manufacturer of ceramic and optical modules to support the future roadmap for our EUV and DUV products. Any such acquisitions could lead to failure to achieve our financial or strategic objectives, to perform as we plan or disrupt our ongoing business and adversely impact our results of operations. Furthermore, our ability to complete such transactions may be hindered by a number of factors, including potential difficulties in obtaining government approvals.

Any acquisition that we make could pose risks related to the integration of the new business or technology with our business and organization. We cannot be certain that we will be able to achieve the benefits we expect from a particular acquisition investment. Such transactions may also strain our managerial and operational resources, as the challenge of managing new operations may divert our management from day-to-day operations of our existing business. Furthermore, we may be unable to retain key personnel of acquired businesses or may have difficulty integrating employees, business systems, and technology. The controls, processes and procedures of acquired businesses may also not adequately ensure compliance with laws and regulations, and we may fail to identify compliance issues or liabilities.

In connection with acquisitions, anti-trust and national security regulators have in the past and may in the future impose conditions on us, including requirements to divest assets or other conditions that could make it difficult for us to integrate the businesses that we acquire. Furthermore, as the industry is becoming more consolidated, anti-trust and national-security clearances may become harder to obtain, which could inhibit future desired acquisitions.

As a result of acquisitions, we have recorded, and may continue to record, a significant amount of goodwill and other intangible assets. Current accounting guidelines require, at least annually and potentially more frequently, assessment of whether there are indicators that the value of goodwill or other intangible assets has been impaired.

Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investors and other stakeholders are increasingly focused on ESG practices and, in recent years, have placed increasing importance on the implications and social cost of their investments. In particular, within the semiconductor industry, there is focus on contribution to society and minimizing environmental and social impacts of products throughout all life cycle stages. Failure to achieve our ESG objectives and meet the emerging ESG expectations of our stakeholders could negatively affect our brand, reputation and license to operate, and may also increase our vulnerability to ESG-related risks, such as risks associated with climate change in the medium- to long-term. Furthermore, our ability to achieve our product-related environmental objectives (such as energy efficiency) may be affected by the complexity of our technology and products, and the technological and other capabilities of ourselves and our suppliers.

A global transition to a lower carbon economy and / or climate change may result in the imposition of increased environmental regulations that could lead to technology restrictions, modification of product designs, an increase in energy prices and the introduction of energy or carbon taxes, pollution requirements, required remediation equipment, or other requirements. A variety of regulatory developments have been introduced that focus on restricting or managing the emission of carbon dioxide, methane and other greenhouse gases. This could result in a need to purchase at higher costs new equipment or raw materials with lower carbon footprints.

We are a global company and are exposed to a variety of financial risks, including liquidity risk, interest rate risk, credit risk and foreign exchange risk.

In general, our customers run their businesses in US dollars and therefore a weakening of the US dollar against the euro might impact the ability or desire of our customers to purchase our products at quoted prices.

We rely on outside vendors for components and subassemblies used in our systems, including the design thereof. These components and subassemblies are obtained from a single supplier or a limited number of suppliers. As our business has grown, our dependence on single suppliers or a limited number of suppliers has grown, as the highly specialized nature of many of our components, particularly for EUV systems, means it is not economical to source from more than one supplier. Our sourcing strategy therefore (in many cases) prescribes 'single sourcing, dual competence'. Our reliance on a limited group of suppliers involves several risks, including a potential inability to obtain an adequate supply of required components or subassemblies, in a timely manner or at all, additional costs resulting from switching to alternate suppliers and reduced control over pricing and quality. Delays in supply of these components and subassemblies, which could occur for a variety of reasons, such as disruptions experienced by our suppliers, including work stoppages, fire, cyberattacks, energy shortages, pandemic outbreaks such as COVID-19, flooding or other natural disasters, can lead to delays in delivery of our products which would impact our business. For example, certain of our suppliers experienced disruptions in their operations as a result of COVID-19. A prolonged inability to obtain adequate deliveries of components or subassemblies, or any other circumstance that requires us to seek alternative sources of supply, could significantly hinder our ability to deliver our products in a timely manner, which could damage relationships with our customers and materially impact our business.

The number of lithography systems we are able to produce may be limited by the production capacity of one of our key suppliers, Carl Zeiss SMT GmbH, which is our sole supplier of lenses, mirrors, illuminators, collectors and other critical optical components (which we refer to as optics). If Carl Zeiss SMT GmbH is unable to maintain and increase production levels, we could be unable to fulfill orders, which could have a material impact on our business and damage relationships with our customers. If Carl Zeiss SMT GmbH were to terminate its supply relationship with us or if Carl Zeiss SMT GmbH is unable to maintain production of optics over a prolonged period, we would effectively cease to be able to conduct our business.

In addition, some of our key suppliers, including Carl Zeiss SMT GmbH, have a limited number of manufacturing facilities, the disruption of which may significantly and adversely affect our production capacity.

Lead times in obtaining components have increased as our products have become more complex, and a failure by us to adequately predict demand for our systems or any delays in the shipment of components can result in insufficient supply of components, which can lead to delays in delivery of our systems and can limit our capabilities to react quickly to changing market conditions. Conversely, a failure to predict demand could lead to excess and obsolete inventory.

We are also dependent on suppliers to develop new models and products and to meet our development roadmaps. To the extent our suppliers do not meet our requirements or timetable in product development, our business could suffer.

Historically, we have sold a substantial number of lithography systems to a limited number of customers. Customer concentration can increase because of continuing consolidation in the semiconductor manufacturing industry. In addition, although the applications part of our holistic lithography solutions constitutes an increasing portion of our revenue, a significant portion of those customers are the same customers as those of our systems. Consequently, while the identity of our largest customers may vary from year to year, sales may remain concentrated among relatively few customers in any particular year. The recognized total net sales to our largest customer from each year accounted for €4,394.8 million, or 31.4% of total net sales in 2020, compared with €4,688.6 million, or 39.7% of total net sales in 2019 and €2,476.8 million, or 22.6% of total net sales in 2018. The loss of any significant customer or any significant reduction or delay in orders by a significant customer may have a material adverse effect on our business, financial condition and results of operations.

Our business and future success significantly depends upon our employees, including a large number of highly qualified professionals, as well as our ability to attract and retain employees. Competition for such personnel is intense and has increased in recent years, and we may not be able to continue to attract and retain such personnel. Our R&D programs require a significant number of qualified employees. If we are unable to attract sufficient numbers of qualified employees, this could affect our ability to conduct our R&D on a timely basis. In addition, if we lose key employees or officers to retirement, illness or otherwise, particularly a number of our highly qualified professionals and / or senior management, we may not have sufficient time to find a suitable replacement. Moreover, as a result of the uniqueness and complexity of our technology, qualified engineers capable of working on our systems are scarce and generally not available (e.g. from other industries or companies). As a result, we must educate and train our employees to work on our systems. Therefore, a loss of a number of key professionals and / or senior management can be disruptive, costly and time consuming. Our R&D activities with respect to new technology systems, such as High-NA and for further development of EUV technology, and our service activities have increased our need for qualified personnel.

Furthermore, the increasing complexity of our products results in a longer learning curve for new and existing employees and suppliers leading to an inability to decrease cycle times and may result in the occurrence of significant additional costs. Our suppliers face similar risks in attracting qualified employees, including attracting employees in connection with R&D programs that will support our R&D programs and technology developments. To the extent that our suppliers are unable to attract qualified employees, this could impact our R&D programs or deliveries of components to us.

In recent years, our organization has grown significantly. As a result of this growth in a short period of time, we may be unable to effectively manage, monitor and control our employees, facilities, operations and other resources.

Bringing our products to high-volume production at a value-based price and in a cost-effective manner, depends on our ability to manage the industrialization of our products and our ability to manage costs. Customer acceptance of our products depends on performance of our products in the field. As our products become more complex, we face an increasing risk that products that we develop may not meet development milestones or specifications and that our products may not perform according to specifications, including quality standards. If our products do not perform according to specifications and performance criteria or if quality or performance issues arise, this may result in additional costs, reduced demand for our products, and our customers being unable to meet planned wafer capacity.

Transitioning our newly developed products to full-scale production requires the expansion of our infrastructure, including enhancing our manufacturing capabilities, increasing supply of components and training qualified personnel, and may also require our suppliers to expand their infrastructure capabilities. If we or our suppliers are unable to expand infrastructure as necessary, we may be unable to introduce new technologies, products or product enhancements or reach high-volume production of newly developed products on a timely basis or at all.

New technologies might not have the same margins as existing technologies and we might not be able to adjust value-based pricing and or cost in an effective manner. In addition, the introduction of new technologies, products or product enhancements also impacts ASML’s liquidity, as new products may have higher cycle times to produce resulting in increased working capital needs. This impact on liquidity increases as our products become more complex and expensive.

The capability, capacity and costs associated with providing the required customer support function to cover the increasing number of shipments and servicing a growing number of EUV systems that are operational in the field could affect the timing of shipments, and the efficient execution of maintenance, servicing and upgrades, which is key to the systems continuing to achieve the required productivity.

All of our manufacturing activities, including subassembly, final assembly and system testing, take place in cleanroom facilities in Veldhoven, the Netherlands, in Berlin, Germany, in Wilton, Connecticut, US and in San Diego and San Jose, California, US, in Pyeongtaek, South Korea, in Beijing, China, in Linkou and Tainan, Taiwan. These facilities may be subject to disruption for a variety of reasons, including work stoppages, fire, energy shortages, pandemic outbreaks such as COVID-19, flooding or other disasters, natural and otherwise. We cannot ensure that alternative production capacity would be available if a major disruption were to occur.

As our organization grows, we are not able to fully insure our risk exposure. In addition, not all disasters are insurable. As we are unable to duly insure against potential losses, we are subject to the financial impact of uninsured losses, which can have an adverse impact on our financial condition and results of operation.

Hazardous substances are used in the production and operation of our products and systems, which subjects us to a variety of governmental regulations relating to environmental protection, and employee and product health and safety, including the transport, use, storage, discharge, handling, emission, generation, and disposal of toxic or other hazardous substances. In addition, operating our systems (which use lasers and other potentially hazardous systems) can be dangerous and can result in injury. The failure to comply with current or future regulations could result in substantial fines being imposed on us, suspension of production, alteration of our manufacturing and assembly and test processes, damage to our reputation, and/or restrictions on our operations or sale or other adverse consequences. Additionally, our products have become increasingly complex. The increasing complexity requires us to invest in continued risk assessments and development of appropriate preventative and protective measures for health and safety for both our employees (in connection with the production and installation of our systems and field options and performance of our services) and our customers’ employees (in connection with the operation of our systems). Our health and safety practices may not be effective in mitigating all health and safety risks, including such risks resulting from the COVID-19 pandemic. Failing to comply with applicable regulations or the failure of our implemented practices for customer and employee health and safety could subject us to significant liabilities.

We rely on the accuracy, availability and security of our information technology systems. Despite the measures that we have implemented, including those related to cybersecurity, our systems could be breached or damaged by computer viruses and systems attacks, natural or man-made incidents, disasters or unauthorized physical or electronic access.

We are experiencing an increasing number of cyberattacks on our information technology systems as well as the information technology systems of our suppliers, customers and other service providers, whose systems we do not control. These attacks include malicious software (malware), attempts to gain unauthorized access to data, and other electronic security breaches of our information technology systems. They also include the information technology systems of our suppliers, customers and other service providers that have led and could lead, for us, our customers, suppliers or other business partners - including R&D partners - to disruptions in critical systems, unauthorized release, misappropriation, corruption or loss of data or confidential information (including confidential information relating to our customers, employees and suppliers).

In addition, any system failure, accident or security breach could result in business disruption, theft of our intellectual property, trade secrets (including our proprietary technology), unauthorized access to, or disclosure of, customer, personnel, supplier or other confidential information, corruption of our data or of our systems, reputational damage or litigation. Furthermore, computer viruses or other malware may harm our systems and software and could be inadvertently transmitted to our customers' systems and operations, which could result in loss of customers or litigation. We may also be required to incur significant costs to protect against or repair the damage caused by these disruptions or security breaches in the future, including, for example, rebuilding internal systems, implementing additional threat protection measures, providing modifications to our products and services, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties.

These cybersecurity threats are constantly evolving. We, therefore, remain potentially vulnerable to additional known or yet unknown threats, as in some instances, we, our customers, and our suppliers may be unaware of an incident or its magnitude and effects. We also face the risk that we expose our customers to cybersecurity attacks through the systems we deliver to our customers, including in the form of malware or other types of attacks as described above, which could harm our customers. Furthermore, the COVID-19 pandemic has increased the level of remote working within our organization, which increases the risks of cybersecurity incidents.

In addition, from time to time, we implement updates to our information technology systems and software, which can disrupt or shutdown our information technology systems. We may not be able to successfully launch and integrate these new systems as planned without disruption to our operations. For example, we are currently implementing a new ERP system and infrastructure (ONE program). As a result of this system implementation or otherwise, have and could continue to experience disruptions in our operations.

In recent years, our business has grown significantly in terms of sales, operations, employees and our business infrastructure. As a result, the complexity of complying with rules and regulations has increased. Furthermore, as we have expanded our business in countries where we did not previously operate, we have become increasingly subject to compliance with additional rules and regulations in such jurisdictions, including anti-corruption, anti-bribery and human rights standards, which can be complex. We are also subject to investigations, audits and reviews by authorities in such jurisdictions regarding compliance with rules and regulations, including tax laws.

Furthermore, the existing rules and regulations that we are subject to, including regulations relating to trade, national security, tax, exchange controls, reporting, anti-corruption laws, data protection, are becoming more complex and the trade and national security environment has resulted in increasing restrictions. We also face the risk that trade and security regulations could limit our ability to sell our products and services in certain jurisdictions. 

Such changes in the regulation that applies to our business can increase compliance costs and the risk of non-compliance. Noncompliance can result in fines and penalties and regulation could impact our ability to sell our products and services.

We are subject to income taxes in the Netherlands and numerous other jurisdictions. Our effective tax rate has fluctuated in the past and may fluctuate in the future.

Changes in tax legislation in the countries where we operate can affect our effective tax rate. For example, in past years the OECD has implemented measures against so-called Base Erosion and Profit Shifting or BEPS and is currently working on additional proposals to avoid tax evasion and enhance tax transparency. Based on the BEPS reports the EU has proposed directives to counter base erosion and profit shifting which in turn have resulted in legislative proposals in EU member states. Similar legislative initiatives inspired by the BEPS reports have been taken in Asian jurisdictions in which we operate. These initiatives have resulted in increased compliance requirements for ASML.

In September 2020, the previously proposed reduction in the general Dutch corporate income tax rate was reversed. Furthermore, an increase from 7% to 9% as of 2021 to the favorable Dutch corporate income tax rate for innovation was adopted. We continuously monitor and assess the impact of developments in tax legislation on ASML.

Changes to tax legislation of jurisdictions we operate in, may adversely impact our tax position and consequently our net income. Our worldwide effective tax rate is heavily impacted by R&D incentives included in tax laws and regulations in the countries we operate in. An example is the so-called innovation box tax legislation in the Netherlands (mentioned above). In case jurisdictions alter their tax policies in this respect, this may have an adverse effect on our worldwide effective tax rate. In addition, jurisdictions levy corporate income tax at different rates. The mix of our sales over the various jurisdictions in which we operate may vary from year to year, resulting in a different mix of corporate income tax rates applicable to our profits, which can affect our worldwide effective tax rate and adversely impact our net income.

The COVID-19 pandemic and the measures implemented to address this pandemic globally continue to impact our business and our suppliers and customers. The pandemic has already had a significant impact on the global economy, which can potentially impact our end markets. There is significant uncertainty about how the current COVID-19 pandemic will impact global GDP development, end markets, our manufacturing capability and supply chain, and the longer this pandemic lasts the greater are the risks. The full impact of this pandemic on ASML will depend on future developments, including continued severity of the COVID-19 pandemic, and the actions to contain the outbreak or address its impact which are outside of our control.

Our Articles of Association provide that we are subject to the provisions of Dutch law applicable to large corporations, called 'structuurregime'. These provisions have the effect of concentrating control over certain corporate decisions and transactions in the hands of our Supervisory Board. As a result, holders of ordinary shares may have more difficulty in protecting their interests in the face of actions by members of our Supervisory Board than if we were incorporated in the US or another jurisdiction.

Our authorized share capital also includes a class of cumulative preference shares and we have granted Stichting Preferente Aandelen ASML, a Dutch foundation, an option to acquire, at their nominal value of €0.09 per share, such cumulative preference shares. Exercise of the Preference Share Option would effectively dilute the voting power of our outstanding ordinary shares by one-half, which may discourage or significantly impede a third party from acquiring a majority of our voting shares.

See Leadership and governance - Corporate governance - Board of Management and Supervisory Board, and Consolidated Financial Statements - Notes to the Consolidated Financial Statements - Note 22 Shareholders’ equity.

We aim to pay a semi-annual dividend that is growing (on an annualized basis) over time, and we conduct share buyback programs from time to time. The dividend proposal and amount of share buybacks in any given year will be subject to the availability of distributable profits, retained earnings and cash, and may be affected by, among other factors, the Board of Management’s views on our potential future liquidity requirements, including for investments in production capacity and working capital requirements, the funding of our R&D programs and for acquisition opportunities that may arise from time to time, and by future changes in applicable income tax and corporate laws. We may also suspend buyback programs from time to time, which would reduce the amount of cash we are able to return to shareholders. Accordingly, the Board of Management may decide to propose not to pay a dividend or pay a lower dividend and may suspend, adjust the amount of or discontinue share buyback programs or we may otherwise fail to complete buyback programs.

We are committed to conducting our business in compliance with applicable laws and regulations in all the countries we operate in. We promote and uphold ethical behavior, fostering a culture where speaking up is encouraged and appreciated.

Guided by feedback from employees on ASML’s first-ever Global Ethics Survey in 2019, we took the opportunity in 2020 to improve our ethics organization. Among other activities, we set out to grow and professionalize our network of Ethics Liaisons, highlight the role of the Ethics Office, revise the Code of Conduct to align more clearly with ASML’s values, and raise awareness around how the company responds to questions related to ethics.

We live our values – Challenge, Collaborate and Care – a shared belief system at ASML that defines who we are. These values are reflected in our Code of Conduct. It sets clear expectations and guiding principles on the way we conduct our business and serves to foster a culture of integrity, ethics and respect. Together with a set of practical guidelines, it helps our employees make smart decisions that will benefit all stakeholders and puts integrity at the center of what we do.

ASML relies heavily on the skills, commitment and behavior of its employees for its continued success as a company, and for its positive contribution to society. That’s why we expect all employees to fully live up to the company’s values and to act with integrity and respect at all times. We ask all our employees to acknowledge our Code, and we expect our business partners to respect our Code.

As a member of the Responsible Business Alliance (RBA), we have adopted the RBA Code of Conduct, which is a common set of social, environmental and ethical industry standards. Our Code is in line with the RBA Code of Conduct. To reinforce our commitment to the supplier network, we expect our key suppliers (representing around 80% of our total spend) and their suppliers to comply with the RBA Code of Conduct and to develop their own strategies, policies and processes to follow it. This requirement is included in our long-term product-related suppliers’ contracts. For more information, see What we achieved in 2020 - Our supply chain.

Our Code of Conduct is available on our website (www.asml.com), our intranet and in our Employee app.

We provide a dedicated Ethics Program, which offers the necessary support, advice, training and communication to enable employees and others to understand and follow our Code. It does this by building awareness through various communication channels to foster a culture of integrity. It also helps create an open and honest culture where the instinct to do the right thing, and to comply with the law and ASML policies, is embedded across the organization.

Fostering a culture of integrity starts with management setting the right example. To support managers to be leaders who act with integrity, we’ve developed a practical handbook with guidelines, tips about dealing with specific situations, and tools they can use in daily operations.

In every location where we operate, we have Ethics Liaisons. They serve as trusted representatives and act as the first local point of contact for employees with questions and concerns related to ethics. They support management in managing ethical risks, and employees can go to them to speak up in good faith.

The Ethics Program includes our annual Ethics Awareness Week, where we address a specific theme around ethics. In 2020, due to the volume of new information we wanted to share with employees, we expanded the week-long event, running a series of activities over the whole of November. At this time, we launched the new Code and the updated training curriculum.

The refreshed online training goes to all new employees within the first three months of starting at ASML. The first module covers the Code, and this will be followed by other modules addressing different topics, as well as those connected to the Code, over the next two years.

We also expanded our network of Ethics Liaisons globally in 2020 (up to 55 from 42 in 2019), ensuring even more global coverage. We also increased the number of areas Ethics Liaisons come from, so encouraging people from all over the business to become involved and increasing diversity in this area.

Our liaisons were especially important during the COVID-19 pandemic when travel was not possible. We relied on them to keep channels of communication open and to help us better understand the types of issues our employees were facing across the globe. This, and growing our capability in terms of Ethics Investigators – the people looking into the most serious kinds of ethics complaints – are just two of the ways we have been professionalizing the Ethics Office.

We encourage everyone, including external business partners, such as suppliers, contractors and other workers, to express, in good faith, any concerns they might have regarding possible violations of our Code, our company’s policies, or the law.

Our Speak Up policy, which includes our Whistleblower policy and our Ethics Investigation procedure, outlines the steps employees are encouraged to take if they experience or suspect a breach of our business ethics. These policies and procedure reassure employees that they can report a breach without fear of repercussions. For employees or external stakeholders who prefer to remain anonymous, we have a Speak Up system available to report breaches anonymously. This is run by an independent, external service company.

We look into all Speak Up messages. The role of the Ethics Office is to assess each Speak Up message, and bring it to the attention of the relevant employee, team or committee, so that remediation actions can be taken by the appropriate body.

We group Speak Up messages in three categories: questions, concerns and complaints. With regard to concerns and complaints, this could include a shortfall in a procedure or a policy that is possibly not being applied as it should be or has been misinterpreted. We discuss the issue with the policy owner or those working in the particular area as to how it could be better handled or improved. A complaint is the most serious type of case the Ethics Office deals with. To be categorized as a complaint, there must be an alleged breach or a violation of the Code, which cannot be resolved by line managers or HR.

If we reach the stage where an allegation remains beyond this point, it is referred to our Ethics Committee, which investigates significant cases of potential breaches of ASML's Code worldwide. We have established an Investigation Procedure policy, which describes the steps to be followed in the event of an investigation into an ethics complaint. This ensures ethics complaints are dealt with fairly, independently, and in an impartial and unbiased manner as set out in ASML’s Speak Up policy. The investigation procedure has three phases – an initial review phase, a fact-finding and assessment phase, and a decision phase. The aim is to bring closure within two months, and, once a decision is made, we are committed to implementing an appropriate remedy.

We registered 229 Speak Up messages from employees in 2020. As in previous years, many of these related to issues resulting from cultural differences, leading to discrimination, and challenges with the style and language of communication between employees. Other messages concerned issues such as alleged bullying and conflicts of interest, including, for example, if employees are allowed to accept gifts from customers. We have looked into and addressed all Speak Up messages.

As in previous years, we did not incur any fines for breaches of ethical regulations.

The role of our Legal Compliance function is to make sure we conduct business in compliance with all relevant national and international laws and regulations, as well as professional standards, accepted business practices and our own internal standards.

Our Legal Compliance function oversees adherence to a wide variety of regulatory compliance-related areas and advises management about the regulatory framework, including changes in legislation and regulations. Examples of such regulatory compliance areas are our securities and insider trading, competition law (antitrust), and anti-bribery and anti-corruption. When needed, Legal Compliance takes charge of any regulatory investigations.

We are committed to personal and business integrity and avoiding improper influence on others or ourselves. In 2020, we have updated our Anti-bribery and anti-corruption policy. Our Anti-bribery and anti-corruption policy details our commitment and the measures we take to prevent bribery and corruption at ASML. It also ensures compliance with applicable laws prohibiting domestic and foreign bribery and corruption as well as the ASML Code of Conduct. For more information or download of the policy, please visit www.asml.com.

There were no breaches of our Anti-bribery and anti-corruption policy in the reporting year.

We are committed to the principles of fair competition and fairness in dealing with our business partners, including suppliers, co-developers, customers and other industry peers. As such, ASML does not condone any form of conduct that is considered illegal under applicable competition laws or is contrary to our Code of Conduct.

Our Competition Law Compliance policy demonstrates our ongoing commitment to ensuring compliance with applicable competition laws and our Code of Conduct. For more information or download of the policy, please visit www.asml.com.

We are committed to respecting and protecting the privacy rights of employees, customers, suppliers and everyone we do business with. Personal data is managed in a professional, lawful and ethical way, in line with our Code of Conduct and in compliance with applicable laws and regulations.

We have technical and organizational measures in place to prevent the accidental or unlawful destruction, loss, alteration, unauthorized disclosure of, or access to personal data. Our Privacy policy sets the minimum requirements from the perspective of ASML as a global organization. The policy is binding for all ASML employees and applies to the processing of personal data of our staff, job applicants and business partners such as customers, suppliers, visitors and other individuals.

A dedicated privacy and personal data protection program ensures we adhere to the ASML Privacy policy. Our privacy program includes, among others, the following elements:

In 2020, we updated our Global Privacy Notices for workers, job applicant, business partners and visitors. The new privacy notices reflect the latest processing of personal data within ASML, and meet both the requirements of GDPR (Europe) and CCPA (US).

We conduct business on the basis of fairness, good faith, and integrity and we expect the same from all those we work with. To this end, we also believe that we have the responsibility to respect human rights and contribute to positive impact.

We are committed to respecting universal human rights and honoring the value of ethics as expressed in our Code of Conduct. We support the principles laid down in the OECD Guidelines for Multinational Enterprises, United Nations Guiding Principles (UNGP) on Business and Human Rights and those in the International Labor Organization’s (ILO) Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. We have established a Human Rights policy, which is publicly available on www.asml.com.

Our Human Rights policy complements our ASML Code of Conduct and the RBA Code of Conduct we adhere to. It expresses our commitment to human rights and responsible labor practice in our operations and our supply chain. The Human Rights policy applies to ASML and its subsidiaries anywhere in the world. The overall responsibility for identifying and managing human rights issues in our direct operations falls under the remit of our Executive Vice President HR. Responsibility for human rights in our supply chain falls under the remit of our Executive Vice President & Chief Strategy Officer.

Salient human rights issues are those human rights that are at risk of the most severe negative impact through a company's activities or business relationships. We assessed possible impacts on people’s human rights across our value chain. We focused our efforts on seeking stakeholder input on the one hand and performing due diligence in relation to our initial salient issues on the other hand. Our commitments to address and engage actively in our salient human rights issues are highlighted in our Code of Conduct, Human Rights policy and RBA Code of Conduct for suppliers. We identify and manage human rights issues in various ways, for example stakeholder engagement, internal human rights assessment in our operations, and suppliers' due diligence and sustainability risk management. Read more in: Responsible supply chain).

We received no grievance on breaches on human rights in 2020.

In 2019, we conducted a risk assessment to identify the inherent risks related to human rights within our own operations. The results of our analysis showed that the inherent risk of human rights vulnerabilities in ASML's own operations are working hours and overtime, health and safety, and workplace harassment. The vulnerable rights-holder groups identified within ASML are contractors, ethnic minorities and migrant workers. In addition, we also conduct internal EHS audits regularly. Read more in: Ensuring employee safety.

The standard weekly working hours in the locations where we operate are on average 40 hours. Our company standards are based on the International Labor Standards of the International Labor Organization (the Forty-Hour Week Convention) and the RBA norms.

A workweek must not exceed the maximum set by local law and a workweek should not be more than 60 hours per week, including overtime, except in an emergency or unusual situation. We pay constant attention to protecting our employees from working overtime during peak periods. As overtime remains an important attention point for management, we keep monitoring the use of overtime and take appropriate measures to manage the situation.

It is our obligation to provide safe and healthy working conditions for all our employees and others working on our premises. In our products and processes, we think about how to make ASML a safe place to work. We put significant effort into creating awareness and to have a proactive safety culture within ASML. Read more in: Ensuring employee safety.

We are a global company with operations in more than 60 locations in 16 countries. We have a culturally diverse workforce, employing 120 nationalities. This leads to a higher inherent risk around the issue of workplace harassment in human rights. Read more in: Encouraging people to speak up, Promoting diversity and inclusion. Through our Ethics Program, we raise awareness around the importance of ethical behavior and our Speak Up policy. It also provides information and guidance on dealing with topics such as personal relationships at work, conflict of interest, dealing with cultural differences, and ethical aspects around ancillary activities or other positions outside of ASML.

We assess risks related to human rights in our supply chain through a risk-based approach. In our due diligence process, we use the RBA Risk Assessment Platform to identify inherent risks in labor (including human rights), ethics, health & safety and environmental standards across our full supply base. In the event of a medium or high risk relating to labor being identified, we engage with the supplier and conduct a more detailed analysis. For strategic suppliers covering around 80% of our product-related spend, we expect them to complete the annual RBA SAQ. This SAQ covers more than 400 risk elements related to labor (including human rights), ethics, environmental and safety factors, control elements and management systems, including their performance. It helps us to determine a supplier’s risk profile on sustainability. When we identify compliance gaps, we engage with the supplier to determine corrective action plan(s).

The salient issues we have defined relate to working conditions (forced and bonded labor), health and safety, and trade union rights. However, operating in the high-tech industry the majority of our suppliers operate in countries with a strong rule of law and are law abiding. We view this inherent risk as low. Read more in: Responsible supply chain.

ASML Holding N.V. is a public limited liability company operating under Dutch law. ASML’s shares are listed on Euronext Amsterdam and NASDAQ.

We have a two-tier board structure, consisting of a Board of Management responsible for managing the company, and an independent Supervisory Board which supervises and advises the Board of Management. For the fulfillment of their duties, the two Boards are accountable to the General Meeting, the corporate body representing our shareholders.

Our governance structure is based on ASML’s articles of association, Dutch corporate and securities laws and the Dutch Corporate Governance Code. Because we are listed on NASDAQ, we are also required to comply with the Sarbanes-Oxley Act, the NASDAQ Listing Rules, and the rules and regulations promulgated by the US Securities and Exchange Committee.

This section of the report addresses our corporate governance structure and the way ASML applies the principles and best practices of the Dutch Corporate Governance Code. It also provides information required by the Decree adopting further rules related to the content of the management report and the Decree implementing Article 10 of the Takeover Directive.

In accordance with the Dutch Corporate Governance Code (https://www.mccg.nl/english), other parts of this Annual Report address our strategy and culture aimed at long-term value creation, our values and Code of Conduct, as well as the main features of our internal control and risk management systems. See the Our strategy, How we create value, Our company and How we manage risk sections in this annual report.

ASML’s Board of Management is responsible for managing ASML. Its responsibilities include establishing a position on the relevance of long-term value creation for ASML and its business, defining and deploying ASML’s strategy, establishing and maintaining effective risk management and control systems, managing the realization of ASML’s operational and financial objectives and the corporate social responsibility aspects relevant to ASML. In fulfilling its management tasks and responsibilities, the Board of Management is guided by the interests of ASML and its business and takes into consideration the interests of our stakeholders.

The current Board of Management is comprised of six members. It has a dual leadership structure, under the chairmanship of the President and CEO, and the vice chairmanship of the President and Chief Technology Officer. The Board of Management has adopted a division of tasks, charging individual members with a specific part of the managerial tasks, but the Board of Management remains collectively responsible for the management of ASML.

The Board of Management is supervised and advised by the Supervisory Board. The Board of Management provides the Supervisory Board with all the information, in writing or otherwise, necessary for the Supervisory Board to properly carry out its duties. Besides the information provided in the regular meetings, the Board of Management provides the Supervisory Board with regular updates on developments relating to our business, financials, operations, and industry developments in general. Certain important decisions of the Board of Management require the approval of the Supervisory Board, see the Supervisory Board section of this Corporate Governance chapter.

Further information regarding the general responsibilities of the Board of Management, the relationship with the Supervisory Board and various stakeholders, the decision-making process within the Board of Management, and the logistics surrounding the meetings can be found in the Board of Management’s rules of procedure. These are published in the Governance section on our website.

Members of the Board of Management are appointed by the Supervisory Board on the recommendation of the Selection and Nomination Committee and upon notification to the General Meeting. Members of the Board of Management are appointed for a term of four years. Reappointment for consecutive four-year terms is possible.

Since 2013, the relationship between a member of the Board of Management and a listed company can no longer qualify as an employment relationship. All members of the Board of Management who were appointed and reappointed at the 2018 AGM are engaged by means of a management services agreement for the duration of their appointment.

The agreements between ASML and the Board of Management members contain specific provisions regarding severance payments. If ASML terminates the agreement for reasons which are not exclusively or mainly found in acts or omissions of the Board of Management member, a severance payment not exceeding one year’s base salary will be paid. Furthermore, current agreements stipulate that a member of the Board of Management, when giving notice of termination pursuant to a change of control, will be entitled to a severance amount. Given that such a resignation is specifically linked to a change of control, ASML does not consider this provision a deviation from the Code.

The Supervisory Board may suspend and dismiss members of the Board of Management, but this can only be done after consulting the General Meeting.

Peter Wennink became President and CEO in 2013, having served as Executive VP, CFO and member of the Board of Management since 1999. Peter was previously a partner at Deloitte Accountants, focusing on the semiconductor industry. He has an extensive background in finance and is a member of the Dutch Institute of Registered Accountants. Peter was a member of the Advisory Board of the Investment Committee of Stichting Pensioenfonds ABP until December 31, 2020. He serves on the board of the FME-CWM, Peter is also a member of the board of Captains of Industry Eindhoven Region and is Chair of the Eindhovensche Fabrikantenkring and of the Supervisory Board of the Eindhoven University of Technology. Furthermore Peter is a member of the Exchange Council of Euronext, council member of Topconsortium voor 'Kennis en Innovatie' TKI HTS&M, member of the Advisory Committee of the Dutch National Growth Fund and a member of the Circle of Influence of Startup Delta.

Martin van den Brink has been President and CTO of ASML since 2013. He joined ASML at its founding in 1984, and for the next 11 years held various positions in engineering. In 1995 he became Vice President Technology, and in 1999 was appointed Executive Vice President Product & Technology and member of the Board of Management. Martin holds a degree in Electrical Engineering from HTS Arnhem (HAN University), as well as a degree in Physics (1984) from the University of Twente. In 2012 the University of Amsterdam awarded him an honorary doctorate in physics.

Roger Dassen joined ASML in June 2018 and was appointed Executive Vice President and CFO and member of the Board of Management at the AGM the same year. He previously served as Global Vice Chair and member of the Executive Board of Deloitte Touche Tohmatsu, having been CEO of Deloitte Holding. Roger holds a master’s in Economics and Business Administration, a post-master’s in Auditing, and a PhD in Business and Economics, all from the University of Maastricht. He is Professor of Auditing at Vrije Universiteit Amsterdam, and sits on the Supervisory Board of the Dutch National Bank. He is also the Chair of the Supervisory Board of Maastricht University Medical Center+.

Frits van Hout was named Executive Vice President and Chief Strategy Officer in 2018. He joined ASML at its founding in 1984 and, after an eight-year absence, returned in 2001 as Vice President Customer Support. He has served in several executive positions and in 2009 joined the Board of Management. Frits holds two master’s degrees: one in Theoretical Physics from Oxford University, the other in Applied Physics from Eidgenössische Technische Hochschule, Zürich. He is a member of the Board of the Stichting Brainport, the Eindhoven Region Economic Development Board, and Stichting Continuiteit BE Semiconductor Industries, Deputy Chair of the Supervisory Board of Aixtron SE, as well as a member of the Supervisory Board of Bambi Belt Holding B.V and Stichting PhotonDelta.

Christophe Fouquet was appointed Executive Vice President EUV and member of the Board of Management in 2018. Since joining ASML in 2008, he has held several positions, including Senior Director Marketing, Vice President Product Management, and Executive Vice President Applications, a position he held from 2013 until 2018. Prior to joining ASML, he worked for semiconductor equipment peers KLA Tencor and Applied Materials. Christophe holds a master’s degree in Physics from the Institut Polytechnique de Grenoble.

Frédéric Schneider-Maunoury has been Executive Vice President and Chief Operations Officer since he joined ASML in 2009. He was appointed to the Board of Management in 2010. Prior to joining ASML, Frédéric was Vice President Thermal Products Manufacturing at power generation and rail transport equipment group Alstom, having previously served as General Manager of that company’s Hydro Business. Before joining Alstom, Frederic held various positions at the French Ministry of Trade and Industry. He is a graduate of Ecole Polytechnique (1985) and Ecole Nationale Supérieure des Mines (1988) in Paris.

Our Supervisory Board supervises the Board of Management and the general course of affairs of ASML and its subsidiaries. The Supervisory Board also supports the Board of Management with advice. In fulfilling its role and responsibilities, the Supervisory Board takes into consideration the interests of ASML and its subsidiaries, as well as the relevant interests of its stakeholders. In the two-tier structure, the Supervisory Board is a separate and independent body from the Board of Management and from ASML. No member of the Supervisory Board personally maintains a business relationship with ASML, other than as a member of the Supervisory Board.

The Supervisory Board currently consists of nine members, with the minimum being three.

In performing its task, the Supervisory Board focuses on, inter alia, ASML’s corporate strategy aimed at long-term value creation and the execution thereof, the staffing of and succession planning for the Board of management, the management of risks inherent to its business activities, the financial reporting process, compliance with applicable legislation and regulations, ASML’s culture and the activities of the Board of Management in that regard, the relationship with shareholders and other stakeholders, and corporate social responsibility issues important for ASML.

Important management decisions, such as setting the operational and financial objectives, the strategy designed to achieve these objectives and the parameters to be applied in relation thereto, major investments, budget and the issue, repurchase and cancellation of shares, require the Supervisory Board’s approval.

The Supervisory Board is governed by its rules of procedure. Items covered in these rules include the responsibilities of the Supervisory Board and its committees, the composition of the Supervisory Board and its committees, logistics surrounding the meetings, the meeting attendance of members of the Supervisory Board, the rotation schedule for these members and the Committee charters. The Supervisory Board’s rules of procedure and the committee charters are regularly reviewed and, if needed, amended. The Audit Committee charter is reviewed annually to check whether the charter still complies with the applicable rules and regulations, especially those relating to the Sarbanes-Oxley Act.

For detailed information on the meetings and activities of the Supervisory Board in 2020, see Leadership and governance - Supervisory Board report - Meetings and attendance.

The members of the Supervisory Board are appointed by the General Meeting based on binding nominations proposed by the Supervisory Board. When nominating persons for (re)appointment, the Supervisory Board checks whether the candidates fit the Supervisory Board's profile. The profile is available in the Governance section of our website. The General Meeting may reject binding nominations of the Supervisory Board by way of a resolution adopted with an absolute majority of the votes cast, representing at least one-third of ASML’s outstanding share capital. If the votes cast in favor of such a resolution do not represent at least one-third of the total outstanding capital, a new shareholders’ meeting can be convened, at which the nomination can be overruled by an absolute majority.

The Supervisory Board generally informs the General Meeting and the Works Council about upcoming retirements by rotation at the Annual General Meeting of Shareholders (AGM) in the year preceding the actual retirement(s) by rotation. This ensures they have sufficient opportunity to recommend candidates for the upcoming vacancies. The Supervisory Board has the right to reject the proposed recommendations. Furthermore, the Works Council has an enhanced right to make recommendations for one-third of the members of the Supervisory Board. This enhanced recommendation right implies that the Supervisory Board may only reject the Works Council’s recommendations in limited circumstances: (i) if the relevant person is unsuitable or (ii) if the Supervisory Board would not be duly composed if the recommended person were appointed as Supervisory Board member.

Members of the Supervisory Board serve for a maximum term of four years or a shorter period as per the Supervisory Board’s rotation schedule. Supervisory Board members are eligible for reappointment for another maximum term of four years. After that, members may be reappointed again for a maximum period of two years. This appointment may be extended for a final term of no more than two years. The rotation schedule is available in the Governance section on our website.

If the General Meeting loses confidence in the Supervisory Board, it may, by an absolute majority of the votes representing at least one-third of the total outstanding capital, withdraw its confidence in the Supervisory Board. This resolution shall result in the immediate dismissal of the entire Supervisory Board. In such case, the Enterprise Chamber of the Amsterdam Court of Appeal shall appoint one or more members to the Supervisory Board at the request of the Board of Management.

The Supervisory Board, while retaining overall responsibility, has assigned some of its tasks and responsibilities to four committees: the Audit Committee, the Remuneration Committee, the Selection and Nomination Committee and the Technology Committee. Further information on the Supervisory Board committees can be found in the Supervisory Board report and in the charters of the committees as posted on our website.

Gerard Kleisterlee joined the Supervisory Board in 2015, and has been its Chair since 2016. He was President and CEO of the Board of Management of Royal Philips NV from 2001 until 2011, having worked at the company since 1974. From 2011 to 2020, he was Chair of the Board of Vodafone Group. He was also Deputy Chair and Senior Independent Director of Royal Dutch Shell from 2010 until May 2020.

Annet Aris has been a member of the Supervisory Board since 2015. She is Senior Affiliate Professor of Strategy at INSEAD business school, France, a position she has held since 2003. From 1994 to 2003 she was a partner at McKinsey & Company in Germany and from 2014-2019 she was the Non-Executive Director of Thomas Cook Group. She also sits on the supervisory boards of Jungheinrich AG, Randstad Holding NV and the Rabobank Group.

Carla Smits-Nusteling has served on the Supervisory Board since 2013. From 2009 to 2012, she was CFO and a member of the Board of Management of Royal KPN NV. Prior to that, she held several management- finance- and business-related positions at KPN and PostNL. Carla is also the Chair of the Board of Tele2, Non-Executive Director of the Board of Directors of Nokia and Allegro EU and a member of the Management Board of the Dutch foundation Stichting Continuiteit Ahold Delhaize. Since 2015 she has been a lay judge at the Enterprise Court of the Amsterdam Court of Appeal.

Douglas Grose is Vice Chair of the Supervisory Board, having been appointed a member of the Board in April 2013. Douglas was CEO of GlobalFoundries from 2009 until 2011. Previously, he served as Senior Vice President of Technology Development, Manufacturing and Supply Chain for Advanced Micro Devices. He was also General Manager of Technology Development and Manufacturing for the Systems and Technology Group at IBM for 25 years. Douglas sits on the Board of Directors of SBA Materials, and is President of the New York Center of Research, Economic Advancement, Technology, Engineering and Science (NY CREATES).