Q4 2020 ASML Holding NV Earnings Call
If you would like to ask a question, please press star want to register now. If you would like to withdraw your question, please press star two at any time during the call. Your questions will be answered in the order today received if any participant has difficulty hearing the conference, please press zero for operator assistance. I would now like to turn the conference call over to mr. Skip please go ahead sir. Thank you. Operator. Welcome everyone. This is Skip Miller vice president of investor relations at asml joining me today on the call is SML CEO Peter winning a pho r o j. On the subject of today's call is sml's twenty twenty fourth quarter and full-year results. The length of this call will be sixty minutes and I will be taken in the order that they are received. This call is also being broadcast live over the internet at a transcript of management opening remarks and replace the Dead.
Will be available on our website shortly following the conclusion of this call before we begin. I'd like to caution listeners that comments made by
Management during this conference call will include forward-looking statements within the meaning of the federal Securities laws these forward-looking statements involve material risks and uncertainties for a discussion of risk factors. I encourage you to review the Safe Harbor statement contained in today's press release and presentation found on our website at home and in a SMS annual report on form 20-f and other documents as filed with the Securities and Exchange Commission with that. I'd like to turn the call over to Peter winning for a briefing. Thank you. Skip welcome everyone and thank you for joining us for our fourth quarter and full-year 2020 results Corpus Corps, and I do hope all of you and your families are healthy and safe wage.
But before we begin the Q&A session and I would like to provide an overview and some commentary on the fourth quarter and full-year 3:20 as well as provide our view of the coming quarters and was able start a review of our fourth-quarter and full-year 2020 financial performance, but have comments on our short-term Outlook and I will complete the introduction with some additional comments on the current business environment and on our future business as long as you have you will thank you Peter welcome everyone. I will first review the fourth quarter and full-year financial accomplishments and then provide guidance on the first quarter of 2021 Mac come in about guidance at four point three billion euros primarily due to additional TV system revenue and upgrade business opportunities. We ship nine UV systems and recognize one point five billion euros revenue from eight systems disk water.
One sister was shipped with a new configuration that needs to be qualified as customers site is the revenue will be recognized after site acceptance test in early 2021 and that system sales of 6.2 billion. Euros was again more weighted towards logic at 72% with the remaining 28% from memory the strength and logic drives both TV and TV revenue and Recovery in memory business, mainly driven by dear app installed base management sales for the quarter came in at one point 1 billion euros above guidance showing continued strength in our service and upgrade business office gross. Margin for the quarter was 52% and was above guidance due to the additional TV immersion and upgrade business on operating expenses are in the expenses came in at $5,056 billion euros and sg&a expenses at $152 million Euros, which were slightly above our guidance now didn't come in Q4 was one point four billion euros represenative.
Thirty 1.7% of net sales and resulting in an EPS of 3.23 euros
turning to the balance sheets. We ended the fourth quarter with cash cash equivalents and short-term Investments as a level of 7.4 billion euros, which is significantly higher due to customer down payments and monthly payments, which materialized in 2020.
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To the order book a Q4 net system bookings came in at four point two billion euros, including one point 1 billion euros for UV systems. Not 6 and the very strong D. And Order intake was largely driven by Logic with 78% of bookings and memory the remaining 22%
for the full year net sales grew 18% to fourteen billion euros TV system sales in 2020 was 4.5 billion euros, which is about a 60% increase from last year on movie margins. We continue to drive profitability in both the systems as well as the service business. We achieved our 40% system gross margin twenty-twenty and delivered a positive margin on you. We expect the upward trend for both systems and services gross margin to continue in future years. Thursdays management sales was three point seven billion euros, which is a 30% increase compared to previous year in 2020. We have total of 11.3 billion euros reflecting customers strong demand for e v and D. Technology dpv booking value was at a record 7.3 billion euros with demand from both Advanced as well as Minaj.
Are they spending increase to 2.2 euros and twenty twenty while we continue to invest in deep UV in applications product Innovation. The increase was driven the acceleration of our TV roadmap both low and high in eighth overall are in the Investments as a percentage of twenty-twenty sales was about 16% off sg&a was about 4% of the sales now doesn't come for the full year was three point six billion euros resulting in 25.4% of net sales and EPS of 8.49 years improvements and working capital contributed to a free cash flow generation of three point six billion. Euros as we continue to invest K-PAX and support you and plan change B rap excess cash will be returned as per our policy.
Without I would like to turn to our expectations for the first quarter of 2021. We expect on total net sales of between 3.9 billion and 4.1 billion euros, which is very strong start of the year and reflection of the current market demand.
We expect our q1 installed base management sales to be around $959 gross. Margin 41 is expected to be between 50% and 51% off the expected R&D expenses for key one or 620 million euros and sg&a is expected to come in at $165 million euros reflecting a continued investment near future growth of the company. The higher R&D is to support roadmap plans to drive further innovation of our e v d p v and apps products you have DNA increase is driven by higher wage security costs and general organizational growth. These quarterly run rates are a good indicator for the expected full-year operating expenses. Our estimated twenty. Twenty-One. Annualized effective tax rate is expected to be between $14 and 15% regarding our Capital return is total dividends of one point 1 billion euros and twenty20 made up of the 20.
nineteen final dividend and
20/20 intermittent you smell intends to declare a total different with respect to twenty twenty of 2.75 Euro ordinary shares recognizing the interim dividend a 1.24 ordinary share paid in November twenty this leads to a final dividend proposal to the general meeting of 1.55 for ordinary share. This is a 15% increase compared to the 2019 dividend the 2021 annual general meeting of shareholders will take place on April 29th 2021 in belt over.
Through December 31st 2020 asml acquired 3.9 million shares on the the 2020 through 2022 program for a total amount of 1.2 billion euros, given our strong cash position and positive outlook back to execute a significant share buyback in q1 20-21 with that. I'd like to turn the call back over to the bank has highlighted. We had a very strong quarter resulting in all the solid year of growth in both sales and profitability different by strong logic to be covering memory. Demun got a significant step up in our install base Revenue. If you were able to achieve an 80% top-line growth and 37% growth and profitability despite some unique challenges with having to conform to run our business through the pandemic. I think this all thanks to our employees and partners who have done a remarkable job executing in this challenging environment.
However, we continue to remain Vigilant as this COVID-19 induced crisis. It's not behind us yet following a strong 20/20. We currently expect another year of good growth in revenue and profitability in 20 21 Jump in logic. We expect a lot of very healthy year driven by a further broadening of the application space fueled by the global digital transition customers continue to see strong demand for advance notice which includes the secular growth drivers such as 5G and see and in addition and also driven by the digital transformation. We are seeing a strengthening demand for the more mature and notes came across a wide variety of markets such as consumer automotive and Industrial while while we are still very early on in the year. We think that with these demand drivers on Full Throttle for adults as well as mature notes. We expect logic Revenue to be up at least 10% from already very high number of 7.4 billion euros in 2020.
In memory customers have indicated that inventory levels continue to come down and expect a further tightening of Supply throughout the year is the case with Logic the digital transformation is also fueling married Among Us a broadening application space customers continue to see healthy debate in data centers with increasing memory content in consumer electronics.
The customer is indicating stronger bit growth this year for be around 20% and with 3D nand around 30 to 35% and taking into account of the photography to utilization already at high levels. We expect in lithography demand for memory to continue this through this year. Therefore. We expect memory Revenue to be up around 20% this year from two point nine billion euros in 2028. Hold on dear. I'm primarily uses the TV technology today. We do expect our TV shipments to deal with customers to increase in the coming years on our install base revenue or sorry ma'am Business Service Revenue will continue to scale with a growing installed base. We expect an increase in contribution from the TV service Revenue as these systems run more and more waivers in volume production. Our customers will continue to utilize upgrades to increase capacity and improve Imaging and overlay performance required or future notes with this continued growth in both service and a great business name.
Yeah, we expect it so base Revenue.
To be up around 10% this year from 3.7 billion euros in 2020. Although we started the year with robust demand across the entire industry and across all geographical regions. This should bode well for a double-digit upside from our 2020 Revenue numbers feel comfortable with the levels of potential growth expectation for business segment wage clearly see potential upside to this numbers where we can disregard any further impact of export control regulations resulting from the current geopolitical situation. I would now like to update you on a XR business started with UV at least making strong progress and continues to mature as we execute our roadmap and grow our logic and dram business as we mentioned we ship nine systems and recognized record eight sisters. Thank you for bringing the total to $0.31 in 2020 with a revenue of 4.5 billion years for the Year this translates to about 60% growth in the UV systems Revenue reflect. Yep.
Expanding use of this technology and high volume Manufacturing.
Based on customers going to feed the month in advance notes because the expected growth of about thirty percent over last year translating to around 5.8 billion euros in UV system revenue for 2021 month. We continue to improve you remain affecting cycle cycle time to enable the capacity in our Factory to meet the growing demands.
We will continue to drive the evil point three three and a product roadmap, which is aligned to our customers note Cadence. Our goal is to deliver value to our customers provide a performance improvements in image overlay and productivity customers continue to shrink on future notes the performance improvements of our point three three and a systems roadmap will also enable cost-effective double patterning missions before customers reach a point where we will require high in a to reduce process complexity. We are aligning with customers on the roadmap timing of high in a insertion in volume production wage growth. The estimated to be in in the 2025 20:26 time frame to me this timeline. We will start integration of the modules this year and plan to have first qualified system in 2012. We plan initial installation of the first system that customer side in 2023 and plan to provide a more detailed update on our high in a program URL investigate this year.
You know DTV business we're focused on meeting our customers increasing demand for all of our DP products by maximizing Factory capacity reducing installation cycle time and optimizing performer systems in a field as we mentioned earlier. The application space for logic is expanding rapidly, which also has an effect on the demand for DP price. Of course our entire product offering Pac-Man test actually been stronger than we anticipated some years ago, which means that we have increased our investment in R&D to provide our customers with ever more powerful and productive Little Machines could help him deal with the increasing demand and lower cost per chip challenges our dprd plan therefore includes significant program to bring dpv to our from our SD platform onto the NXT platform there, but seriously boosting productivity a little graphic performance such as CD and overlay in our application business. We had a record year for you to shipments and shipped the first you'll start 385 Club.
So thank you for you have to be $85 over the latest overlay of focus Metrology announced throughput and accuracy to meet customers future note requirements. We also shipped an additional two years. He's got 1,000 multiple systems. Thank you for bringing the total number of shipments in 2023 and with nine beams and high speed stage.
Technology decisions provider to 600% higher productivity and single beam systems in summary twenty-twenty was another great year despite the challenges presented by the page for 20 21 taking into account that we're coming off a higher twenty-twenty Revenue base. We still expect a year of double-digit growth. This is driven by strong demand in logic and Catholic recovery in memory the potential upside to this numbers where we can disregard any further impact of export control regulations, the build-out of the digital infrastructure across multiple markets drives demand for both phones as well as mature process notes. This is expected to fuel demand across our entire product portfolio. Although there are of course still some near-term macro and geopolitical uncertainties the long-term drivers only increase our confidence in our future growth Outlook towards twenty twenty-five.
With that would be happy to take your questions.
Thank you, and Peter the operator will instruct you momentarily on the protocol for the Q&A session beforehand. I like that timely limit yourself to one question wrong with one short follow-up if necessary. This will allow us to get to as many callers as possible now operator. Could we have your final instructions? And then the first question police? Thank you sir. At this time we will begin the question-and-answer session. Again. If you have a question, please press star one now to register and start to if you wish to withdraw your question from the Q. Yep, you are using speaker equipment today. Please leave the handset before making your selection. One moment, please. For the first question. The first question is from Mister Joe. Could you please State your company name followed by your question? Yeah, thanks. It's Wells Fargo. I was hoping to get some color on your memory business and the demand you're seeing there. You know, I think last quarter you had talked about 30% growth for this year from birth.
Revenue, but you came in a little bit below that so I guess did something changed there. And then how do we think about that follow through that into 20 21. Thank Joe. No, I don't need anything really materially changed there. In fact, the the the fact that we kind of missed a 30% was in essence the reallocation of a few tools from from memory and tap into logic really had to deal with where do the tools go by the end of the quarter. So really as a spread over over Q4 or q1, so not a systemic, uh systemic reason the momentum that we sort of building up in the in memory in in the course of last year. We think it's it's it's continuing and that has to do with the things that peer talked about, you know, we see the debate growth the big growth development the table for for the ram 35% 449 and and of course that's driven by demand in data centers. It's driven by you know what we see in terms of memory being designer.
Used in in consumer electronics. So we we see those underpinnings. Uh continue. We also see that the utilization of the photography tools is at the very very high level. So, you know the the system and to momentum that we that we saw already in the second half of 2020 that we believe a sustained into into 2021. And that's the reason why we again forecast a 20% off there for a full twenty Twenty-One. That's our full moon as a quick follow-up in the prepared remarks you talked about, you know, some supply chain limitations potentially on the TV side month that you're seeing. I guess does that change your expectations for producing 45 to 50 units or Your Capacity to do that number of units this year Bank our capacity our capability internal in the Netherlands in Belleville to build fifty systems is there in terms of people and scream
meters that we have to build
Build those systems out of modules, which we don't uh, you know produce it's in the supply chain and it's just a reflection of what happened last year in Q2 and Q3 wage, you know as a clear real key Foundry customer came back and said listen our key customer for entry is now blacklisted so we cannot change so we need to adjust our 2021 outlook for Eevee systems, which was followed by another customer said, well, we're going to delay the roadmap which also means that this will be puss back wall here, which actually let's do a situation where we actually reduce the number of plants system 20214 e v because their customer said these are the two reasons back over to Big customers. So what we did we went to the supply chain and said, sorry we need those lenses and lasers very expensive pieces of equipment. We don't actually, you know later boss.
To realize that the integral lead time between the installation of TV tool and the start of module production. Yeah, it's twenty months. So when you push back 6-8 months, yeah, then you know and then finally customers come to the realization that is not as bad as they thought and they won't those machines then we have an issue with getting the modules on time. And that's the only issue is just a result. It's a it's a function of the fact that our customers change their mind in Q2 and Q3. And then we change them back in to 4 and you know today there's nothing we can do about it, which actually means that we're all prepared to do fifty units next year as you said 2022. It will just shift to 2022. Yep. So it's so it's it's you could say it's it's supply chain limitations by Design because you know, it's because the customers told us we don't leave them and then coming back their Hoops. We might have been wrong.
That's helpful. Thank you. Next question is from mr. Alex Duval, please State your company name followed by your question. Yes. Hi, it's Alex from Goldman Sachs and congratulations on a strong results quick question on the capex spending backdrop and how that feeds into your guidance. Obviously tsmc is a very large cap extender. They've guided off the 30% capex growth this year yet your guidance, although very strong is for closer to 12% on revenues from clearly. You also have other verticals you also have that customers in the mix, but I wondered if you could give a little bit more color as to any areas. Where at the moment you're being more prudent on your guidance, but where you could do a bit more positive overtime and what you need to see to get more constructive. Yeah, you know, you're actually gave arrange twenty-five to twenty-eight years.
and
We plan our business based on what they ask us and and as you know, you know, she has been uh asking us, uh-uh, you know in 2026 on several occasions to ship very different numbers for a 2021. So this is what I'm saying is it's in constant flux. Yeah, so what they are asking us and and and and telling us that it would you know, like off from that point of view has a you know range and we need to be able to respond to that. So I don't think you can draw any direct conclusions from the tsmc capex numbers Direction a yes, but not in absolute terms now having said that I also said that I do believe that we see upsides to the your calculated 12% and other side is completely dead, but I think that's upside that's comes out of the logic space in China and of course, you know that will happen if the current export control regulations stay as long
Now you could argue. So why do you why you so conservative? Well, simply because what we see the last two months in terms of regulations that we have to deal with and that basically we're we're issued rather suddenly, you know, the there is a level of conservatism at on our side. They said when we're not going to to to add that upside yet back to your 12% because you know, we've been I wouldn't hurt, but I mean we've been surprised on a regular basis by all these new regulations that do have an impact on our business office where nothing changes and stays as is there's a as a as a significant upside to what we told you today, but then everything needs to stay as is and I think we make a claim will be better marks right many times. Next question is from Mister Moretti husaini, please search your company name followed by a question. Thank you, ma'am.
Let's go Huntington National. Um, two questions. When you look in the longer term and looking at 3, nanometer transition, I understand opportunities in the near-term wanted to hear more about what you thinking has be migrated to the second generation of entry and I want to better understand how change of transistor architecture would like Samsung marketing to get all around and also introduction of hi ene is going to impact your overall system shipment and I'm putting in the context of what happened in during 2014 through 2016 when we might get it from Play No transistor to cinfed and there was some slow down and I want to see you should see the same kind of pattern happening and I have a follow-up. Yeah, you have a follow-up call for questions. So um on the transistor architecture. Yeah, I think the wage
What we know today.
On the patterning side and especially I would say on the on the geometric side. I don't think he has a Major Impact. That's not what we expect. So whether it's the things fed or the Google around it is in the 3 nanometers, uh, you know, and uh a customer's need that little graphic Cape, you know capability and it's an architectural Choice as you pointed out. We don't think it has a major impact on our business from home. So the the the longer-term between animated transition. I think you were probably referring to the to the transistor architect change. We'll just have to see how that pans out, you know an architect to change even we had finfacts know that wasn't completely Flawless because it is new. Yeah, and if there is a slow down it's probably could be a slow down because the technology is dead.
Need new and that's uh, the ramp is potentially slower. But that's speculation at this at this moment, you know moment in time from 8. Let's say little graphic point of view. It's just there's not much difference. How does that impact? Hi in a system shipments. Um, well, hi there is not slated for the entry note. It starts to be used at + 2 + 2 + 2 + 2 + + + 1 + Beyond. So in 4439 reason, it doesn't have a major impact has no life is very short follow-up China as a mix of your overall. Revenue has been gone up 12% $19 Seventeen percent twenty twenty-five. You see that turning Twenty-One and I understand this could be a source of upset. But what is the current projection? Yeah, I think what we see and we see that Trend uh home
Keep going up. It has to do with the fact that there is a significant amount of investment plan in China memory and logic off in our in our what we gave you in terms of growth for twenty. Twenty-One 10% logic 20% memory 10% installed base our assumption there is that we that the indigenous Chinese business has about the same Euro level. Yep, but it's a different type of customer. I mean, uh as we told you also a few months ago that we expect 20-21 China business to grow but last year in memory, so it's it's reading and and indy Ram those are the big drivers and that seemed I would call what we what we what we get you to calculate so many calculated to a 12% growth number on top of that there is a significant upside in logic.
How big can that be?
It's significant. But like I said, you know, we're a conservative company. We've we've experienced the unpredictability of the legislation of the last couple of months, but we don't want to we we don't want to put that into your forecast, right, you know now but when it when things don't change it to stay as is there is some significant logic oxide in China. Next question is from mr. See Jamie's please State your company name followed by a question. Yeah. Hi. Thank you. Good morning. Good afternoon, whatever. So, I guess first question on Gross margins, you gave a pretty solid outlook for the March quarter. And as we move into the second half of the year, you're going to start shipping and deev schools. I would assume the installed base would start to come up warranty on the TV side as well helping. So how should we think about the trajectory of gross margins and you know is is 52% plus or minus doable wage.
Full year now. Thank you CJ. So you might recall in the in the last call in the Q3 call that we had we talked about a bandwidth for the year between 48 and fifty percent. We all we also reminded people that that stage that in comparison to 2019. We also start a year with a 1% negative as far as that is concerned on the high end date. So that was one of like just like, you know before doing your bridge between 2019 and 2020 you first need to deduct that number sent out there. I think bearing that in mind but also very much in mind how sales seems to be up in this year. My expectation would be that we're going to see gross margin Trend towards the upper limit of the bandwidth. So the bandwidth of 48 to 50% that I gave in Q3 off my current expectation based on the composition of sales would be that that's going to end up towards the upper limit of that bandwidth.
Okay, that's helpful. I guess a quick follow-up on a prior question around EV Supply constraints. You know, it looks like implied planned Revenue units wage or backlogs 42, you know curious if you think your supply chain can can offer any upside to that forty and then if not, you know, what does that tell you around page to load demand in 22 and and do you need to start thinking about having sufficient capacity above 50 units? Yeah. Okay. Good question. I think of course will push them supply chain, uh-uh. And but but don't expect miracles there. I mean if you get at the end of the year, you know get one or two tools extra fine, you know, but it's it's not going to give you five or ten tools extra. It's simply not possible. I mean, uh, so what actually means is that the demand that we cannot fulfill this year? We will yep.
Till next year and if your point on the 50 capacity, I think it's sufficient the 50.
Capacity has to do with the fact that although customers are buying units the buying basically way for capacity and don't forget. We have a higher productivity to coming out of the thirty six hundred D in the second half of the year, which is a 50% higher productivity. So what when twenty twenty-two only being these you already get a 15% higher waiver capacity out there. So with the 50 that I'm comfortable with also from a supply chain point of view will be able to manage that for next year. Yeah and the 15% higher productivity all the tools compared to the C, you know, you actually see that I we have we have ample opportunity to help our customers build waiver capacity. So I think it's enough.
Thank you. Next question is from mr. Please State your company name followed by a question.
Yes, good afternoon. But it's Bank of America. So my first question is just on your ID M. Customer. There's been a lot of discussion around but you know the foundries including something from them. I just wonder if you could give us some color on what your factored in in to your fiscal year 21, um Outlet or from your ID and customers and said, you know how to follow up. See if you could if you can answer that uncomfortable, you know, we're not going to be specific on the on the any customer as you can you imagine because of the fact that we only have that view. So the the issue is is that when we look at 2021 two things are are are are off impacting our shipment schedule to our leading-edge customers is one is what you refer to is effectively has their birth.
A transition from tools that we original plan for customer a potentially to customer B and C. I think yes, that's that has happened down on top of that. I think there is the increased demand for advanced notes. Yep. So it's the combination of the two that actually, you know caters for maximizing the page out of our ship of capability and it's and it's the redistribution that has happened. So yeah, I think we're we're we're in essence sold out for this year, but that's what my mother too uptight. We are referring to the previous question, but I think no impact on this for seen in our 2021 numbers off.
I understand. I just as a follow-up just on the mythology side. I just wondered if you could give us some color on how you thinking about about revenues in Metrology and fiscal year Twenty-One. See I think I should probably referring to the multi-beam tools. Yeah. Yeah, I think those tools three have been shipped to R&D centers. They need to be qualified. So that is going to be the key, uh-uh, you know this decision point so customers are putting them into their mythology architecture and wage needs to be qualified with there's not only the tool itself, but it's all of course the software that actually drives the tools. So when that's done, we will record Revenue. That's how it works. So it's this year for those three tools.
just I just meant, you know, if you could give us a
People around the growth and that that given these multi-beam ship tools and our shipping as possible. So is it's a volt what we expect for 2021 is that we will have positive evaluations and as positive evaluation will be followed by orders so orders for HDM shipments off when that will happen is still a bit unclear because it depends on where we get the sign-offs. Yeah, but we could be able to we expect sign off in the first half of 2021. So this year then we could see orders for shipping towards the end of 2022. Yeah, but I think so understanding Twenty-One and but I think that we would see an extension of that in the year 2022. So I think 2021 will be characterized by the qualification and the decision of the customers to put down.
Tools in their mythology strategy, which then will probably lead to First shipments towards the end of this year and then accelerating and twenty twenty-two understood. Thank you. Next question is from mr. Sandi, please place a company name followed by your question. Yeah. Hi. I like to just go back to the question on the memory Market you had guided to 30% growth last year you did around twenty this year regarding the 20% growth. There is also the fact, you know, there is going to be the shift to you rebates dear dear am at some point end of this year or in two twenty-two. So, how should we looking at the overall memory outlook here? I mean, are we going to see an even more accurate Outlook because of what we saw last year in terms of what you reported or is this that is just goes a long and it's just something shifted and that is why it off.
Happened and I have one quick follow-up on the UV associated with memory. I think you know memory out look again. Actually, it's is developing the way that we expect it and Thursday. We told you you know, you may remember that since the middle of last year. We we told you that we see utilization growing up and that will be a point where if we are at the theoretical maximum utilization let you know our customers will walk more capacity and that's actually happening. So now all the only other thing crochet explained that that on June twenty twenty to thirty percent go the only reason why the 30% isn't 30%. 30% but 20% is because some of those shipments that were earmarked memory actually went to logic wife is logic was on fire and memory was getting into fire in you know turning Twenty-One just a choice of a customer that a, you know, don't ship them to 8 but shipping to be. Yep, cuz that's where I have more busy.
so this
Was the the the only reason which actually means that we are seeing, uh, Mary or it's coming in especially dear. Am I mean, we need to distinguish with dear life as reading that we don't see a strong as a recovery and three dean and you could argue because you know where we're not that sensitive to it, but we simply don't see it. We see it in dear Evan strassberg. So this is really just a different game in 2021, whereby 20% bit growth which is the expectation of today. Simply not it's a bit too much should be dealt with in the current installed base. That's why we see the orders coming in. So yes, if we will be used in the ram, especially in 1 Alpha, but that's that is going to be limited as I mentioned last time. This is not going to be a note of those. Uh, let's say full transition from dev2 Evie. Don't forget the TV has a dead.
It doesn't have maturity level of deep UV so there will be a part of the weight of capacity will be allocated to UV weather with a limited number of your layers off which will grow over your time will will see the first application of it end of the year and and moving into 2022. Yeah, so it's going to be a gradual adoption of wage. I mean just following up on that D RAM and UV. How do you I mean, you know, you've had a very strong year last year in uh-uh. And even this year looks good in in that technology. I mean do you expect this even as you ramps up in memory et cetera indeed whenever it does however, slowly it does or however fast does this level up this Baseline is like a b. Remain as part of your revenues and that we just add on UV overtime as we've seen over the last couple of years. I think the the Dead
Number of evil lairs will be relatively limited as compared to logic so deeply we will be the bulk of the layers and will stay the bulk of the layers needing, you know, better little graphic performance boost productivity. So this is why we have these extensive already programs still in D. I think typically in general will be a bigger part of our business going forward than we anticipated a few years ago and has not only uh, you know memory it's it's it's like we said in the prepared remarks. It's very much also the mature markets where by Chef 9965 45-28 are all growing in terms of weight capacity for the simple reason that there are applications or devices for applications in that wage and and and and that technology realm that are basically supporting iot, you know Solutions and that's a trend that we underestimated a couple of years.
I think this has been a big driver for our TV business. So it's not only memory where it will stay strong.
Is very much also the broadening application space in deep TV. Thank you very much. Next question is from mr. Please State your company name followed by your question yester it research. Thanks for taking my question Peter a question from you. Maybe you know, like like long size for looking but also looking back maybe two or three years to three years ago. So tsmc is going to spend between twenty Five and Twenty Eight billion dollars in here, uh, and they expect to grow up using in the back of that. It made things which means to me that that's the new normal for for Kaepernick. Like it's it's probably going to be a number that keeps growing from here. Uh, and and I could imagine a world in which that's many Leading Edge logic chip get into Data Centers and two pieces and two phones without, you know volumes of Duran following and so dead.
That's very very good in the long run for the industry in my question is first like in 20 25, so like two three years ago gave us a 20-25 out group with a while fairly wide berth. Did that kind of world in which csmc spend so much in 2021 was a part of your range. How does that exceed what you were looking and then secondly in England so I kind of cool. So my question behind that is just 20-25 like kind of guy do you think there is today or chance? Uh, we go above the higher end of that range of that range what you have you're basically asking me to give you a review of our couple democracy day, but let's let's let's take it, you know from from a 30,000 a level three years ago, but you're basically asking is Peter. How do you think about the industry today as compared to three years ago?
Yeah, my husband I'm more positive for all kinds of reasons because like I said in the in asset to a previous question, I did not expect dpv to be as strong as it is today and everything that we know talking to our customers will stay strong. Yeah, and that is a that's a good call of the surprise, but that's you know, that's that's something that we didn't understand. Well. Yeah, we understand life better today was another thing that we assumed as you know, when we talk about the as a as a base case or or mid-market scenario know starting from the sixty and he said basically every know there's 10% lower waiver capacity. So it's -10 - 10 - 10:00. So by the time that you're at 5 you've had almost 4 types of -10 reduction of that way to capacity needed to that known that seems very conservative at that moment in time if we listen to our customers because you know dead.
it's a customer like this and she doesn't uh
A tell us that they're going to spend twenty five to Twenty Eight billion. If they believe that their way to capacity that they need for those nodes is is is going to be -10 - I understand so they obviously have a now different view as for the size of that market and I think we all understand driver's perhaps not all of it. Yeah. So I am all alone. I think there is a different basis for our assessment. I think of where we can be in 20, 25 26 or 27 for that matter. Yes, and I think it off it hasn't worked. I think it says it has got better. Yeah, definitely on the logic side, right? Exactly unless you but also to you know PS comment, you know memory is a derivative of you know, logical logical you need it all these applications memory will follow so yes, do we have a more positive basic view as to the growth perspective of the industry? Yes. I think we have Ya Dead.
Thanks a lot for false documents, and I look forward to the next CMD, of course, so the week life. Thanks. Bye guys wage by our next question is from Mister Crush Santa please State your company name followed by your question.
Yeah, hi. It's Chris from carbon. Thanks for taking my question and congratulate strongest first question. I appreciate you know, I think you did answer this question in many ways. Sorry for beating it up again the upstairs to call the 21 numbers. Is it a vehicle simplify and said do you think it comes from either logic or memory? Do you think it comes from d u e or e u v and then had a follow-up? Yeah. I think it comes from the TV box. It helps answer for Peter that it's what it is short and sweet. Thanks Peter a little follow-up for home on the T U V service gross margins, you know two quarters ago in September you turn positive. Is it fair to assume from here on what those margins should start in keep improving because of you know, all the 2019 tools coming of warranty. Keep keeps adding to the service gross module. Yeah. I think that's that's that's a fair assumption. So we indeed we did certain positive during dead.
During Q3 we were positive for the entire year. And as I mentioned also on the video, I believe that within about a four-year timeframe. We should see the TV service margin sort of approach a corporate gross margin and that's the trajectory that that wrong and it's a matter of on the one hand, you know to your point seeing tools getting out of warranty seeing tools produce more and more wafer. So the throughput going up as a result of that the number of waivers and that for the paper away for going and going up for for us on the other hand of being better able to control the cost. So that's the trajectory that Ron that's the goal in Foley assignment may continue to develop towards towards that goal. Thanks. Thanks.
Next question is from Mister Alexander for church.
Please State your company name followed by a question. Yes. Hi. Good afternoon. Thanks for taking the question. This is Alex on right now. I just have to one is on if you could comment on the page on u v average selling price to quite firm over the past couple of quarters. So, um should we expect this is going forward as well in in the first half I suppose you have ended up taking the second half with the new model shipping. So if you could maybe comment on on that a little bit then just secondly the article sale is is a bit higher than your your longer-term target. Sure. So what what point in time do you think we should have all the details? Okay. Yeah the intensity is that going to to decline maybe uh, once 1008 shipping or or even before just to sell sort of you know, what what time frame that could be kind a little bit. Thanks. Yeah, that's fine. So you are right. I mean the asp.
This quarter but also in Q3 was a little higher than what you typically have have in your models. But it is as we also explained on Q3 do a very it is really driven by configuration. So what what options are on the tool already when they when they leave the factory and specific customer requirements so that that's what drives it and the composition that we have for the for the TV sales bought in Q3 and Q4 where God richer configurations as a result of which she saw the you saw the higher number you sort of higher number in there on a go-forward basis. Um, uh for the 3600 V6, I think we mentioned there that you should look at Mid teens in terms of increase over the over the over the ASP for in comparison to the to the to the same laws in terms of your question on R&D you are right. I think R&D as a percentage of sales just comparable to to where we were last year. Actually it's so it's it's higher wage.
Fiends approaching 16. It's a little lower actually than what we had in the in 20 in 2019 from you know, the computer and I already mentioned in in the in in earlier comments off. So, you know, there is so much opportunity that we see in the in in the roadmap and this is both low in a in a but also, uh, you know, I'm Peter Luger reference to that a number of developments that were having in terms of DTV and and the the throughput Imaging and overlay, uh potential that we that we still see there. There's a lot of potential that we see and that's why we keep the key with a little bit higher than the 13% then some of you might have in your mind that is still clearly the goal for for for twenty twenty-five. So we're working or way to work. But you know at this stage we believe the company is value is is is increased by by by spending this amount. So I think the approaching yep.
first and that we saw for this year and make
You also for next year would still be would still be appropriate but then from that point onwards gradually model it to work towards the 13% for twenty twenty-five. I think that's the way I was. I also need to remember that we do these are the investment for DPP where we estimate the size of that market and also the need for D. Tools bring them up through the NXT platform, which is quite a significant already program. But once we do that and we see a significant increase in BPD demand, which we think will last yeah, but then we give our customers to keep the capability to actually have a very productive tool with a lower cost per wave of competitiveness. Yeah, which of course, you know drives the higher sales price. So these are investments who actually going back to an earlier question on the 2025 model. We're we're doing things today because we see upside to that model dead.
And especially in the TV for instance and you give you one example. Thank you very much.
This question is for Mister David Mulholland, please State your company name followed by a question. Hi, I'm is David from UBS? I just want to come back on the change the happen in terms of your life plans and your bill through the supply chain for this year are for 20 21, cuz my understanding previously was you're willing to to essentially bear the cost on your own balance sheet if the man didn't end up reaching out 45 to 50, so I'd love to understand what changed cuz it seems like that's potentially not constraining the other two this year and then secondly on cash flow very strong course in cash generation in Q4. Was there any was that old just pure cash coming in the door from customers or was there any celibacy Google's like we saw a few years ago to answer the first question David, you might go back to the to the home install script but we never said that we were going to commit ourselves in the supply chain to 45 to 50 units. We actually we we said we were not going to do that which we are taking off.
A bit of a buffer above what our customers at that time the end of Q3 said that they would need for 20 21, which is a lower number than we currently planning to ship. Yep. So we did take that into consideration. Yes, can we squeeze out another one or two? Probably? Yeah, but we never indicated what we never met indicate that we would cover of our customers for our full capacity that that that that's that's not what we said and that's not what we did. Yep. So what we actually we're probably ending up somewhere in between. Yeah, which is good cuz you know, we wouldn't have done that then they would not be a 30% increase in our deep UV was in our u v a plant revenue for this year. We are able to do that because we we we built this buffer capacity in the supply chain, but not everything.
David on the on the Freak Out
So as we mentioned on the previous calls, this is the year where you see two effects in that regard. So on the one hand, you see the effect of extended extended patience that that some customers off idle to based on based on older contracts and you see the effects under the newer contracts of the down payments that are coming in and they balance out nicely and although in Q4, you know, we suck most most of the effect of the down payment and then in the earlier part is you saw the the effect of the standard famous, but for the year, it's it's nicely it's nicely people out. So that that's in fact what you see so very very strong, uh free cash flow in Q4 making up with some of the things in the in the previous and the previous quarter's. Um, so your question. Is there an anomaly in there not really an anomaly just as we had it in previous years was some some customers choose a factoring solution for for some of us for some of the payments and some of the down payments but that all their requests but that's our discretion in their their request doesn't doesn't impact us what time
But that hasn't really changed I would say as a policy from from from last year and I think the the anomaly if you like that I just talked about I think it's uh is really something that we had in twenty twenty four twenty Twenty-One. I would expect a more regular build-up of the free cash flow also over the quarters. Thanks very much.
Next question is from John Madden Munoz. Go ahead. Please set your company name followed by a question. Hi, good afternoon. It's janardan from Liberal. I just wanted to go to your gross margin guidance where you said that you are likely to be hitting the high end of your 48 to 50% range. But but since you're doing a mid-point of 50.5 in q1 and you will have the 3600 shipping in the second half of the year, which is a corporation average gross. Margin, which presumably is close to fifty percent. I'm just wondering what is holding you back from from getting to a a north of 50% margin for the full year. Is there something specifically in Q2 which could lower that and and also I would put in the mix presumably shipments are going to be quite strong this year. We should also have a positive effect on that job.
Well, first of we shouldn't forget that there is a very strong improvement over gross. Margin if you if you compare it to a year-on-year, right? So let's not forget that as I mentioned to you of the 48.6. You should start by the down 1% to get to 47.2 47.6. That's really the starting point for the year. So, you know, even if I say that we're approaching the 50 per-cent. I think that's that's a very strong improvement over last year if I can say what is going to be different in the next quarter to a very large extent. It's mixed right? So in in q1, we have quite some emergency sales and as you know, immersion has a very strong gross. Margin, we have more faith in sales in their relatively speaking. We have relatively low UV sales in there. So while you're right, that's that the the gross margin for tulle in the second half on the on the 36 Thursday is going to be at the a bit bigger. I think it's also fair to say that, you know in the second half will see more UV sales relatively speaking than you have in q1. So in in that way it kind of It kind of birth
You know it kind of creates any.
Librium there. I think it's also fair to say when I say approaching the the upper limits approaching the 50% when Peter talks about potential, you know, the potential over the 15.75 is fair to say that the potential that we see there as a Peter mentioned is is in deep UV and in logic so that would that would lead to a further uplift of the optic gross. Margin is 50% that I was I think were approaching is for the 15.7 indication that we gave or expectation that we articulated in terms of sales if we're going to see. I think there should also be an uptick in gross margin percentage. Yep. Understood. Can I can I just go to re follow up on that just on the potential upside for this year that you talked bout? You said it's all coming from uh-uh. If it does, it's d u v and from logic is that entirely the the China sort of geopolitical upside that you're talking about or is there a potential job?
Outside outside of that and you know, normally when memory prices are going up in power cycle we've seen that the memory vendor the vendors tend to increase their orders as well. If they were to come out with additional orders. Would you have the capacity to meet that demand? Do you have sufficient buffer there? If if that would happen? Yeah, I think I think we we would be able to do a deal with some of the additional demands in memory and you are right. I mean you've been around General even longer than I am. So I mean, you know how that goes. So yes, I would be able to do that how much that would be difficult is wrong with in time. We generally twenty we're talking about they were trying to guess to the entire year. So yeah, I think we'll be able to do that. The upside down were referring to his deep if you're allergic that is for the very large part is upside in China, which you know, like I said, like I said, if we if we can ship under the current rules and that yep.
Would materialize yeah and which would have the impact on on the top line and on the gross margin as Richard mentioned. So yes, I think we will be able to to do that. So this website on memory if they would come back and it would be to your point understood. Thank you very much.
All right. Okay. Thank you. We have run out of time. So if you were unable to get through on this call and still have questions, please feel free to contact you at investor relations department with your question before we sign off. I'd like to remind you that remind everyone that we are targeting to host our investor Day on June 23rd this year in London, and we hope we can have a face-to-face meeting. But of course, this will depend on the progress against the virus will provide more details in due time, and we hope you'll be able to join us now on behalf of SML. I would like to thank you all for joining yesterday operator. If you could formally conclude the call, I would appreciate it. Thank you.
Thank you, sir.
Asml twenty twenty four and thirty are Financial results conference calls. Thank you for participating. You may now disconnect your lines. The conference is no longer being recorded.