Q1 2021 ASML Holding NV Earnings Call
All of them.
Thank you for standing by welcome to the Ml 2021 the first quarter financial results Conference call on April 21st 2021.
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Now how much it's on the conference call over to Mr. Skip Miller. Please go ahead Sir.
Thank you operator welcome everyone as the Skip Miller, Vice President of Investor Relations at ASML.
Joining me today on the call of their <unk>, CEO, Peter <unk>, and our CFO Roger Dassen.
Subject of today's call is ASML 2021 first quarter results.
The length of this call will be 60 minutes and questions will be taken in the orders that they are received.
This call is also being broadcast live over the Internet at ASML Dot com.
A transcript of management's opening remarks, and a replay of the call 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 ASML Dot Com and an annual Asml's annual report on form 20-F and <unk>.
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 brief introduction.
Thank you skip.
Welcome everyone and thank you for joining us for all of Q1 2021 of the results conference call and I Hope all of you on your families are healthy and safe.
Before we begin the question and answer session of the Virginia, and I would like to provide an overview on some some commentary on the first quarter.
I will provide our view of the coming quarters.
I will start with the review of our Q1 takes any of the old. So that's the performance with added comments on not short term outlook.
And I will complete the introduction of with some additional comments on the current business environment and our future business outlook for share.
Yes.
Thank you Peter welcome everyone I will first review of the first quarter of financial accomplishments and then provide guidance on the second quarter of 2021.
Net sales came in above guidance at $4 4 billion euros, primarily due to a higher installed base of business from upgrades.
We shipped nine UV systems and recognized $1 1 billion euros revenue from seven system this quarter.
Due to the delay in one of our customers' Roadmaps, we jointly decided to buy back two of their systems and ship. These to another customer of this year.
This was accounted for as the revenue reversal in Q1 2021.
For the system shipped in Q4 2020 with the new configuration, we were able to complete site acceptance and recognized revenue of this quarter.
We also shipped one system this quarter without factory acceptance testing so revenue will be recognized in the subsequent quarter after a customer site acceptance.
Again, the net result of the seven UV revenue system.
Net system sales of $3 1 billion euros was again more weighted towards logic at 78% with the remaining 22% for memory.
The strength in logic drives both deep UV and fee revenue the memory business is mainly driven by DRAM.
Installed base management sales for the quarter came in at $1 2 billion euros above guidance due to increased upgrade business as customers both for.
For software upgrades that can quickly increased productivity of the system and this high semiconductor demand environment.
Gross margin for the quarter was 53, 9% and was above guidance due primarily to the additional software upgrade business.
On operating expenses R&D expenses came in at 623 million and SG&A expenses at 168 million euros, which was slightly above our guidance.
Net income in Q1 was $1 3 billion euros, representing 35% of net sales and resulting in an EPS of three points of 'twenty one.
Turning to the balance sheet, we ended the first quarter with cash cash equivalents and short term investments at the level of $4 seven debt in euros.
Moving to the order book Q1 net system bookings came in at $4 7 billion euros, including $2 3 billion euros for UV.
<unk> system on another strong quarter of deep UV demand.
Order intake was largely driven by logic with 76% of the bookings primarily due to UV order intake with memory accounting for the remaining 24 per cent.
With that I would like to turn to our expectations for the second quarter of 2021.
We expect Q2 total net sales to be between 4 billion euros and $4 1 billion euros. The direction of the lower guidance is primarily due to the shipments in the quarter. Both easy on the <unk> that were not received factory acceptance testing due to customers' desire to bring system production as quickly as possible.
That's what we the recognized revenue in subsequent quarters after completion of acceptance testing of customer sites.
In addition, the installed base business is expected to be low rates of Q2 versus Q1 as customers pulled forward installation of productivity software upgrades to quickly increase wafer capacity.
We expect our Q2 installed base management sales to be around 900 million euros.
Gross margin for Q2 is expected to be around 49% the lower gross margin quarter on quarter is mainly due to delayed revenue from immersion system that we plan to ship without factory acceptance testing as well as lower installed base management fee growth for this.
Q1.
The expected R&D expenses for Q2, our 650 million euros, and SG&A expected to come in at 175 million euros.
<unk> continued investment in the future growth of the company.
In support of our aggressive product roadmap and the opportunities controlling some of our highest value of product development. We plan to increase our R&D investments primarily in the UV via increased development capacity for.
The more this increase will allow us to compensate for remote work impact.
We don't expect those increase the scale at the same level of our revised revenue increase with R&D expenses for 2021 around 14% to 15% of the sale.
We expect SG&A to remain around focus on the sales for 2021.
Our estimated 2021 annualized effective tax rate is expected to be between 14 and 15%.
As mentioned last quarter ASML intends to declare a total dividend with respect of 2020 of $2 75 euros for ordinary share.
This is a 15% increase compared to the 2019 dividend.
Recognizing the interim dividend of $1 20 euro per ordinary share of paid in November 2020. This leads to a final dividend proposal to the general meeting of 155 year old per ordinary share.
The 2021 annual general meeting of shareholders will take place on April 29, 2021 and volatile.
In Q1, 2021, ASML purchased three 5 million shares under the 2020 through 2022 program for a total amount.
Over the $1 6 billion euros.
The expected free cash flow generation of enables the opportunity for continuation of significant share buybacks in the coming quarters, and we expect to complete the execution of all of our current share buyback program the journey.
With that I would like for the call back over to Peter Thank.
Thank you for sure.
As Roger highlighted we had a very strong quarter of in both sales and profitability driven by continued strength in both logic and memory without the significant the master of upgrades.
Customers look to bring additional capacity online as quickly as possible the.
Upgrades consisted primarily of software based productivity packages.
We're seeing any significant the increase in demand for my customers across all market segments of old notes matures and evolves.
The three months ago have you expect another very strong year with the amount of across our entire product portfolio.
The stupid unexpected recovery in demand for semiconductors amplified by the Covid induced lower investments of the industry in 2020.
It's created significant upsides to demand over the past quarter.
This is more cyclical than that sits on top of the secular growth from the accelerated the buildup of the worldwide digital infrastructure and assuring the math on the only for as long as the mature logic nodes, but also for memory.
The logic customers continue to see strong demand across the broad application space for both advanced nodes as well as mature notes.
Last quarter, we expected revenue from logic in 2021 to be of 10% year on year. However, we now expect lots of it could be up around 30% of this year.
Memory.
The applications that are driving the strong logic demand are also fueling demand for memory.
As we mentioned in earlier calls the memory recovery started last year and continues to strengthen the customer plans to increase capacity is driving significant demand for our systems in the second half of the year.
Compared to last quarter, where we expected revenue for memory in 2021 to be of.
The 20% year on year, we now expect memory revenue to be up around 50% of this year.
On our installed base business services revenue will continue to scale with the growing installed base of with increasing contribution from each of these services.
Some of them more and more wafers in volume production.
We're also supporting our customers with upgrades the mix of Mike's performance of the installed base.
In order to meet the high demand in the current type of chip supply environment of course.
For the myself prioritizing software upgrades the quickly increase capacity as reflected by the high Oh, great number in Q1.
And so hardware upgrades required of extended machine time to be installed.
The current high demand environment, the customers will be less willing to take systems down. It's just the dampening impact on the 'twenty to 'twenty one the growth profile of hardware upgrades, we'd have we still expect growth of our installed base business of around 10% of this year as mentioned last quarter.
On the EV, we continue to see increasing customer confidence in the technology, which is translated to expanding late accounting logic and increasing deployment of the memory at multiple customers evidenced by a number of customer announcements around increasing the cap expense, which will include spending on the UV for advanced nodes.
Sure.
The support historically of the demands we are working to increase our output capability.
At the same time, we are driving our product roadmap to produce higher for 50 machines, which will increase the effective capacity per system and the <unk>.
Wafer out the capacity of our customers.
We plan to transition for the energy of 36 out of the system in the second half of the year, which will provide customers with a 15% to 20% higher productivity.
Debt to the NFC and other.
<unk> systems shipping in the first half of the year.
The limited by the available modules and box this year.
Still planning for growth of around 30% of any of your revenue this year.
With the expanding adoption of <unk> at our customers, we see increased demand building in 2022 M built.
We are improving our manufacturing sockets on and are planning on our supply chain for the capacity of about 55 systems next year and as a reminder, all of our planned shipments in 2022 will be antiques ethers, you have as a day.
The systems with the increased productivity capability.
Our strength of the outlook on the year relative to the last quarter is primarily driven by the demand for deep UV systems.
With increased demand on leading edge nodes as well as mature nodes running longer on ramping stronger demand for our immersion of dry system is stronger than ever.
We've put in place plans to increase our DPP capacity to help meet our customers' increased demands.
In our application business as demand for scanners continues to increase.
We expect the step up in demand for how the yield start metrology system, particularly in logic the.
Newly released yield sort of 385 at the beginning to ramp across our customer base as well.
And with the recovery in memory, specifically of three D. NAND, we expect the substantial increase in E beam inspection revenue this year.
For the industry of the high level, we see three trends driving considerable growth this year any of the used to come.
The first strength.
In the shorter term debts of more cyclical or you could say catch up driven demands from decisions made in 2022 due to the goal of pandemic.
The shortages were initially evident in the automotive market, but more recently there are also indications of supply tightness affecting all the market segments. We expect this to drive considerable demand for some of your systems this year and into next year.
The second is the secular growth trends driven by the digital transformation, taking place as we become more connected growth across both people and machines. This transformation will scale to the accelerated over the past year with the increase the remote activity on reliance on technology to stay connected.
The secular trends are driven by expanding end market applications, such as product <unk> AI and high performance computing.
These and all of the mobile of distributors applications drive demand for both the example of logic as well as more mature technology required for the services and applications that drive the growth of the digital infrastructure.
And along with increased logic demand comes in.
Increased memory demand theres interest drives demand across our entire product portfolio.
And the share trends.
Youre starting to see now on which we will likely continue to see longer term is the desire for more of technology sovereignty, which includes semiconductor and silicon based technology, leading to a geographical decoupling us different governments with the initiatives in place to localize supply chain and become more self sufficient.
The inevitably will create some level of inefficiency on the semiconductor supply chain and creates additional equipment demand as more fabs are strategically built across the globe.
If you summarize the growth of the different segments of the threats just discussed we now expect sales growth towards 30% this year.
To achieve this growth we are ramping up our capacity to support customer demand, resulting in a stronger second half.
With the higher revenue and increased mix of deep UV and upgrades. We now expect gross margins to be between 51 of 52% this year.
We didn't see it as a whole the long term the mountain drivers only increase our confidence on our future growth outlook towards 2025.
We plan to provide an update on all the training for the fashion areas at our Investor Day in September.
With the happy to take your questions.
Yeah.
Alright, Thank you Peter on rose the <unk>.
Operator will instruct you momentarily on the protocol for the Q&A session.
Beforehand, I would like to ask that you kindly limit yourself to one question with one short follow up if necessary. This.
<unk> will allow us to get to as many callers as possible now.
Now operator could we have your final instructions and then the first question. Please.
At this time, we will begin the question on session again, if you have a question. Please press star one to register for a question on true true you can press the Cri too.
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For the first question.
And our first question comes from the line of Matt did you see any of echelon Qi. Please go ahead for you on monocytes.
Yes, thanks for taking my question.
I wanted to follow up on the UV.
The revenue target for this year I understand that you had you on keeping an unchanged at 30% but.
In case, you are able to improve.
Improve the supply chain and availability of components could there be upside to the shipment, even though you may not be able to recognize the revenue and not have the funnel up.
Yes.
You just use of two very important works, which in case.
Which is the problem because we said it last quarter.
These are very long lead time items I mean the.
There's a lens as the.
Manufacturing.
Cycle time.
Any of them over 12 months, so we haven't on it.
I was going to be there.
I think when we look at capacity in because you really need to look at.
Next year I think.
It's virtually impossible to.
To get more out of 2021 as we have planned today.
So really it's going to be.
Why we also mentioned debt.
With our supply chain and the looking at the.
The map next year.
We.
Now planning.
We haven't received for confirmation yet of the supply chain on it.
Our focus is on the 55 systems next year bearing in mind also debt I think we said it before customers are buying systems with effectively the buying wave of capacity.
With the next year only seriously on the dis, which already to provide you with a 50% to 70% productivity increase.
You'd add multiply, let's take the average of 15% to 20% of $17 five for lets say, 18% extra productivity English barrier system and the 55 system is actually trends I think the 65 systems with city for the C productivity yeah.
So it's this is the way that you need to look at it.
Great. Thanks for the detail on a quick follow up.
As I think about it.
Beyond the two.
2021, and your operating margin.
Could there be a scenario, where your key customers would share some of the development cost associated with higher than similar to what happened to <unk>.
A decade ago, so that that could also help drive over on a per the margin too.
Above 33%. Thank you.
Well I think.
Sure.
I don't think it's likely because of its not necessary.
I mean, when we go back almost a decade ago, our R&D expense at that time was $600 million per year.
And then on the right. The way you looked at the at the size of the EV program at that time and still used.
To consider that the entire low in the EV program.
Well of course more if we all ended then the high day program. So.
If you look at it then the relative effort to bring <unk> to life.
It was so large that it would have put a significant financial strain on the P&L of ASML, which of course, we could not afford which is not the case today and I think if you think about operating margins. It is more.
A matter of.
The maturity of EV.
Which will of course lead to you know.
The better performing tools with high productivity with high value.
Bob.
Service revenue that will grow going forward.
And I think those are the most important drivers for.
Operating margin was.
Yeah, I agree I mean the.
The the.
The growth margin components, I think Peter you just referenced M y.
The <unk>.
And as a result of debt the EV system growth margin and the new the surface gross margin of those are the major driver on the on the growth margin side and I think also on the introduction we've been pretty clear on what the ambition is for for Colfax, Alright, So 40% to 50 per cent for R&D and four per cent for for SG&A and our longer.
Term ambition at least on the on the R&D side of it is to try and model that back to around 30% over time and I think that's what we stated the fidelity of.
The R&D those are those are the major drivers I would I would say to the to get the to get the operating margin for the room.
Yep.
Thanks, so much.
Thank you. Our next question comes from the line of.
Yes.
Of New Street Research. Please go ahead for your line is open.
Hey, Thank you can you can you.
On.
Very well.
Good afternoon.
Good afternoon, Peter so.
Thanks for the color on how you can treat capex ETE ogeechee on next year.
Here.
My question would be more you know.
Q3, EBITDA, if I recall correctly like might be the age.
But you.
You guys have sort of to be able to the <unk> tools.
Yeah the <unk>.
The EDA tools.
When I took the show up on the looking at how much would be meeting for both in the Q4.
It seems like you just wanted to Covid.
The communities that you might actually need more capacity.
So I would love to hear your take on the album on that.
Do you think that could make sense to think of that intriguing what we will get the CD and you've got the kidneys, what kind of lead times, while we thinking of that product kind of in limbo.
It's a very good question for you.
It's the long term strategic question.
But let me try to answer it this way.
When I talked about the three trends that the company will have to face in terms of demand cycles.
Of course the issue.
The shorter term, which you could say, it's a catch up of.
The the lower level of investments, we saw last year because of the pandemic, which is which of catching up this year and throughout next year or.
So as a part of next year and that the secular growth strength, which we have underestimated.
I think.
You can go back to the.
The capital markets day, 2016, and 18 at the ball I don't think of that both inside.
The anticipated the strength of the DPP market that we see today.
And that's the third trend, which is basically that the drive of the technological sovereignty bye bye.
Countries of the different governments.
For those are all at this moment in time.
Those will be the drivers, but it's also difficult to really get a very clear view on what your question is taking that into consideration should you guys be looking at increasing your capacity beyond the 60, the magical six feet of we've always mentioned.
Good question.
And I think this is actually the the work that we're doing today.
We're looking at what is the need to do this so.
Now the lead time now if you have to build the complete new factory.
Let's take you need to build of new optics factory and the lead time is two to three years because.
Could you need to build the factory you need to work for.
Two of the machines of it by the way of it when it comes to the optics manufacturing you have to build those machines for yourself because they're not available.
So that will be longer but of all the ways to increase capacity of this through cycle time reduction that's two of process optimization.
And so it's the complexity of of measures that we can take to see how we can drive the.
Total capacity up.
Which by the way all have lead times debt or beyond.
The 55 units that were planning for next year.
Which doesn't mean that it couldn't be higher in 'twenty three 'twenty four.
The work that we need to do today, which by the way we are doing.
That makes sense and it's the quick follow on very much related to that you mentioned, maybe the geopolitical situation.
When I could give you on value chain and how much depends on what's happening in the billing on the seating side, where you have somebody of food, which almost scary.
The weak points for that.
The group of value chain and pulled the ability for.
Yeah.
Your current bill.
So on getting maybe a bit mandates for bad debt.
That's true.
Do you have conversations with people around you the bankruptcy paying you.
Creating share value.
Would you be.
The less dependent on the on the on the Mega Man.
Yes, I think that the.
Yeah.
The situation of of today is not very different of the situation of five years ago. The could also have you got all the argue that the realization of our people is now different.
That's never changed it is what it is.
But the same can be said for our customers you know that.
Net debt.
Basically concentrated in the in the one particular area or some of our peers.
With the some of that production facilities only make yes, a couple of other tools per year yeah.
In the one or two single sites. It is the concentration of the semiconductor industry in different geographical areas that actually now starts to make governments think yeah.
There's never been an issue yet.
It's the only becoming an issue.
When this.
Almost seamless ecosystem for others.
<unk> built across many many bullish on.
Now of being.
The ecosystem is.
Now being threatened I would say almost by blockage.
Of the of debt Seamlessness.
And then you get an issue.
So.
Well I think it's nothing different has always been this way of adding especially over the last five years I would say there is high concentration of.
The leading edge technology across the value chain, but given the geopolitical situation people are more aware of it and thats not now thinking of.
The self serve.
The levels of self sufficiency debt.
Couple of years ago, Nobody thought of.
Thanks Peter.
Thank you al on that question comes from the line Okay.
<unk> of Wells Fargo. Please go ahead for you on monetizing.
Yes, thanks for taking the question.
I was wondering if you can help us on the updated 2021 guidance.
I think last quarter, you had talked about there being potential upside from domestic China, we haven't seen any change in the geopolitical situation or export controls. So I'm. Just curious can you help us understand is that now included that upside of included and if so how much of that.
Yeah, I think it's fair to say that that upside is not included in the numbers that we've given so it's clear on Peter went through that also in the in the presentation of the beginning of this of this call that we've had debt.
Revised upwards, if you like the the outlook for that for that for the full year.
Further down into the year. We've now set this is how we look at the business how we look at the full year.
Of course still expecting that the the the regulatory situation that remains a little bit the weighted today.
Okay.
And therefore, what previously was upside on the way we talked about at the upside has now been included in the in depth and debt number remember last time and the <unk>.
The patient that we gave was that the could be about 600 million upside coming from the from China and that number has now is now included in the let's say close to $18 billion of and I'm talking about yes.
You didn't really want to think about the risk profile, you could say well when the regulatory situation changes and you could not ship to China. When you look at the market situation today than we.
Which is quite different than three months ago, then we would ship those our system somewhere else.
Great and then just as a follow up I just want to make sure I understand the two systems that you repurchase from the customer of those were on the EV side and then you plan to ship those this year and I guess is that if that's correct is that embedded in the 30% revenue growth.
Yes. It is.
Yes.
You'll have the reversal in the.
In this quarter and you will see it come back in the subsequent quarters for the full year. It's the new it's neutral price, it's awash of minus two and plus the thing because the water.
Yeah.
Perfect. Thank you.
You're welcome.
Thank you next question comes from the line on the axon the Patrick of sophisticated Generale. Please go ahead for your line is open.
Yes, hi, good afternoon, and thanks for taking my question on.
So you gave us the outlook on.
On easy for 'twenty two.
I just wonder about the longevity of the strong the selling.
Cycled, the GC and the management of dry.
Because thats, where on one of the the update today is coming through for for 'twenty. One so I'm just wondering.
Is all of the had been carrying into each of <unk> 22, as well and then just very quickly. If you could also provide a quick comment on asp's, there will be stronger this quarter of CCP.
Puts and takes the next months.
All of <unk>.
The ratio will do the asp's.
And your question on the.
Okay.
Staying a bit up yet.
And especially deep UV.
Perhaps.
I think I've said it on the answer on the other.
The other question when we look at how we see the deep UV market the hedge market per day as compared to three years ago for 2018, I think we have a different view.
That is driven by the fact that.
Across our entire deep UV portfolio, which immersion and dry.
We cannot fulfill the demand for all of our customers.
All the time.
And that has to do with the fact that our.
The analysis shows that.
With the.
The combination of let's say.
Advanced sensing technology five G.
The ability to process all of the data through high performance compute.
And that in a distributed fashion basically.
Leading edge compute also goes to the edge I call that distributed systems.
And then distribute system issuances of car, but it's also one of our machines in the field and net.
Increasingly requires.
Collection of data transfer of data processing of data not only through the most advanced high performance compute so that's part of the distributed system.
And it system inevitably includes mature the technology, which could be image sensors power Ics Mems analogs.
Solutions, it's the whole thing.
Means.
We would have on high line system available today, it will be sold yesterday. So it's everywhere and that has to do with the proliferation of chip technology of the distributed computing and the distributed system that we are seeing that as something that will not go away and all of mines. This is why I said it all sort of in my prepared remarks.
We are on.
Also planning on looking into what is the level of our deep UV capacity increase that we need.
Both in mature and immersion as go into the double digit.
Increase.
For where we are today now how much can we stretched out there how much is needed that's exactly what they're doing with <unk>, we need to blend of with the supply chain.
We need to go deeper into.
What it takes in terms of capacity lead time do they need to built scratchy. This because I need to hire people. So its going to be possible through the cycle time reductions who process optimization. This is the work that we're doing today because remember five months ago, we were looking at the completely different world.
This is the ramp up but we do believe that it has a long runway.
Yeah on the on.
The ASP for free it's well noted.
Right. So that's the key.
Quarter in Q1, we're looking at the at an ASP for <unk> of about $1 60.
Part of that is the configuration, we've talked about that's on the path. If you. If you look at the last three quarters, we've consistently been looking at.
At.
At an ASP of around 145, and the assignments of little bit up for another reason, though of come through in a moment. So in fact, what you see as debt.
On the last year, we've been positively surprised by the options on the on the two of them. The options that were ordered on the two and as the result without the the configuration was there was Richard down the than anticipated in the as a result of that you're fairly consistently see now that the ASC. The range is above the 130 that we've talked about in the past and fairly consistently seen 145 of them.
The reason that it's extra of this this year during the few occur.
Accounting thing.
<unk> talked about accounting for four of <unk> in the past that as of few accounting reasons why the why its highest of the wife $1 60, rather than 145 out of the just looking at the configuration that we've seen on the tools in the past the past couple of quarters. The 145 anchor points of 48 of Stifel.
It's probably the right way to go and I say that recognizing that this is about the last quarter that we're really looking at the at.
At the at the large number of the <unk> and the and the revenue.
Thank you.
Our next question comes from the line of David Mulholland of UBS. Please go ahead of your mindset.
Hi, Thanks for taking the question just coming back on the UV capacity increase in shifting to 55 two capacity for next year. Obviously, there was some changes made last year. The ended up limiting book essentially should've been higher shipments this year on some of that probably kicks in next year, but.
On your discussions with customers Peter just obviously, the very very strong cyclical tailwind for.
For the industry today, that's driving appetite for capacity increase but the <unk> on a very very long time horizon for customers 18 months, rather than six month planning.
How do you feel like there assumptions have changed that's driving that upside is it primarily because of their confidence on penetration of the UV and higher layers or is there an element of actually just be building bigger nodes.
Driving the need for more capacity at this point.
I think David it's both.
I think we are seeing.
I only.
What I referred to.
The comment that was made by the CEO of one of our of the.
Watch customers that actually meant you know where we're going to double the number of elas.
The next node.
I think that's.
That's a trend that we're seeing.
Simply because of the advantages of EV on not only of.
You could say the pure economic cost per layer.
Because you can eliminate multiple patterning, but it's.
Also the electrical characteristics of the simplicity of the process.
The lower with the.
One of them so that as many of the side effects of that actually.
These people to go for UV. So it's yes, it's higher the accounts that's what we're seeing.
Which is true for memory and for logic.
But also.
When we talk to customers. The all talk about the bigger the notes it has to do with the.
The secular trends of the trans number two that I talked about.
The trend of a three D. The technological sovereignty.
It will just be of layer on top which will not go away, which will take time.
The next two to three years to build the semiconductor factory and putting the interaction.
So, but I think this is so it as big of nodes in the strategic investments, it's higher layer counts.
And this is what I don't know that's true of previous guidance that we own.
The to take into consideration some of it we already saw coming but what does it mean for for our capacity needs beyond 2022.
Which by the way some of debt capacity, if that would be needed that would be the result of you know like I said the process optimization and the cycle time improvements.
The profit.
Current work schedules and.
As the square meters.
So.
But it's all of the all of the above.
On just one quick follow up obviously from a financial perspective at some point in the near future you need to start building those tools through the supply chain given the lead times are you requiring customers to took place deposits and make the financial commitments that you have been starting to make before any of those tools get built or is there an element still this year.
Where you're going ahead, and starting production before you've had firm.
Deposit associated in orders from the customer.
As evidence of the policy hasn't changed there so that means that when the customer has put an appeal of them.
Payment is for client and I think we mentioned in the past of the amount of the appeal is.
Is it a little bit dependent on at the moment, where the where the orders being placed on the orders being placed.
Nicely in line with the lead time than the than the down payment is lower at one of the placed a little.
A bit later than that on that but you'll also note debt.
The <unk> by itself is a bit of a non event for us because we work so closely with the customer that we sort of understand what theyre doing what they want.
And when they need it for the CEO of <unk>.
Net of the non event for us.
The short answer is absolutely that will be down payments of data at the moment of the of the deal.
Okay, great. Thanks.
Thank you next question comes from the line of C. J Muse of Evercore ISI. Please go ahead of Q and line of sight.
Yes. Good afternoon. Good morning, Thanks for taking the question I guess first question Peter can you speak to the sustainability of memory I think the headline of about 50%.
The a bit.
Concerning however, even if I think about <unk>.
And there as well as the start of picked up the knee being voltage in contrast imaging. It certainly looks like memory ex those two things is tracking more like up 2025% So would love to hear your.
Thoughts on the on the moving parts, there and how to think about the sustainability into 'twenty two.
Yes, yes, I think.
For this year, it's not a surprise I mean, you just need to go back to our conference call for the last two quarters, where we actually the recovery of especially DRAM.
And I.
I think I gave some color on three months ago, what I basically said, yeah, we had a decent shipping we ship of course in Q4 of last year, which basically going if it goes into production.
In Q1.
But if you look at a bit growth of 20% of this year that our calculations show that very quickly at the Max output capacity.
Of our DRAM customers.
This year well wherever it would reach the pretty quick so we would need more capacity addition, and thats exactly what we have seen so I think.
It's just the beginning.
All of these things.
So.
Yeah, I think yes, it will move into next year now.
You've been around the also long so that.
In the memory business.
Yes, there is more tendency to to.
For the times of the types of overcapacity and sort of other capacity.
How long does over the last I don't know.
But still the system.
The B M about of.
Selling me okay.
Yes.
The secular trend.
It's such a high demand and logic all of this stuff doesn't only work where the only logic also of these memory yeah. So.
It's going to be quite.
Interesting to see how quickly the memory capacity will be added throughout this year early next year and what the underlying.
The bit growth for Servicers will be.
Now, having said that the unit.
It is also of memory.
More cyclical than.
The logic, but nothing that the indicated to me at this moment in time that we are looking at building on overcapacity.
The thing I can see additional with the attack we're just starting.
Very helpful. And then just a follow up question on the <unk> side of things I think.
I think you guys had talked about growing your non EU retool business by about 40%. So thats roughly seven $7 billion. This year is there a way to frame how much capacity you're planning to add on the non <unk> side.
Relative to that $7 7 billion.
For us to kind of gauge of what you're capable of above into 'twenty two and beyond.
Yes.
Yes.
I think.
We wish were calculated the weighted we would calculate the water for example would just be over eight.
About $8 two.
And that's really stretching it.
In terms of our production capacity this year.
It would have more capacity, we could probably do more likely we would be able to grow more.
So zone.
Your question really is.
The answer it.
Uh huh.
Our sense of that.
I already said in my prepared remarks, we're looking at the increasing our deep UV capacity of both.
The dry mature and immersion and that's not going to be 5% growth.
The digits.
But that will take some for analysis of what needs to be done.
The optimization that's true.
Things like process optimization M.
The.
Added workforce, our sovereign debt reduction or is it to do with square meter capacity of like factories.
That debt is something that the units under consideration of today, we're looking at it together with other projects, it's not so much for us.
Really of the supply chain.
So.
The reason why I say this is because we believe that we need extra capacity.
Yep.
It has to do with the underlying trends the trends that I talked about earlier.
So yeah and the other 40% rest of the benches suggest the rate.
Except for severance or you're a bit more conservative but this is.
Directionally It is correct.
This is this is the answer.
Great. Thanks, so much.
Thank you. Our next question comes from the line of Andrew Gardiner at Barclays. Please go ahead your line of sight.
Good afternoon, thanks for taking the question.
Another one Peter on the sort of.
Capacity planning.
Issues that you guys have just been talking about.
I'm wondering given the changes that we've seen from a number of your lead customers or at least the public announcements from the lead customers over the last three of four months.
And the fact that you are now having to.
We think the need for additional capacity expansion, whether it you'll sell it all within the supply chain.
Now given and I presume there of one thing it sooner rather than later as always seems to be the way.
And yet you've got plenty of extensive lead times, particularly so for EU, the perhaps slightly less safe day.
In terms of building out this capacity.
Of getting better visibility today in terms of what those customers are going to need looking at over the next 345 years in order to give you that confidence in making such a decision.
Yes, that's a good question I mean, there. They also bring it out of those I think all of these people have been around for a long time so.
Debt.
Yes.
On the Investor is also going to be a knee jerk reaction like it always happens.
Is it more of the shorter term correction of all of the planning.
That's happening today, that's what I call.
It's the it's the.
If the trends number one yeah.
But clearly our customers understanding of that our debt our capacity lead times an hour.
Secondly, the law so they do share with us of longer term vision now not five years out of this a bit too much for us, but certainly two or three years out.
So I would say for 'twenty two 'twenty three we definitely have the discussions about what they need in terms of the expansion plans.
In terms of what they see.
When we talk about logic the anticipated.
The capacity ramp in terms of the tape outs at the half on the shelf so that they that the ship coming on and five of entry.
So it is not just <unk>.
By the Sky thinking is real.
On the lighting.
The discussions that they have with debt customers.
On the design requirements that they get for increasing customer base, which has to do with.
High power compute that with AI with with all the applications that we've got we've talked about because of the whole digital.
Transition so yes, there is more visibility.
Dude.
For the point that the planning for the <unk>.
I think visibility is.
I would say deeper.
M.
And this is also where we base our.
Our request through the supply chain on.
It's all debt discussion and we're just going to be it is of costly discussion because you know you do know that the capacity for <unk>. So I think there's also is also true for our customers describe the the costly but they've been very explicit to the outside world into the media of above what their plans on and.
And it's well thought through based on what day seat, so that customers and the customers of that customer selling it.
So.
This is why I talk about these three trends.
And this is this basically is the.
Thanks for the visibility.
But how much it in the end will be or we will need.
It's always a risk of underestimation, but also of risk of overestimation and that's what we need to take into consideration when we say what's wise and.
And then like I said this is just something of the last three or four months.
It starts to accelerate it gives them at a time and then our supplies, particularly the two.
On to figure out what is.
Wisdom.
Thank you. Thank you Peter for that inside even if I think you did call me old at the at the outset them asking for.
We share the kind of.
It's all relative for my perspective, you are very young.
Thank you.
Yes.
Thank you Nick.
Question comes from the line of Krish Shankar of kind of kind of.
Please go ahead the on site.
Yeah, Hi, Thanks for taking my question Peter in the also been around quite a bit. So let me ask you two great questions.
Clearly a nice jumping easy bookings in the March quarter can you give some color on how the EV bookings the training for the current quarter and what is the deal.
<unk> backlog in terms of units and then I had a follow up.
Hum.
I could do they could so in terms of the in terms of order book. The the current backlog is the $7 4 billion for for easy.
So that's.
That's pretty strong and obviously also driven by by significant the intake in the last quarter.
The comment specifically on this quarter, but in general.
Just listening to the commentary that we made on our expectations for next year.
It's pretty clear depth for.
For the next one of we do expect a healthy order intake for for easy like because at this stage seven 4 billion and if you do the math, what you think system business going to the next year. If you translate that the at the 55 capacity that we've been talking about it's pretty clear that we're still looking at the at the.
Significant order intake of expected for the next step for this quarter and for the next quarter.
None of it was really helps the Russia and then this was the follow up on Peter you. I know you gave some color on like on the memory outlook for the field can you just give a little more insight in terms of how the thing between DRAM and NAND in the context of the of memory growth of 50% for this year.
Yeah I think.
The I think Russell.
It's an extension of what we set the previous two quarters of it is.
Primarily driven by DRAM.
But we also see that.
Three D NAND will follow.
What we see is is basically following the utilization of our tools of the field.
That will follow.
But.
Is this primarily driven this quarter next quarter.
I think the majority of the ship out of Europe.
Thanks Peter.
Thank you. Our next question comes from the line of Alex Duval of Goldman Sachs. Please go ahead of your line of sight.
Yes.
Congratulations on the results.
The question of lesions, the small gains of immediate expected debt free so.
Gross margins towards the end of this year to date for a total levels a lot of if you could just talk to the drug.
As these days for the year, mainly reference the rest.
To this day.
We'll see a higher ASP.
Peter.
The C model I was just wondering the extent of them.
See I would expect.
For the ASP model guidance.
The the gross margin.
The meeting.
Yeah.
At the beginning you were a little bit hard to understand but I think your question really was how do you expect the at the gross margin to further develop on the EV.
As we mentioned before we do expect in the second half with the introduction of the day model. We expect the EV system gross margin to be at the level of the corporate growth margin. So.
I can confirm that that's exactly what to think of what's going on what's going on.
You are right that the debt, we did see a little bit of a reset on the on the on the ASC for for the C model right. So we've been talking about 130, but as I mentioned, the the configuration of the quarter after quarter turned out the new Richard on the previous.
On the anticipated.
And I think it's fair to say that the 10% to 15% uptick that we've been talking about on the on the for the day model in comparison some of the C model still hope rights of way if you take the the 145 ish basis for the for the for.
For the fee model, then I think of it.
Of note 10 low tens.
Increase over that in terms of the ASP I think it's probably what you should be looking at for the for the ACP calculation on the fourth to the extent of that is better than that of course is also helpful. The little bit on the on the gross margin side as well.
Although the D is also somewhat higher cost so yes, that's out of a percent.
For the bulk of the mine that we have some higher cost all of them.
Optics and on some other parts of the correct, but it will help.
Great.
Thank you next question comes from the line of kind of torsion told me of Citi. Please go ahead to move on is that.
Thank you.
One on the poaching from Citi.
My first question is on the topic of deep UV.
Hi to continue on the data points you have shared with the is it fair for me to say you would expect deep UV sales to be up year on year in 2022, given that you are just getting started and the the tentative.
The discipline could persist.
2022.
And then the follow up to about the fund me you talked about building capacity for the deal.
The U S debt.
When you talked about double digits I think the comp is.
Is it fair to say that you would expect.
In the <unk>.
The exceeded all of basically even the highest contribution from deep UV, if not in 2022 of them for it didn't need beyond 'twenty.
Thank you.
Yeah.
Listen carefully.
Nathan that's.
That is true.
Everything you just said do we expect DPP sales to be up year on year I don't know about the the year that you are mentioning but the fact that we are looking into increasing our DPP capacity. It means that we believe deep UV sales will be up and in what year.
But at the year on year, but I think medium to long term.
We have.
<unk> assessed the.
Need for deep UV capacity going forward I mean, you're talking about capacity increase you don't do this for one year you do this because you feel medium to long term debt as needed.
So yes, and it also means that if we do that then and we say where it is.
The $8 billion this year on <unk>.
Yesterday, we would expect that that would increase because otherwise you don't need the build capacity because we could do with what the yesterday.
Okay. Thank you just wanted to kind of start that and secondly, the very quickly on on geopolitics.
You've heard the north of nine.
Based on what you had set the date.
Thank you for the whole geopolitical dynamics to be a net positive.
With maybe some downside with the China potentially being offset by the potential upside in Europe, and the new way.
Is that the fed mental more broadly what are the latest once the new system yoga with what you share it with the end of Jan Thank you.
Yes, I think I think of as Jay said it is that.
We are now where we are because we are through.
Through Q1.
In Q2 now.
We have included the 600 million upside into the number of he gave you.
However, we don't control the geopolitical situation and the lawmaking.
But given the market situations, where we are today.
If some of that $600 million would not.
The debt because of.
Geophysical roadblocks than did the math is such that we will ship those systems. So wells and if you then look at how does the effects shipments to China versus the the longer term geopolitical impact just the metro timing yeah. That's the other.
The.
The first of all because the short term this year. The orders are definitely long term debt because when you net all that it is all about where do we build of new fab well. It takes two to three years.
So when you really look at the.
Adding capacity in the timeframe 2000 for 25 yeah.
If you have that can help protect the stocks coming through the market. So it's all a matter of different timing.
The different time perspective.
Thank you Peter.
Alright, we have time for one last quick question. So if you were on it and if you were unable to get through on this call and still have questions. Please feel free to contact ASML Investor Relations Department for your question.
The operator may we have the last caller please.
That is from the line of <unk> Ahmad of Bank of America. Please go ahead give them on the site.
Oh. Thank you thanks for squeezing me in and good afternoon gentlemen.
I think the most important question was just asked and answered. So thank you I wanted to ask you a question about the installed base management for EV Pizza.
If you would like to me the share with US what you think the sort of revenues could be for you've been for late this year and how youre thinking about the slope of growth over the coming five years, the sort of thing so we haven't feel for.
The change in the mix towards the sort of more recurring revenues the installed base that would be great. Thank you.
Yeah. So on the bar of current side I think of what we've what we've said on the past is that the the way to model that for the easiest to take the ASP of the tool and.
About 6% for that and that's when the tools up and running at its the visits of capacity than you would have 6% of debt AFP as the recurring.
As the recurring.
Revenue for services.
On the maintenance for that towards the debt excludes upgrades, but just for the record or the other than maintenance six per cent of the ASB.
And what you would see there so again the assumption to the needs to be up and running at the envisaged for capacity and it should be out of warranty.
It would've been warranty the the.
The number is it is a bit of.
The bit lower that's really the way the model it as it comes to as it comes to upgrades, that's a little bit more difficult to the right because upgrades as lumpy upgrades of dependent on what the customer wants in terms of the in terms of the productivity gains.
You know what they want to make available to us in terms of the machine tons. So that's a little bit harder to predict.
But at least on the regular service.
On maintenance side. This is the way to model the 6% of the ASB wanted to do is up and running on out of warranty.
Alright, thank you.
Alright, Thank you for you Jay.
Before we sign off I'd like to remind you that our Investor day will be September 29, 2021 day event is currently planned to be held in London.
We moved the date from June and hopefully we can have a face to face meeting at the time, but of course of this whole depend on the progress against the virus.
More details will follow in due time, and we do hope you'll be able to join us.
Now on behalf of ASML I would like to thank you all for joining US today, operator, if you could formally conclude the call I'd appreciate it. Thank you.
This concludes the ASML 2021, the first quarter financial results Conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.