Q3 2021 ASML Holding NV Earnings Call
Yeah.
Thank you for standing by welcome to the ASML 2021 in the third quarter financial results Conference call on October 22021.
Today's introduction all participants will be in listen only mode Altra ASP smells introduction.
That'll be an opportunity to ask questions if you'd like to ask a question. Please press star Zero point to register.
You'd like to withdraw your question. Please press star zero, you're too at any time during the cold.
Any participant has difficulty hearing the conference. Please press star zero for operator assistance.
I now like to turn the call.
Over to Mr. Skip Miller. Please go ahead Sir.
Thank you operator welcome everyone. This is skip Miller, Vice President of Investor Relations at ASML joining.
Joining me today on the call are <unk>, CEO, Peter Wang and our CFO Roger Dassen the.
The subject of today's call is asml's.
Only 21 third quarter results.
The length of this call will be 60 minutes and questions will be taken in the order 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.
<unk> 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.
Or.
Available kind 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 in Asml's 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.
Discuss introduction.
Thank you skip welcome everyone and thank you for joining us for our Q3 2021 results conference call.
Hope all of you and your families are still health and healthy unsafe.
Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary.
While the third quarter as well as provide our view on the coming quarters.
Rajeev I will start with a review of our Q3 2021 financial performance with added comments on our short term outlook and I will complete the introduction with some additional comments on the current business environment.
Future business outlook.
<unk>.
Thank you Peter and welcome everyone.
I will first review the third quarter financial accomplishments and then provide guidance on the fourth quarter of 2021.
We had a record quarter on a number of fronts, including total revenue EV system revenue and net income.
Net sales came in within guidance at $5 2 billion euros, we shipped 13 <unk> systems and.
And recognized $2 2 billion euros revenue from 15 systems this quarter.
Net system sales of $4 1 billion euros was again more weighted towards logic at 61% with the remaining 39% from memory.
The continued strength in logic drives both deep UV and <unk> revenue.
The memory.
Business is mainly driven by DRAM.
Installed base management sales for the quarter came in at $1 1 billion euros above guidance due to increased upgrades and service business.
Gross margin for the quarter was 51, 7% and was within guidance.
On operating expenses R&D expenses came in at 600.
9 million euros, which was below our guidance due to several one off effects in the quarter.
SG&A expenses at 183 million euros was basically at guidance.
Net income in Q3 was $1 7 billion euros, representing 33, 2% of net sales and resulting in an EPS of.
427 euros.
Turning to the balance sheet.
We ended the third quarter with cash cash equivalents and short term investments at a level of $4 5 billion euros.
Moving to the order book Q3, net system bookings came in at $6 2 billion euros, including $2 9 billion.
For <unk> systems.
Order intake was largely driven by logic with 84% of the bookings both from <unk> and EV with memory accounting for the remaining 16%.
With that I would like to turn to our expectations for the fourth quarter of 2021.
We expect Q4.
<unk> total net sales to be between $4 9 billion euros, and $5 2 billion euros.
There are some items to note are expected to delay revenue from Q4 2021 into Q1 2022.
In the process of increasing capacity, we experienced some issues regarding materials shortage in our supply chain.
In addition, we experienced issues in the startup of our new Logistics Center. These two issues have largely been addressed for this year's outputs that resulted in a late start on the assembly of a number of systems.
And this high demand environment, our customers are requesting fast shipments or no factory acceptance tests in order to.
It comes into production as quickly as possible.
While the impact on the third quarter was relatively small the late starts combined with the fact shipments are expected to have an impact on the revenue to be recognized in the fourth quarter, which is included in our guidance.
Still on track to achieve revenue growth approaching 35%.
Bring several year.
We expect our Q4 installed base management sales to be around $1 1 billion euros.
Gross margin for Q4 is expected to be between 51%, 52% with an expected gross margin of around 52% for the full year.
The expected R&D expenses for Q.
For around 670 million euros, and SG&A expected to come in at around 195 million euros.
Our estimated 2021 annualized effective tax rate is expected to be around 15%.
The interim dividend for 2021 will be 180 euros per ordinary.
Sure Jack.
Dividend date as well as the fixing date for the Euro U S. Dollar conversion will be November <unk> 2021, and the record date will be November <unk> 2021.
The dividend will be made payable on November 12, 2021.
In Q3, 2021 ASML purchased.
<unk> three 6 million shares for a total amount of around $2 4 billion euros under the current and previous program.
With that I would like to turn the call back over to Peter.
Sure Roger.
As highlighted we had a record quarter in both sales and profitability.
We're seeing continued strong demand for.
Customers across all market segments from both advanced and mature nodes driving demand across our entire product portfolio.
We had a total backlog of $19 6 billion, including EV.
<unk> 11, 6 billion, which is a reflection of the very healthy market environment. We're in today.
From our covers the plant output for 2022 and the beginning of 2023.
While it is a bit too early to provide specific guidance for 'twenty to 'twenty. Two we expect the end market trends, we have highlighted throughout 2020 one to continue into next year.
These end market trends are driving strong demand across all market segments.
<unk> across our entire technology portfolio.
Therefore, we continue to increase our capacity for all of our products to meet customer capacity and technology requirements.
Logic strong end market demand continues as part of the ongoing digital transformation.
The broadening application space with distributed computing across the Iot.
And it not only drives the demand for leading edge nodes, but also create significant demand for mature nodes as an integral part of the growing digital infrastructure.
We expect continued growth in our logic business as customer demand remained strong for both evolve and mature nodes.
In memory, we also would expect.
<unk> continued growth of our business next year.
Strong end market demand for servers and smartphones is the primary driver for memory demand next year with some uncertainty on the demand picture for Pcs.
Litho tool utilization levels remain very high and customers see demand bit growth in 2022 in the mid to high teens percentage.
The C code for DRAM and about 30% for net.
To meet the demand for this expected with growth customers will need to add capacity.
As well as continuing to make node migrations as customers migrate to more advanced nodes. We also expect to see an increase in <unk> demand for memory.
For our installed base business, we see an opportunity for service growth.
And this year as we continue to expand our installed base of our entire product portfolio as well as the increased contribution of <unk> service as this technology ramps in volume production.
Given by the expected continued shortage of semiconductor components, we also see an opportunity to grow our upgrade revenue future.
Go further.
Now this will depend however on our customers' willingness to take systems down to perform these upgrades amidst a strong demand cycle.
To meet the strong demand across our entire product portfolio. We first of all are driving down our manufacturing cycle times and working with our supply chain to increase our output capability for <unk> as.
Thank you.
As communicated during our Investor day, we expect to increase unit output for DPP by approximately one five times at EV over two times by 2025, primarily through manufacturing capacity additions in our supply chain.
Same time, we are shipping higher.
Well as <unk> machines, which have been taken into account with our higher unit output capacity plan. We expect an increase in effective wafer capacity for deep UV of approximately <unk> <unk> over <unk> by 2025.
The actions in our supply chain to increase output at different time horizons to materialize.
<unk>, we expect to see an impact of these actions starting this year and extending into next year.
For <unk>, we're still planning for a capacity of about 55 systems next year.
These will all be <unk> D systems, which deliver a 50% to 20% higher productivity over the 36 systems for.
<unk> is <unk>.
This quarter, we are utilizing our safety stock this year to significantly increase DPP output. So we will not have this perfect inventory going into next year I will therefore need to rely on building additional capacity as just mentioned.
We are actively working with our supply chain partners to increase our capacity next year and.
Mentioned lateral output mix will depend on our supply chain progress. Although we currently believe we should be able to reach our 2021 shipment output.
In summary, chip demand is very strong and we are working to maximize output to meet customer demand.
Secular growth trends as part of the digital transformation.
<unk> five to a more connected world are fueling future demand across all market segments at both the advanced and the mature nodes.
Expect another year of healthy growth in 2022.
Looking at next year.
Like to provide a quick summary of our Investor day that we held last month, where we provided a longer term view of our business and growth opportunities.
Global Megatrends in the electronics industry supported by highly profitable and innovative ecosystem are expected to continue to fuel growth across the semiconductor market.
Growth in semiconductor end markets and increasing lithography intensity are driving demand for our products and services.
<unk> comprehensive product portfolio is aligned.
Our customers' roadmaps delivering cost effective solutions in support of all applications from leading edge to mature nodes.
Based on different market scenarios.
We have an opportunity to reach an annual revenue in 2025 between approximately 24 billion in a low market scenario at 30 billion euros and high market scenario, where the.
<unk> two <unk> in 2025 between approximately 54% and 56%.
We see significant growth opportunities beyond 2025 using.
Using third party research and applying our own market and customer intelligence, we expect our systems and installed base business to provide a comfortable annual revenue growth rate of.
Gross margin percent for the period 2000 22013.
We are continuously improving our performance.
ESG sustainability kpis.
<unk>, our ESG sustainability strategy to accelerate progress.
Our industry can contribute significantly to cut global emissions by 15% in 2013.
Our ESG sustainability strategy is focused on developing lithography technology to continue to produce micro chips that are three times more energy efficient every two years, helping our customers and suppliers to minimize materials and energy required to produce advanced microchips and driving the roadmap towards zero waste.
By 2030.
Zero failure <unk> emissions by 2040.
Our continued investments in technology leadership have created significant shareholder value as outlined in our capital allocation strategy, we would ever expect to continue to return significant amounts of cash to our shareholders through a combination of growing dividends and share buybacks.
In summary.
Our net increase.
And.
We have increased our strong confidence in our long term growth opportunities, while we deliver significant value to all our stakeholders with that we will be happy to take your questions.
Thank you Roger and Peter the operator will instruct you momentarily.
We have a protocol for the Q&A session.
Beforehand, I would like to ask the <unk> timely limit yourself to one question with one short follow up if necessary this will.
Will allow us to get to as many callers as possible.
Operator can we have your final instructions and then the first question. Please.
Thank you, ladies and gentlemen, if you do wish.
On a question. Please press star one on your telephone keypad now.
Sure to your question you might be certified question CRA shoots counsel that'll.
There will be a brief pause lawsuit registering your questions.
And our first question comes from the line of Mehdi Saatchi. Please go ahead. Thank you on assignment.
Awesome.
Yes, thanks for taking my question.
Regarding some of the reasons for our revenue shortfall that you highlighted how should I think about it.
Just the overall tone.
'twenty one revenue if there.
Oh material shortage.
If you didn't have to deal with capacity expansion and if you didn't have to deal with revenue recognition.
If you were to eliminate all of those three factors.
The 2021 revenue would look like and I have a follow up.
I think many of the way to look at it is.
We still in the in the upper limit, where we still guide the same number that we guided before that you would've seen that's for instance on the installed base business. We got a number that is approximately $300 million higher than the number that we guided to guide last time. So that gives you a bit of an indication that that is the number that said thats somehow.
Shifting if you like from that from this year into Q1 of next year.
That's the number to look at.
Okay, Great and then a quick second follow the $19 billion of backlog.
That you recorded in Q3 of 'twenty one.
Could that.
Would be the near term peak, especially in the context of your 2025 revenue target.
Starting with 24, so and we were like four years away. So we think that 19 billion of backlog could be a near term peak I'm just trying to better understand how we would go from here any color will be great.
Thank you.
Yes.
Good question, but I think.
Like I said in my introductory comments in a low market.
At the 24 billion with high market would be at $30 billion.
So.
That is basically what we are looking at and to take a bet.
Backlog at any moment in time.
It's really a function of our shipment better because we are shipping out of the backlog, but also.
The lumpiness with which our customers are going to give us.
The order so I wouldn't read too much into the 19 six other than that's a big number.
And that big numbers actually because there is shortage of this trend, especially in the leading edge equipment and other types of equipment. So yes customers are ordering.
$2022 four <unk> government I mean, we are we are booking into 2023. So I think it is more a <unk>.
A function of.
No the lumpiness of the order intake for our customers.
Expansion plans, which between now and 2025 quite can be quite significant also taking into account.
Now as a result of new Fabs.
The drive for technological sovereignty.
Geopolitical situations. So it is a many many.
Elements, there that will drive our order intake so I would not.
Think of this as a peak I would just look at this.
A point towards a significantly higher sales number by 2025.
Alright, thank you.
Yeah.
Our next question comes from the line of John Pitzer at Credit Suisse. Please go ahead. Your line is open.
Hey, guys. Thanks for letting me ask the question Peter I'm, just kind of curious when you look at the bookings number that the memory bookings kind of decelerated is that mainly a timing issue or is there something more going on there and how does.
That kind of influence your view on 2022, I know you said that memory is still expected to be strong, but anything you can give us from a from a color perspective on the Q3 bookings would be great.
Yeah, I think it's basically a timing issue I mean, it's the.
We had a.
Stronger memory bookings in Q2.
Now we.
We have a strong logic bookings.
In Q3, and then that's supposed to be honest I mean, we have over $6 billion of bookings worldwide. Our our our sales in Q3 were 4 billion. So I think that bookings number is pretty good so.
Yes, I think for 2022 on the memory I said it in my introductory.
No comments.
We feel good about 2022, because our customers feel good about 2022.
Yes, it would be some concern about DRAM weakness.
Our customers feel that that is that is that is that.
That is not structural there. So there are all kinds of reasons.
Why.
Segments. There is there is a temporary weakness.
But they definitely see.
They need to add capacity.
Also to the node migrations and.
That means.
Means that we see.
Continued growth next year so.
We're positive.
Don't ask us to have a crystal ball on the.
You know memory and DRAM pricing, but what we what we what we do is that we listen very carefully to our customers and our customers expansion plans and and.
Their optimism and confidence that they need to expand and so this is why we are optimistic also for growth next year.
That's helpful and then Peter as you know this industry that gives you a high class problems or low class problems and right now there's a lot of high class problems out there I am kind of curious can you help me better understand around your capacity expansion to what extent is this the need to add fixed cost that you might have to carry through the inevitable cyclical.
Correction when it comes into what extent is this variable costs and I'd be curious both on kind of the 2022 kind of capacity you are thinking about but also importantly, the 2025 target as you talk about <unk> production being up one five and more than two X.
I also said in my.
Statement that these capacity additions on a lawsuit focused on adding capacity in the supply chain.
Now.
We are adding people. That's also clear I think we hired this year this year.
We have some attrition, but we've probably higher between six months to 7000 people. So we're probably going to add about four 5%.
5000 people that's of course fixed cost, but that's that's in R&D, that's not only in the <unk>.
Manufacturing capacity in service, which of course is has to do with the.
Higher business level.
So I think it is largely precedes lawsuit people, some capex, but not out of the ordinary.
<unk>.
Started to brand as even last year NDA before.
So I don't think Thats the major issue its really in the supply chain, if you and you talked about the inevitable.
Correction.
Yeah, I mean, we have corrections, we have always seen corrections in our industry.
Platinum to say that they are not there, but we have to look at some of the trends that we're also seeing them and when we look at that.
Announcement of the build out off of new capacity. It also very much driven by I would say the geopolitical situation and governments looking at it.
Technological sovereignty, giving quite significant incentives.
Just referred to to to the U S chip sector 52 billion of which $40 billion is for basically produce support expansion of capacity that's going to happen over the next couple of years. It will take two to three years. So so.
Absence.
Any fluctuations in the end demand that's going to happen so.
I think and Thats, where we believe that adding that capacity is absolutely necessary because we do believe we'll see higher levels of.
Equipment demand over the next couple of years. So when this inevitable correction will come.
I don't think it is likely it will come anywhere soon.
That's helpful. Thank you.
Thank you next question comes from the line of C. J Muse Evercore ISI. Please go ahead. Your line is open.
Yes, good afternoon, and thank you for taking my question I guess first question Peter.
You all are pretty much unprecedented visibility sitting here today, and obviously you've talked about adding.
50% capacity in the <unk> side and that doesn't include any of the productivity benefits of the newer tools coming online, but at the same time and demand is robust both leading and lagging. So curious when do you think.
Things will ease up for you because it certainly sounds like it may not happen in 2022.
Could be pushed to 2023.
Yeah.
That's a good proxy Jay I mean.
If you think about how we add capacity is basically three ways. One is to work on cycle time and on the <unk>.
<unk> in your production manufacturing space, that's what we're all doing us and our suppliers.
We're doing that and I think that's it.
It gives us a result that we can actually ship more now and.
I would say the first half of next year. The second is you have to buy equipment and you have to hire people that has a longer lead time of 12 to 18 months before you really get output.
And then there's a third.
Italy, which basically if you kind of.
Put more people and more machines into the square footage that you have you need to built rejected two to three years I think this is where we are today.
I think.
Given what I, what I said on the attitude of previous question.
What I expect.
<unk> is that we will see.
Building activity starting in the supply chain, because I think we need to add more capacity over the next two to three years because the numbers that you quoted for 2025 so.
So it's going to be a gradual increase one by socket time reduction on all the efficiencies, but that's in the supply chain to more equipment.
Reduction equivalent in people, which will have its effect in 2022 2023, and then I think you will see indeed square footage being added in 2024.
And Thats, how we get to that.
One five times and two times in terms of unit capacity increase.
But and of course thats in the same.
Timeframe, we will ship more productive tools. So thats helpful of course, we will will help too.
Have you had some of the wafer capacity shortages that we currently see.
That's clear.
No. That's very helpful. I guess as my follow on question in the follow on to John's.
Earlier question around DRAM.
Hey, Ram you you highlighted very high utilization on the <unk>.
Installed base and then our focus not only on node migration, but also the need to add capacity.
At the same time your memory.
Alright.
It certainly sounds like that's a place where you'd start.
Starting to see positive momentum and drive even further growth into 2022. So I guess how are you thinking about.
DRAM and the kind of timing of a potential inflection there for you guys. Thank you.
Yes, I think.
Again like I said.
We listened carefully to our customers and.
We actually feel a significant level of confidence currently at our customers all DRAM customers to be able to do that then must add capacity I mean, they are talking about high to mid teens mid growth, but high teens close to 20% bit growth would mean that we just look at the utilization at this moment in time.
Okay.
We cannot support high teens <unk> growth with the current installed capacity and they need to add capacity and.
I think it's.
When you think about DRAM and you think about the underlying cause deal makes a derivative marriage a derivative of the logical.
And.
Which is G.
The very strong demand for logic, both at the leading edge and at the mature side.
There is an effect on the memory.
The fullest memory and <unk>.
Storage memory, so looking at where we are today the high utilization rates, let's say, let's assume that there is high teens bit growth.
When you have capacity, so I fully understand that that's a positive.
Mentum that our customers are seeing in the demand that they put on us for next year's shipments.
Thank you.
Thank you. Our next question comes from Krishna Shankar of Cowen and company.
We need to ask go ahead your line is open.
Hi, Thanks for taking my question I had two of them first one Peter I understand you don't want to quantify next year.
But when you look at <unk>, which has been very strong this year is it fair to assume.
22, <unk> should be higher than this year and along the same thought process how.
We bought installed base revenues in 2022 relative to this year and then I had a quick follow up.
I think Rajiv you can answer the question. If we if you look at that I think what Peter said Andy.
In the introduction to this call I think what he said is on the one hand of course additional capacity has been being built on the other hand.
Do you think are the buffers that have been completed this year in order to get to output needs to be it needs to be filled back. So I think that was the basis for our statement that Peter made thats our expectation.
Is that next year, we should see shipments at the level of this year in terms of <unk> in terms of installed base you have.
<unk> seen.
The capital markets day that we're looking at a 12% CAGR.
Until until 2025.
Called base. So I think that is a pretty good proxy.
Look at the catch up from this year into into next year.
Got it very helpful. And then just as a follow up.
So you you kind of highlighted in earlier.
And we shouldn't think of the pushout is roughly 300 million euros is it fair to assume that all deep UV and is it a combo of dry and kiana.
Is it all mostly emotion.
It's a combination and it is TBD so to $300 million I'm talking about is deep UV and it's a combination of immersion undrawn.
Really quick.
Okay.
Thank you. Our next question comes from the line of Chair Karachi Wells Fargo. Please go ahead. Your line is open.
Yes, thanks for taking the questions I just want to go back on the discussion on <unk> I mean, clearly your backlog has increased significantly I'm trying to understand I guess when you look at that.
Relative to the capacity that you have in place manufacturing wise.
Has that.
Our ability to fulfill that demand may be extended into the second half of next year I think last quarter, we talked about maybe being able to kind of catch up to demand in the mid part of the year.
Yes.
Yeah, if I understand your question correctly, I think paying that buildup of capacity that over time.
Which definitely next year.
Core's be become more visible throughout the year. So it will be more visible in the second half of the year.
That's also clear and it also because of what I said earlier I mean.
We've actually.
Our our safety and buffer stock so in 2020, one to be able to supply our customers with everything that they wanted but you can only do that once in a while.
Actually if you won't do to actually you have to have the same shipment pattern in 'twenty, two or does it the same shipment output level.
The police in 'twenty two.
In 'twenty, one you need to actually built up capacity and Thats. What we are doing so I think you will see that and.
In answer to a previous question when we think about one five times deep UV capacity. It will grow over time, so there will be more people highest.
Hi chain it will they will buy more machines, which are actually doing.
At this will come online as we go so yes, the assumption that our capacity capability in the second half of 2020 was heightened in the first half that is a realistic one.
Okay. That's helpful. And then just a quick question on the puts and takes in gross margin. This quarter I think clearly installed base management was.
So plan and driven by upgrades, which I think a lot of those are software related that are higher margins, where there is some offset there from just the higher supply chain or logistics costs, we should be thinking about.
No not really I think if you look at the gross margin I think installed base, obviously is one element.
Ahead of things clearly also the on the immersion side that was that was that was a positive in the in the gross margin. If you compare Q3 to Q2 as we said before in this in this quarter you saw a meaningful number of two.
<unk> thousand 50, <unk> in there and we set a 2050 was was accretive to the <unk>.
Gross margin so thats.
I can help also more 36 hundreds in there, although a little bit of that was offset by a slightly lower ASP than what you've seen in the past quarters on the 34 hundreds. So it's that combination that got you from the from the 59 gross margin that we had last quarter to $61 seven at this time.
Thank you.
Thank you next question comes from the line of Amazon's Patrick.
T. Chaparral. Please go ahead your line is open.
Yes, hi, good afternoon. Thanks for the question I'd like to come back a little bit on servicing options.
Which obviously been very strong.
You had a $300 million additional revenue disease not on your guidance versus what you were saying.
Exactly driving this is the.
Additional demand for upgrades that you mentioned, that's a driver going forward is that a way to materializing in 2021.
Yes, it is a combination.
Oh, both the surface revenue being high and increasingly we've talked about that extensively in the capital market day funding models with the customer to bring more value to the customer and then that way boosting if you like the service revenue. So that's one dimension, but secondly, also upgrade potential I mean, everyone is screaming for capacity.
In that environment.
Customers find a way.
To give us some machine time or vertically, we find a way to do the upgrades without taking too much machine time, and that's why we're putting a lot of emphasis on to really make the upgrades.
Demanding as little machine time as possible and there is a.
A lot of demand in this environment.
<unk> two four upgrades so it's that combination.
That really has driven upgrades as a matter of fact throughout the entire year at this very high level you might remember in Q1, we've talked about a very high level of upgrades and we said we'd talked about pull ins and just signaling that we thought that that would be at the detriment of upgrades.
Would happen in.
The remainder of the year.
And that didn't happen also in the remainder of the year upgrades. We're at a very very high levels. Because again, we found ways with the customer to do it in a way that was not not not very intrusive and therefore, giving value to the customer with the upgrades without.
Their process for.
For too long.
You could presumably that continues into <unk> into 'twenty, two as well with this trend.
Yes.
That's true, but as Peter said the customer continuously has to make this tradeoff between even if it's if it's if it's a non intrusive way it still is days and sometimes weeks of machine time, so they continuously.
To make that trade off that you know in all likelihood if we look at the upgrades that we also make available next year. We think the upgrade business next year should go should also be pretty healthy.
Excellent. Thanks.
Thank you. Our next question comes from the line of duty issue Mama of Bank of America. Please go ahead.
<unk>.
Okay.
Hey, Jade.
Thank you.
Rather than me speaking on the inflections of the backlog go.
The near term I, just wanted to come back to the capital markets day, just getting you your clarification or at least.
You're helping us understand two points. So my first question is on <unk> I'm sure you're fully aware that all your competitors or peers I should say I'm talking about <unk> 2025, we sort of sort of doesn't jibe well with what Martin told us the CMV. So wanted to understand your side of the equation.
Then I will come back for.
Brushing up to that.
Yes.
Good question.
When we talk about these things I always try to look at reality it affects.
The fact of the matter is that all our customers our DRAM customers are engaged with us on <unk>.
Which actually for some of the customers that.
Secondly, I want to talk about three D D Ram and I'll talk about that.
But later I referred to that a little bit later.
Actually see a ramping up youll be in 'twenty, three 'twenty, four which is dimensional scaling.
On top of that we have very significant discussions with DRAM customers on high in a well.
The next level of dimensional scaling and which actually they are asking for introduction at the same timing as we have logic.
So the dimensional scaling is what theyre doing and.
So I can only refer to what will the CTO of one of our largest DRAM customers said.
Said you know.
DRAM is talked about as a concept that's rajeev.
He said it is written.
And it's a concept it's not enough to say, yes, I see it enough to make it a reality that's how to think about this today, it's being in research for long time.
You might remember cross point re Ram <unk> structure.
It's been around and it's and it's been part of research and and their thought process for a long while but it's not there so.
One is there is dimensional scaling where they engage with us quite significantly on <unk>.
Which is the next the second half of this decade, that's reality now having said that you referred to some of our peers and I've also seen the capital market presentations.
It's my personal questions that.
It's a bit overhyped by hours.
Semiconductor equipment peers, which if I were them I would.
Probably do the same thing, but it does not jive with what our customers are telling us.
Mike has dropped.
Second question going back to <unk> as well and this slide for Maarten.
There's been a lot of questions and debates with the investor community as to the two nanometer node and why they would be flat.
You delayed accounts I think we all well understand the drop it went on to argue too but.
Maybe less so the two nanometer flattening of the layer counts and somehow worried that this is due to gateway around so can you just clarify that here you are talking about a node shrink we know you'd be layer counts increase or is it in fact no.
No shrink or nor shrink from 3% to just to sort of the marketing co op marketing name for gateway around.
Yeah, I think I think DJ if you talk about gate all around first of all I think it's important to note that fundamentally gate all around or Finfet doesn't drive a difference in litho intensity. So there is no fundamental shift in Lithuania.
Oh intensity, if you move from one.
One architecture, if you like duty to the other but it is the case that that customers.
Look at a new node and say.
This a node where I'm going to combine.
<unk> architecture innovation.
With significant shrink and very you.
You see and if you just look at the history. If you looked at for instance, Finfet you saw that some customers decided to when they introduced the new the new.
Device architecture to be very conservative on shrink some others didn't and actually combined device architecture with the with the shrink so.
We've been we've been conservative in our in our in our projection. There. So we know there is one large customer.
At this note that you're referring to is indeed going to two.
Gate all around you also noted another customer is actually doing that at a node.
Before that.
Therefore, the assumption.
That that might at that particular node. It leads to a conservative estimate in terms of layer count that's the background of that type of a Dutch light on that number.
Thank you for the clarification.
Thank you. Our next question comes from the line of Stefan.
Jeff. Please go ahead.
It's open.
Yes, Oh, good afternoon, everyone actually I wanted to come back on your forecasts for 65 easy tools for for next year I understand it's a it's a goal for production, but he took the difficulties you are.
Are we seeing in the in the supply chain like everyone else actually how confident are you that you will be able to to transform these production go into revenue next year. Thank you.
Yeah, that's a good question.
We are engaged we are in.
Counting just like any other industrial.
And even in non industrial companies are encountering issues with respect to component shortages, which is what we're also north we personally but are as a company, but in our supply chain.
And our supply chain.
And counted these shortages and of course, we need all the modules from our suppliers to make any veto so.
Yes. This is a concern.
I think everybody.
Now the way that we deal with it is you have to think about that.
<unk>.
If we identify and it's what we do together with our supply chain, we identify shortages of certain components. We are actually are very active in.
And.
Let's say exchanging dose shortages underneath for dose <unk> with our customers.
Although.
These components are not surprised by the by the customers of <unk>.
<unk>.
Our suppliers because we are the customer, but we are still you could see you could say in between.
<unk> to make sure that we can that we can highlight two hour.
So as the chip manufacturers that they need to produce these just because if we cannot get the modules that we cannot make the machines. So thats a capacity shortage. That's obviously as you know.
It will we will stay as is I mean, we need to add capacity.
Passenger and maybe ship machines to be able to do.
Deal with the current shortage. So when we have those discussions with our chip banking customers. I mean, we got a lot of response as you can imagine because basically we want to ship our machines to their installed base. So there is theres loop.
That we are closing.
And I think that is happening as we speak now is there some delay yes of course, if there's a delay because there's communication between our suppliers ASML and the chip, making companies and see how we can close the loop that leads to a delay in this is the latest machine.
But I think in the end we'll.
Get it resolved at least we get as a result so.
That's why we are still confident that 2022, we will be able.
To actually ship 55 units now.
Are there going to be some fast shipments by the end of the year, depending on these let's say communication.
It relates to get things resolved, maybe that's too early to tell but I think the 55 shipments.
With our capability to BD.
The intermediate between our supply chain and it.
Chipmakers I think that's something that we feel comfortable with.
Okay. Thank you.
Looking at steel out to 2022 about the gross margin evolution what are the other elements that we have to take into account when we are when.
When we try to model 2022 gross margin evolution with everybody on the U V Chevy side, which has been a you know at.
A much lower profitability than the than the group.
Yeah, I think the key thing is to look at one one you mentioned that <unk> gross margin I think we said that you should expect that that.
It continues to grow.
As we reach around 50% in the 'twenty four 'twenty five timeframe.
That's the number that we've given we've also told you that we are approaching 30%. This year. So that's the that's kind of the buildup that you that you see there and so that's that's that's one element to consider there I think a second element is the fact that next year is going to be 3600 genes only right. So so you won't have as easy would only have these.
And the next day and next year.
Third element is that youre going to see a little bit of impact on the on the 2015, alright. So did the 2050 immersion tool of course will be more prevalent in the next year than this year. So those I would say are probably the main elements to look into and for the gross margin of 22.
But you expect.
Thanks to an improvement in gross margin right.
I think I only mentioned two things that improve the gross margin. So I think that that's a reasonable assumption, but you know how.
How much of that is stay tuned and in three months time, where we're going to give you more details on that but I think it is realistic.
To assume that you will see an improvement based on the three drivers that I just mentioned.
Thank you very much.
Thank you. Our next question comes from the line of <unk>.
<unk> New Street Research. Please go ahead your line is open.
Hi, guys. Thank you for taking my question on Apple.
We saw imposing on U S.
I've said French accent in a row.
I guess it must be painful to try to be.
At the local branch.
Yeah. So so it doesn't matter I mean, as you know we have to call them Board members, who are French so we actually used to it.
I do remember that the pizza.
So pretty.
A pretty specific question I hope, it's the right for him to ask to ask it.
When we look like in a in logic and foundry I mean.
Henry when your clients has moved to U V. We've clearly seen.
They've made a very very full reuse of deep.
The tools.
Because easy layers, we are basically added to them.
Two the D V layers of the previous node.
And the question I have is for your launch.
Clients logic clients.
These guys have push do you need one.
So those I know, there's with the 10 nanometer node.
And then as they move us towards a node that did rename.
Four.
They're going to introduce <unk> potentially in a more aggressive way.
Replacing things they've done with <unk> the previous node.
E D.
Which kind of.
Would mean that maybe they would be buying moly UV tubes.
In this transition, but they're so under please like excess do yoga tours.
In the process and so I went just wondering if that's the case if you have visibility on that and if it could impact at some point.
<unk> you know for a short period of time, the easy math.
Yeah, Yeah I think.
No.
All right that does he number of EV tools, that's gone up because you'd be less have caught up.
We don't see any excess in deep UV for a few reasons one.
The product that is currently being produced with.
With those deep UV, let's just get in very high demand.
And number two.
If you have an idea.
I'd also like to move into the foundry space you better make sure you have those tools.
Because foundry, it's not only about seven nanometer it's about.
0.18, micron or even above that.
Two seven nanometer so it's the whole thing so I would definitely not.
Get rid of that excess deep UV I would start using it.
We haven't seen that and it makes sense that we haven't seen it.
It could be up here.
Yes, thank you very much for that.
Thank.
Our next question comes from the line of Sandeep Deshpande of Jpmorgan. Please go ahead. Your line is open.
Yeah, Hi, Thanks for letting me on.
Maybe I'll ask just a question on the industry.
Peter you saw a very strong increase in your orders in the cycling in Q4 last year, you saw a big step up.
I mean, you don't even today there are shortages in the semiconductor industry, how long I mean, given that youll have that visibility in terms of the wafers flowing through you're already quickbooks desktop have you seen additional wafers flowing today Weston. Thank you for last year through your own equipment, let's say that.
What's more capacity today with us in Q4 last year, then why out of me skills.
There are such big supply chain bottlenecks, including for yourselves and for many others in the ER and particularly related to the semiconductor industry.
And I have one.
I mean, you have been around a long time and.
And you asked because there was a million dollar question.
No.
And the real answer is.
We don't know.
We have some indications and some ideas and yes, you are absolutely right. The wafer out capacity today is a big is a love logic and it was in Q4.
The 'twenty.
It is true and still we see these shortages now I spoke to a very large customer and basically asked the same question.
They actually said you.
You know Peter we don't know either because somehow we haven't been able to connect all the dots that's actually already underlying.
<unk> for this demand.
There is there are some rumors out there that the.
Brokers and the distributors are playing it.
Devious role here, because they stock up all the inventory and drive up the prices, but I don't believe that that much I can add there would be some of it but you know, but even Florida.
Very.
<unk> drive customers like the smartphone makers that are direct customers due to semiconductor mix. It was nothing to do with the distributors. They are in shortage also so I think it's I think it is E D.
The underestimation of.
The very fast application of everything has to do with mobility sensor technology.
Large Iot type applications that we completely underestimated that tens of thousands of companies are making use of the capabilities of the cloud of the.
The high performance computing or datacenter, so <unk> and <unk> and they are creating solutions services product actually.
<unk> need any and you know the compute power of the data centers, but also let's say the 90 and appointed one eight micron technology, that's 20 years or 30 years old.
What's happening there and we haven't conducted RASM connected the dots and thats happening today, because that's why you see it everywhere it was taken.
Actually car.
If you look at the number of sensors that occurred in advanced driver assistance system in a car has just exploded.
And then also in the end they need and all that.
<unk> power IC, they need they need the Microsoft controller, and that's just the car everywhere and this.
This is where I think we are struggling to really understand the issues.
<unk>.
I know one thing that the demand for our mature for DPP dry has by far exceeded our expectations, where we are today I guess some of it will be.
Panic ordering by the customers of our customers.
It's too big to just be panic ordering.
This underlying trend that we really don't understand fully and it's personal I have the idea. It's the culmination of the cloud.
The high power compute capabilities you have the data centers. The fact that we're rolling out <unk> and the fact that we have this distribution.
Computing.
A field that is that is growing almost exponentially in terms of services and products and the letter we don't fully understand.
Unfortunately, our customers don't understand it either as I was told so.
I'm, sorry, I'm, just going to two to two.
Attitude to the to the cloud or fog.
Are you seeing but I cannot give you a very clear answer.
Thanks, Jeff.
Actually a follow up from that and then BD is also be equipped previous questions on your capital market day, I mean, there was some investors disappointed about your longer term guidance.
I mean is it that you are famous model is not factoring in some of these factors you mentioned earlier just now and that is why you are guiding to what you are guiding in place at the end.
Maybe you will change that view overtime, because I mean your model is probably not taking into consideration. Some of these factors we kept change 20.
Such a large extent from your previous guidance and then when it's when he took these quite a long way away as yet.
You're very perceptive.
This is exactly the question I ask you our strategic marketing group et cetera.
The things going on I mean, if our customers tell us we cannot connect adults because we.
There's a question Mark you can imagine that that you know.
The question I asked to our strategic marketing group is as you know.
You need to find that level of information that that will enable us to basically connect more adults and put that in the model Youre absolutely correct. Our model is based on what we know.
But we know what historical trends, but our model is not built to be.
Let's say.
Due to actually.
We don't predict the future.
Oh.
<unk> predictor future based on the parameters that we know that we have put in the model that the parameters that we don't.
And is that changing the world as we speak of course not in there.
Exactly what I wanted to our strategic marketing group to do so, but we told you what we know not what.
So crystal ball Might've might've told us.
Sunday, but I think I made it perfectly clear when I when I introduced our model I think the basis of that is an external source.
So external numbers in terms of where Exxon.
External sources see the semiconductor market go so you might look at it and say we think it could grow faster based on the developments that we just talked about but that was the starting point and then we also said that we had a number of estimates in there, but some of them some referred to as conservative rights.
Talked about litho intensity being at the same level of 2025, some say that's conservative that's the assumption that we've applied we've looked at a market share that doesn't move from from from 2025 again, some people would say with the further advancement of UV heightened etcetera.
We talked about your market share should continue to grow and in terms of the total share of the pie So I.
We've given the assumptions some referred to those consumption assumptions, that's conservative, but that's it that's it.
That's the background.
That's the basis for the model.
They are all all consequences.
Sure.
Our understanding of what we what we currently see.
We didnt see a specific reason to what the Roche Asia to increase our market share or to increase the litho intensity much because there's so much going on which we don't understand fully yet and it's not years out.
It's quite a long way out so yes, you are.
Or thinking one or two years' time, we we have we have sold more intelligence, we can put it into our <unk>.
Intermodal our parameters and we will probably see is you see a different outcome.
Thank you so much.
Yeah.
Thank you.
Hi.
Yes.
Go ahead, operator, do you want me to get one more in.
Okay. Thank you and that last question will come from the line of swamp weakness.
UBS. Please go ahead to monetize.
Hi, Thank you very much and sorry for the.
Thanks Frank.
Jackson.
On the <unk>.
Two quick questions. The first one is on the maybe related to what you said the turnaround or what we don't understand about the demand when I look at your China exposure.
Exposure, which is like 10% this quarter, 17% last quarter and if I assume that you don't have any <unk>.
In China.
From from local China, I'm talking in and so.
Do you think what is a research.
Although what's going on in China in terms of uncertainty around procurement of tools in the future and also the local push.
Is there an effect of pooling.
Just have two you would expect maybe you're coming from China, and just driving that demand, particularly strong on the deep UV side of D. C and I have a quick follow up after.
Thats a good question I think generally I would say.
Our our.
Local Chinese customers follow there.
<unk> capacity.
You know that chip roadmap quite.
Quite accurately so what we're seeing today is actually a result of what they told US also last year.
Now, having said that Theyre also reacting of course through the local chip shortage. So.
Whenever they have an opportunity to put more machines into their factory.
Expect they will do that.
So I think for the for the logic capacity expansion plans. They just followed plan.
For the shorter term anything that we can pull in and they ask us for a pull in but that is I think more driven by the current demand in the market than by any strategic.
<unk>.
The strategic reasoning is more.
The total capacity that they want to build a next couple of years and that actually has been pretty stable pretty accurate also in terms of execution.
Okay makes sense and maybe the last one is on when you talk about the upgrades going into 2022.
Really strong depending on the downtime in your question was like giving you I imagine your question. Mr Day. They don't know how much downtime do will be in 2022, because who knows what's going to be there.
And so my question is if we assume a great speaking of next year, you think of a risk to your deep UV product shipments as well as you know you increase your capacity.
Significantly maybe in some cases with upgrades how should we think about the relation between the two grades and Youll predictions for next year.
I think I think you really need to look at the operation as a kind of a fast.
Incremental addition to your capacity and the machines that they are buying is really driven.
And by the more medium to long term view of the App on the.
Our capacity needs so I think.
<unk> does not cannibalize the other.
The demand situation, where we are today, we need both.
Okay. Thank you Peter.
Alright. Thank you if you are unable to get through on this call.
<unk> questions. Please feel free to contact the ASML Investor Relations Department with your question.
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.
Thank you. This concludes the ASML 2021 in the third quarter.
We still have some results conference call.
Our full participation you may now disconnect.
Yeah.
Yeah.