Inventory costs are computed on a first-in, first-out basis. Our inventory values are comprised of purchased materials,

freight expenses, customs, duties, production labor and overhead. The valuation of inventory includes determining

which fixed production overhead costs should be capitalized into inventory based on the normal capacity of our

manufacturing and assembly facilities. During periods when production is below our established normal capacity

level, a portion of our fixed overhead costs are not included in the cost of inventory; instead, it is recognized as cost

Inventory is valued at the lower of cost or net realizable value, based on assumptions about future demand and

market conditions. Valuation of inventory also requires us to establish provisions for inventory that is defective,

obsolete or in excess. We use our demand forecast to develop manufacturing plans and utilize this information to

compare against raw materials, work-in-progress and finished product levels to determine the amount of defective,


Year ended December 31 (€, in millions)	2022	2023
Raw materials	3,198.9	4,057.3
Work-in-process	2,163.9	3,388.1
Finished products	2,303.8	2,098.5
Inventories, gross	7,666.6	9,543.9
Inventory reserves	(466.9)	(693.2)
Inventories, net	7,199.7	8,850.7

The increase in inventory in 2023, compared to 2022, is driven by the continued strong demand from customers.

Additionally, inventory increased in 2023 due to higher costs of our latest technologies and growing install base.

A summary of movements in the inventory reserves is as follows:


Year ended December 31 (€, in millions)	2022	2023
Balance at beginning of year	(418.0)	(466.9)
Additions for the year	(278.5)	(485.3)
Effect of changes in exchange rates	(1.1)	2.4
Utilization of the reserve	230.7	256.6
Balance at end of year	(466.9)	(693.2)

The additions for 2023, 2022 and 2021 are recorded in Cost of sales. The additions for the year mainly relate to