Q4 2021 ASML Holding NV Earnings Call
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Welcome to the a S M L Q4, and full year 2021 financial results.
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Thank you operator welcome everyone. This is skip Miller, Vice President of Investor Relations at ASML joining.
Joining me today on the call are Asml's CEO , Peter Winter and our CFO Rose Dawson.
Subject of today's call is asked Myles 2021 fourth quarter and full year 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 <unk>.
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 in <unk> 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 <unk> for a brief introduction.
Yeah.
Thank you chip.
Welcome everyone and thank you for joining us for our fourth quarter and full year 'twenty, one 2021 results conference call.
Of course hope all of you and your families are still healthy and safe.
Before we begin the Q&A session, Virginia, and I would like to provide an overview and some commentary on the fourth quarter.
And the full year 2021, and as well as provide our view of the coming quarters.
We'll start with a review of our fourth quarter and full year.
Tony wants to measure performance with somatic comments on our short term outlook and I will complete the introduction.
Some additional comments on the current business environment and on our future business outlook.
Thank you Peter and welcome everyone I will first review the fourth quarter and full year financial accomplishments and then provide guidance on the first quarter of 2022.
Net sales came in within guidance at 5 billion Euro the effects of the logistics center startup and supply chain issues communicated during our Q3 results took a bit longer than expected to resolve affecting some deep UV shipments in Q4.
In order to address our customers' need for additional capacity, we completed an increased number of productivity upgrades in Q4, as a way to provide them with incremental productivity enhancements.
We shipped 12, UV systems and recognized $1 6 billion numerous revenue from 11 <unk> systems this quarter.
Net system sales of $3 5 billion euros was again more weighted towards logic at 73% with the remaining 27% from memory.
Installed base management sales for the quarter came in at $1 5 billion euros significantly above guidance, primarily due to new software upgrades.
As just mentioned and the strong demand environment customers continue to use productivity upgrades to increase output of their installed base.
Gross margin for the quarter was 54, 2% and was above guidance, primarily driven by higher software productivity upgrades.
Operating expenses R&D expenses came in at 681 million euros, and SG&A expenses at 203 million euros, which was slightly above guidance.
In Q4, we had other income of $214 million related to the sale of the non semiconductor businesses of Brilinta glass.
Net income in Q4 was $1 8 billion, representing 35, 6% of net sales and resulting in an EPS of $4 39 here.
Turning to the balance sheet, we ended the fourth quarter with cash cash equivalents and short term investments at a level of $7 6 billion euros.
Moving to the order book Q4 net system bookings came in at $7 1 billion euros, including $2 6 billion $4 30.
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These symptoms and 155 and <unk>.
And <unk> 5000 system order intake was strong from both the PV and UV largely driven by logic with 77% of its bookings and memory accounted for the remaining 23%.
For the full year net sales grew 33% to $18 6 billion euros.
The system sales in 2021 was $6 3 billion euros, which is a 41% increase from last year.
We achieved 50% <unk> growth margin systems on the systems in 2021 and continue to improve UV surface margins.
Non <unk> system sales in 2021 was $7 4 billion, which is a 26% increase from last year.
When the market segments for 2021 logic system revenue was 9.6 billion euros, which is a 30% increase from last year memory system revenue was $4 1 billion euros, which is a 39% increase from last year.
The installed base management sales was 5 billion euros, which is a 35% increase compared to previous year.
In 2021, we had total bookings of $26 2 billion euros more than two X increase year on year, reflecting customers' strong demand for EV in deep UV technology.
Our R&D spending increased to $2 5 billion euros in 2021, as we continue to invest in innovation across our product portfolio.
Overall R&D investments as a percentage of 2021 sales was about 14% SG&A was about 4% of sales.
Net income for the full year was $5 9 billion euros 31, 6% of net sales, resulting in an EPS of $14 36 years.
Improvements in working capital contributed to a free cash flow generation of nine <unk> 9 billion for 2021, mainly driven by customer down payments. Following the very significant order intake this year.
We continue to invest in support of our roadmap and plan capacity ramp.
Excess cash will be returned as per our policy.
With that I would like to turn to our expectations for the first quarter of 2022.
We expect Q1 total net sales to be between $3 3 billion and $3 5 billion.
Lower guidance relative to Q4 is primarily due to a number of so called fast shipments. These are our shipments in the quarter for both <unk> and deep UV that will not complete factory acceptance testing as.
As we've discussed in prior quarters fast shipments are in support of customers' desire to bring systems into production as quickly as possible.
But skipping some of the testing in our factory, we can shorten the cycle time.
Final testing and formal acceptance of them takes place at the customer site at which time, we will recognize revenue.
The value of the Q1 shipments is expected to be between five three and $5 5 billion euros, which means approximately 2 billion euros of revenue is expected to be the FERC to subsequent quarters.
We expect our Q1 installed base management sales to be around $1 2 billion.
Gross margin for Q1 is expected to be around 49% the lower gross margin quarter over quarter is primarily due to the fact shipment impact of delayed revenue and lower upgrade business compared to last quarter.
The expected R&D expenses for Q1 are around 760 million euros, and SG&A is expected to come in at around $210 million.
Dealer.
Our estimated 2022 annualized effective tax rate is expected to be between 15% and 16%.
Regarding our capital return ASML paid total dividends of $1 $4 billion in 2021 made up of the 2020 final dividend of 2021 interim dividend.
He is mellen comes to declare a total dividend with respect to 2021 of 550 euros per ordinary share.
Recognizing the interim dividend of $1 80 euros per ordinary share paid in November 2021. This leads to a final dividend proposal to the general meeting of 317, the ordinary share.
Total 2021 dividend is a 100% increase compared to the 2020 dividend.
The 2022 annual general meeting of shareholders will take place on April 29, 2022 in October .
2021 was a rather exceptional year in terms of share buybacks. If Mel acquired 14 4 million shares for a total amount of $8 6 billion euros as part of our current and previous program with that I would like to turn the call back over to Peter.
Thank you Richard.
As Roger has highlighted.
Another record year, both sales and profits were seeing unprecedented customer demand across all market segments from both advanced and mature nodes driving demand across all at director facility.
Looking to 2022.
The lower Q1 revenue due to fuel cell shipments as highlighted by those yet we expect to significantly increase in the recognition of the remaining quarters.
The full year, we expect a net sales increase of around 20% compared to 2021.
And bear in mind that this 20% sales growth does not include revenue from 60, <unk> first shipments in Q4 2016.
If you would take the full shipments value 40, 61st shipments due to mcdonalds.
Both the shed this would've been 25%.
But I'll leave you business.
Still expect to ship about 65 systems of which we expect revenue from six systems to be the silicon to HIV suites to gain insights, we do too fast shipments.
This translates to an expected to UV system of around seven 8 billion in 2022.
And our deep UV and <unk> business, we expect growth in both membership and drive systems as well as continued demand for metrology and inspection systems.
Also planning slash shipments for some deep UV systems, but we do not expect this to.
In fact, our 'twenty to 'twenty two revenue due to inherent be shorter installation starts with deep UV.
We expect our revenue growth of over 20% So no system revenues.
We installed base management business.
Service revenue will continue to scale with the growing installed base of systems.
<unk> will continue to look at the old methods to add wafer capacity and although we saw a great sport into 2021 to include waiver outfit they could get at the other customers. We expect those type of installed based options to also stay very much in demand this year.
We currently expect to penetrate through installed base revenue to be up around 10% year on year.
Looking at the market segments, given the very strong demand situation.
Do you push to increase capacity, we see growth in both logic and memory in 2022.
In logic, we talked for sometime now about the digital transformation that is underway as we move to a more connected world.
Rolling application space and secular growth drivers translate to very strong demand for both advanced and mature nodes.
This continued strong demands we expect logic system revenue to be up more than 20% year on year.
In memory, we also expect to see continued growth of our business this year.
With customer expectations of DRAM bit growth in the high teens this year.
So the philosophy to utilization running at very high levels of customer need to add capacity. In addition to cloud technology transitions to meet demand.
Is DRAM customers migrate to more advanced nodes. We also expect to see an interesting E Z demands so memory.
We expect to.
<unk> memory system revenue to be up about 25% year on year.
With this unprecedented demand exceeding our capacity.
We are ramping our output capability to meet the strong demand.
Of course, there's still some challenges.
You are even more vulnerable when running at maximum capacity.
In the room for recovery when things don't turn out as planned.
Cohort Unfortunately is more behind us than it impacts everyone, including the workforce in our industry I mean, the supply chain.
We also have to work through supply chain challenges of material and component shortages at go.
<unk> related supply chain disruptions.
Our workforce so we acquired.
A significant number of people throughout last year and although we are currently at our plant workforce FTE numbers, they still need to be trained and brought up to a vertically.
Or what I, just mentioned needs maximum management attention that monitoring the activity and flexibility of all our partners our stakeholders.
We are working closely with our customers to address these challenges we're doing spot shipments is skipping some of the testing and affect the year completing the final acceptance testing at customer sites, which provides more capacity as quickly as possible.
This reduces cycle time, we affected seize up Kevin space in our opinion, so we can ramp up capacity more quickly.
Addition, we continue to provide sort of rich, which will give our customers more capacity.
As I said before we're doing our utmost to respond as best as we can through external challenges due to COVID-19 related deaths enthuse them and material shortages in our supply chain.
Also as we reported earlier in January we've got a fire just after the new year insight.
Out of our factory in Berlin.
The fire was extinguished during the night Unfortunately.
Since were injured James incidents.
While a good bottle one production building on the site in Berlin, and the small quantity and second an adjacent building.
<unk> been able to resume production and possibly as building already.
The other bill is on our side that Lumpiness decremental city operation.
The manufacturing of PPE components has been restarted.
And although there was some disruption regarding components with deep UV, we expect to remediate. This in such a way that it will not affect our output and revenue plan for DPP.
Easy to fly.
A separate part of the production area of the rate plan, which is a module and all UV systems.
Based on our good insights we believe we can manage that goes good service fire without significant impact on our EV system up with in 2022.
All while it's also a very unfortunate events, we're optimistic about the current situation and are very grateful for the enormous efforts and creativity of our billing staff.
All high they use UV. We're currently building the first high in a system in our new clean room, resulting.
We received an order for an <unk> five thousands in Q4, the fifth or a total 5000 model.
Which provides all the coverage for plant high in a ship.
Shipments in 2024.
In addition at the beginning of this year, we received the first order for <unk> 5200 <unk>.
<unk> 5200 is Asml's next model high in our system, which we intend to launch in 2024.
After the introduction of our first lien a system.
<unk> 52, other who will provide the next steps toward a geography performance and productivity.
Demand continues to be extremely strong.
Even to the point, where we believe we're also this year falling significantly short of the customer demand.
Looking beyond 2018 global Mega trends, we talked about at our Investor day of broadening the application space.
Fueling demand for advanced and mature nodes.
Growth in semiconductor end markets are increasingly.
Higher lithography intensity.
Driving demand for our products and services.
We along with our supply chain partners are actively adding and improving significant system build capacity to meet future customer demands and short.
We're even more confident in our long term growth opportunities.
With that we'd be happy to take your questions.
Thank you Roger and Peter.
The 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 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.
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One moment please for the first question.
Okay.
Our first question comes from Joe Karbowski with Wells Fargo. Please go ahead.
Yeah. Thanks for taking the question curious on the <unk> side demand that you're forecasting for 2022 is quite.
Quite a bit stronger than we had initially anticipated how do we think about the 20% growth in the context of the capacity that you and your supply chain are adding relative to you know I think in the past you were talking about hopefully trying to build some inventory buffer inventory as well this year.
Yeah, Joe It's a good question and I think it's important to.
Look at the full picture here, including what happened in the last quarter, because you might recall that in the last quarter. We were we were expecting.
The full year.
Of deep UV.
<unk> or the non <unk> business, if you want to call. It that way approximately $8 2 billion that was the expectation that we had going into the quarter.
Course, we landed substantially below that we landed at seven four said it was about <unk> <unk>.
800 million shortfall that we then made up.
In Q4 with higher EV sales and higher installed base sales.
So what we're what we're seeing now is that.
No that 800 million will now trying to get that into the plan for this year.
We can do that because of course, that's the material.
For that to for that production was in fact already produced by the supply chain. So we have been a zero. So now it's a matter for us.
In our manufacturing plants here in doubtful and to get that done and if he doesn't do the math right. So we told you last year that we believe we're going to be kind of flat year on year for deep UV that was under the expectation that the last deal has got to be $8 too. So it's eight through this year plus the 800 to 800 million button.
Kind of transitioned from that from last year that gets you to about the $9 billion that you'd get to when you add the 20% to last year. So that's the math. So in fact, that's the transition from the shortfall of $800 million that we had in Q4.
We have the supply chain for that and now its a matter of us.
Trying to squeeze that into the manufacturing capability given the telephone.
Got it that's helpful color and then just as a quick follow up on your memory revenue growth expectations.
I think the other expectations for just total memory wf. She is more around flat. So can you help us maybe understand just how much of that is being driven by EV adoption.
Yes.
At least what we can say on the <unk> adoption is that.
About 20% little north of that even of the <unk>.
The sales that we're going to see this year system sales will be in memory.
So if you think about.
About $8 billion, a little under 8 billion. If you look at the revenue number for EV, 20% of that is related to memory. So that's already a substantial part I would say at that number.
Yes.
Very helpful.
Thank you.
Youre welcome.
Our next question comes from Krish Sanka with Cowen and company. Please go ahead.
Yes, hi, Thanks for taking my question I have two of them postponed regime.
But in FY 'twenty two I got the revenue guidance for the tax rate did you give a gross margin and opex guidance for the full year.
We didn't but I'm happy to talk about it that gives you a little bit of flavor as to as to where we see this.
Latin and frankly, I think we're going to see a gross margin for this year a little over the gross margin that we have for our Florida last year. So I would say, it's around 453% that would be my expectation for the year.
And I guess your next question. Your next implied question is gonna be so help me help me understand that of course, we start with a.
At 52, 7% for last year.
Which we have to recognize is already helped by the very significant software upgrades packages revenue that is in there and that's as we've said before is very helpful to the hit to the gross margin. So if you neutralize the.
The very height.
In fact that that's had on the gross margin for last year I would say for the year, you would probably take out about $2 seven at 7%. So that gets you to a base of normalized base of 52%.
And then there's a few things first off the <unk> pricing and which is primarily driven by the fact that we only have beams in the in this year in comparison to the mix of the of last year that would give you about one 5%.
And then we talked a little bit about the high any impact on the gross margin thats a little bit higher this year than it was last year I would expect about 5%. There. So if you do if you if you add it all up and you've got a 53% then there's a little bit of a swing factor as to the composition of the PV in terms of.
In terms of dry versus adverse emerging at this stage, we expect both of them to grow about 20%. So I would say, it's about neutral for them for the growth for the gross margin, but that's the buildup to the $2 to 53% in terms of Opex, we've only guided the numbers for Q1 as we typically do only for the quarter.
It's safe to say that the 4% on SG&A and 14% on R&D I think those assumptions are safe assumptions for the full year and then obviously on the basis of the $22 3 billion and that sort of imply than the 20% year on year growth for revenue.
We actually gave Judy clearly to P&L.
[laughter]. Thank you Rajeev already helped me because my model.
I just had a quick follow up.
For Peter Rajeev, the 20% growth in deep UV. This year can you give some color into how much of that do you expect <unk> memory to grow and how much should do UV for foundry. Good this year, but I think Moshe you mentioned <unk>.
And Moshe it's roughly split half half the theatres that predict.
That is correct that is what it is.
I expect to I expect both to go up about the same percentage of about 20% yes.
And then we gave you the numbers for the increase in the memory and logic and I gave you the.
Easy number for memory, So frankly, I think I've given you all the all the building blocks you need to come up with the right number there.
And just again just to remind us the logic will be up more than 70% year on year and memory, it's around 20%.
Year on year, So and then with the UV numbers, you can probably figure it out.
Very helpful. Thank you folks thank you very much.
Our next question comes from Alexander <unk> with Societe Generale. Please go ahead.
Yes, hi, good afternoon. Thanks for taking my question just very briefly on fast shipments do I understand this correctly.
This will now become systematic for UV going forwards.
This would then imply that you would take the biggest hit from this.
Kind of your practice in 'twenty two 'twenty three the impact should be negligible as you have only a little more revenue deferred.
What you will recognize from the previous year. So it has been cancelled is that a correct way of looking at things.
Alexander I think you'd see it right. So it's not just <unk>. So I'd say, we also do this for a foreign merchant. So it's the combination of those two and at least for this year. This will be the standard practice and then if you look at this year and as we mentioned to you. It is about $2 billion. That's falls into subsequent quarters as a result of this for as it relates.
Two Q1.
We're going to do is try and at least try and limit the installation time.
Both of our entities and for a handful of immersion tools as a result of which the impact by the end of the year should be it should be a lot.
A lot lower because we try to.
To make that the delta between the shipment moment and the and the acceptance by the customer makeup makeup water and we think we can squeeze out two maybe even three weeks in BMD install time in order to get there. So that's what we're that's what we're driving and that's a result of that it is our expectation that the amount at the end of this year I mean, we referenced.
UV tools, so that would be about 1 billion. So that's what we're trying to work towards that the that the spillover. If you like from the from the last quarter into the next quarter is going to be is going to be only about 1 billion. That's what we're driving towards and what we're going to hit so that means that's a during the year of organic gain if you like.
<unk>.
<unk> 1 billion and the subsequent to in the subsequent quarters and are only going to lose for the full year at $1 billion into next into next year, whether this will be the standard practice for years to come.
Just see how this how this works if this works well as we anticipate for ourselves and also for the customers. If we can really prove as as we've done in last year that we can do this without a quality impact if you like on the in the field.
And we are pretty comfortable that we can do with that.
This will be appreciated.
By the customer and also beats to efficiency on all around so down indeed also for subsequent Reassessments. This would be the this would be the practices and then indeed, you won't have any impact anymore in the years to come in essence, joggers and one small addition to that this would apply to systems.
Have a weather issue.
There is a significant.
Level of confidence that we don't join into into acceptance problems in the field. So.
Let's say the first type of a new tool for the first four or five systems, you will probably be the traditional factory acceptance test in.
<unk> just to make sure that if you run into any issue debt.
Big R&D group that can actually help you solve the problem instead of moving to probe into the field. So I would've done completely compare with what you guys yet with the exception that when what we call new product introduction. The first couple of teams will probably be duty traditional way.
Great. Thank you. Thank you very much.
Our next question comes from C. J Muse with Evercore. Please go ahead.
Yes. Good morning, good afternoon, and thank you for taking my question I guess first question on gross margins, if I take that 53% and what you guided for Q1, it looks like youre going to exit the year at roughly 54% is that is that the right number to use and as part of that that is the low end of your 2020 target model. So I guess, you know love to hear your thought.
So im on what Youre going to do here exiting calendar 'twenty, two and and the confidence that provides to you in terms of.
Your future outlook.
Yeah C J, so somewhere in the year and indeed if.
If we want to get to 53% for the for the full year and we start with the with 49 somewhere in the year, we'll have higher percentages and also as I mentioned somewhere in the year, we will gain on the on the revenue side, but I think on the sales side, because we lose 2 billion in the first quarter only 1 billion for the year. So we're somewhere in the game of building so and up.
Of course that those two are related whether all of that is going to be in Q4, I kind of thought you said somewhere in the course of this year youre going to see an improvement.
The gross margin.
The 53%, but bear with me a little bit too early to already stopped making predictions on the on the gross margin for 'twenty three.
That's helpful. Thank you I guess, maybe a bigger picture question for you.
Regarding visibility.
This is.
The highest kind of backlog coverage, you've ever had as a company and I guess.
Obviously part of that do you view related and obviously part of it's to supply constraints out there, but just curious you know how do you think about that.
And I guess, how are you thinking about the.
The capacity you need to add into.
I think you talked about.
Trillium kind of semiconductor market.
The confidence you have today on 2023 revenue growth.
Yes, I think.
It's a very good number it's a very good.
Question, well I'll give you I cannot give you the exact number but one thing is for sure that we will ship more systems deep UV and <unk>.
In 2022 as compared to 2021, and it's my expectation of the same thing will happen in 2023 and as a matter of fact I also expected in 2023 already a few shipments will go over 60 systems.
Part of it has to do with the cycle time reduction we've talked about it could be through fast shipments into shortening the installation times, yes that will happen.
And also for deep UV I think you can still squeeze start squeezing and reducing cycle time in the supply chain. So we can do that.
Two more systems next year than we do this year, having said that.
I think we're still in the situation, where and I say this.
The video, but also on several locations today.
The demand for.
All our technology, but also specifically deep UV is so significantly higher than what we can do and we make when we look at our maximum capacity today.
Think the demand, which is not orders, but the demand, which Christian you would like to give us an order, but they don't because we don't have the capacity to grow.
Around 40% higher than when it began to be make everything moves out.
You cannot ship today will move through 2023.
Now what we cannot ship in 2023 will move to 2024.
Actually it means that we need to add capacity beyond what were currently planning.
And that is exactly what we're doing today I think we had a capacity plan beyond 2023 that we are currently have decided on that.
At least internally, but we haven't gone through that truly getting the supply can get our critical suppliers, which will be this quarter.
So I think.
We want to be in a situation that starting 2024.
We will be able to meet whatever demand that customers have.
I think we are in situation where leading.
Leading edge immersion and <unk>.
The customers have nowhere to go and we don't want to keep pushing excess demand.
Being <unk>.
Describe this demand overall mechanism of capacity to move ultimately move into the next year.
So this is what we're doing.
I already gave you.
<unk> do you view for 2023, but it will be above 60.
Because of all the measures that we have taken but I think we also we are we have taken it really the decision that we need to increase our capacity beyond that.
And that will be something which we will be discussing with you all will be hopefully they can get it all the confirmation of our critical suppliers.
Next quarter.
Very helpful. Thank you.
Our next question comes from Sandeep Deshpande with Jpmorgan. Please go ahead.
Yeah, Hi, Thanks for having me on.
My question is actually just a sort of follow up but when I look at Europe .
Guidance, Peter you've guided to.
25 to 30 billion euros in sales, but when you look at your sales over the last report I saw your orders over the last four quarters and add to that you already installed base management you are already running at.
Fourth quarter run rate.
1 billion euros essentially so.
Does the 25 25 guidance would need to be updated or do you think that this was a different sort of media to be bidding on.
How should we be looking at that 25 guidance have asthma.
Well, let's see everything in the right order.
And Thats.
First look at the customer demand and the demand curves.
Very in depth discussion as you know with our customers on their capex plans and their Capex plans are driven by what they currently see as being being short investigative methodology fiduciary for next year, but longer term and I can only have that mind you all did very well.
Hey, Colin sort of messages that all Christians up given over the last few days on how they feel about the strength of the demand and we can also go into the details why we think the long term demand will be higher.
Having said that on top of that there's going to be a push.
Bye.
The drive for technological sovereignty, there will be incentives are around the globe that you built up capacity that comes on top which I don't think will translate into.
Significant staff capacity anywhere before 2024.
Turning to <unk>.
Earliest probably more like 2025 26 well.
Having said that and going back to the previous question. I think this is why we are looking at our maximum capacity for us in the supply chain.
And I gave the answer I think there's work that we're doing today.
Once we have that to ensure that we can actually do that then that would be the time also to re look at the guidance and to see whether we should indeed.
Just.
Some of the numbers that we gave you.
Supporting adult.
But in that order.
We have to.
Get ourselves comfortable with it.
That situation vis vis our customers, we are translating that into a capacity number which we need to get the insurance with our key suppliers.
As of June <unk> of this world that needs to be confirmed and leads to.
Construction activities are you likely to add square meters.
And that means if you have that Gold's formation, we can say, okay. When we have that looking at the demand situation.
What should we do with the 2025 range that we gave you and what we have concluded that we will come back to you with that information.
Thanks Peter.
Just one quick follow up.
I mean you.
You indicated in your recent release that you've got a new E beam tool shipping is this E beam business now will it become much more significant in the next few years as these new towards ship because I mean, clearly your lithography business has flourished massively but E beam business has been slower to take off so can you make any comments on that.
Yes, I think the fact that I think the.
<unk> the.
<unk> go through.
700, I mean this is definitely a tool that actually I think it's being back today, so that will ship.
We have high expectations of it.
Good with the shipyard.
And yes, when we got the qualification.
Yes.
I believe that's going to be a driver for us.
Before higher sales numbers.
It would be a business, that's making it affected our shingle business where sales are strong.
Thank you very much.
Our next question comes from franchise forgiveness with UBS. Please go ahead.
Francis if your phone is on mute. Please on mute. So you may ask your question Hi can you hear me now.
Yes.
Yes, sorry about that.
My question actually was on the higher ne.
And the religion redeemed Pentland you disclose for orders banking 18, now you had to know the last quarter you are discussing another one.
Within 10 are today and in addition, you changed your disclosure of the net bookings, including higher than now. So my question is what should we expect going forward in terms of how you name. It comes if I could pvt, and should we see more and more high and they bring forward in the fall.
During quarters.
And coming back to your 2025.
Guidance rich with five sales of higher ne you have six if I count correctly.
Now so how should we think about this moving parts in your forecast.
To transfer.
Yes, I think on the 2025 number you also said in my introductory.
Our comments, that's the <unk> 5000, which is the R&D tool, which the development tool.
That's fine with us will be shipped.
Starting in 2023 through 2024, so we had 2025 bps to high in April with the Walnut.
That's a 5200 and so while they received.
First order for this.
This quarter the first quarter of 2022, I think yes. So you will expect that you may expect that given the long lead times of these tools, that's going to be more order activity fluid a high and a 5200 going forward I would expect it.
But that's driven by.
Indeed, the shipment plan 2025, now I think as I said. These are asked the question on the 20 to 35 model. I think is this is not the time to do.
Piecemeal you give you that 70 to 75.
Model, but will come back.
I think high in a.
It is not so much connected in 2025 to let's say the size of the industry and that.
The industry, it's really technology transitions. So the way it looks now I think there is still a pretty solid on the plan.
I think I don't think we said it tends to be the last quarter.
We did.
The big evolutionary step.
Low rate, what's the optics.
Basically a bigger optics.
Very significant challenges in measuring.
The mirrors.
Succeeded.
It was a success. It is so we can execute and.
And this is what we are doing now maybe we'll go to the sales of victory now you would see this message through I mean, we showed you the best option says.
I have a picture of.
Some of our engineers, so production engineers in Philadelphia to frame. If you could just see the size of the thing.
We're executing.
Receiving the first order for the 52, hundreds which is going to have.
Let's say.
Newsstand, they're setting new standards for liquids.
Lithographic performance.
Imaging and overlay. It also sets new standards for productivity, so like what Jay said that the best conference is the tool that the Gulf War eight.
Before a prized very significantly over $300 million.
First of all one comment on that as we also said at the Investor Day. The reason we have five there is not because of shipments because I expect more shipments in plenty of $75. Five the reason we sat in all scenarios five is because of revenue recognition. Because this is a pilot new products.
Therefore, it's hard to predict at this point in time, how the installation is going to happen. All the testing is going to pan out et cetera et cetera. So that's why we set it very conservatively just put five into any model. So it is not where it is not related to volume or shipments as just a pretty conservative estimate that it might take a bit longer before these are actually recognize the traveling so that's.
Why did you put in five.
Thank you. Thank you.
Maybe just quick follow up on the supply constrained, which was the highlight this quarter I believe.
You don't.
Too much about supply concern anymore, so should we read that.
It is improving and you see the least risk less important now I mean, how should we think about the supply constraints you had in the last quarter and how is it now.
Well I think I think it it doesn't east the effect as you know with life is stuff you would just you just adjust to it.
And that's what we're doing so we're basically it's the effect of LIFO.
It's a daily battle with our sourcing people to make sure that we get guarantees on supply in the supply chain, because we don't buy those components.
Components are being built by our suppliers, but what we do we actually.
Bold subtle dates.
The shortages, which is which is especially good.
<unk>.
Microchip soon.
So I'm definitely different layers in the supply chain. So we actually consolidated that we bring it into what we call a scarcity center and then we classify those components by semiconductor manufacturer and then we get on the phone with them and then say you know.
Can you help us should we need it can help us by.
<unk>.
Whats on stop giving it to us or helping us too.
Manage that through the broker system or to distribute the system or you know, making sure that those particular chips get.
We're in Israel.
Many I mean, its a few hundred thousand specific types, because we don't make that many systems.
And that's where that's how we manage this and we're able to do this.
Day by day by day, but I don't think the situation has gotten any better is just as we got better at managing it.
Okay makes sense. Thank you very much.
Our next question comes from DDS Glamour with Bank of America. Please go ahead.
Hey, good afternoon, gentlemen, thank you just wanted to check.
Check will double check.
A couple of things on <unk>.
For next year. So can you talk a little bit about what's your capacity will be for Lloyd.
Hi, DNA.
And then.
What do you think it could be the shipment number for 'twenty three versus the revenue do you need to because we see a good 60 cheap shifting from 'twenty two 'twenty three so if you could help me understand that and I've got a quick follow up for erosion on the cash flow. Thank you.
Yes, Vijay on the on the on the what we expect for 2023 as Peter pointed out we are working on a capacity over 64 for next year. So that's the that's on the on <unk>.
We would get.
We would get the benefit of the six going from 'twenty two into 'twenty three but frankly, we would also if we continue to do fast ship I have a few systems go from 'twenty three 'twenty four so.
If we're able to continue to drive down installation time, we might gain one maybe two systems.
Net net I think for next year, you should expect output and revenue to do more and more be at the same at the same level. So F&B over 60 in terms of capacity that's that theater reference I think is probably the number two if you look at it.
In terms of.
In terms of a high and a.
It's going to be very very small right into 'twenty two 'twenty three because we expect to happen. The first the first shipments.
The key modules in the at the end of 2023.
I wouldn't hold my breath of whether that leads to revenue recognition in 2003.
Understood very clear so on the cash flow you had a sort of an exceptional working cap in Q4 and amazing free cash for the full year.
I just wondered if you could help us understand.
What's your free cash flow expectation for just to give you a 22 and.
When do you think the working cap normalizes.
Cash flow statement until roughly is it first half second half Thats why that would be helpful. Thank you.
Yes, so you're right. So I think last year was a pretty spectacular year from a cash flow perspective, we had net income of $5 nine and free cash flow of nine point in time. So that's a pretty good pretty good conversion rate, but that was exceptional I think it was exceptional primarily driven by the huge order intake that we had this year and the huge contingent of EV and <unk>.
That's the primary source of down payments in there.
Would expect for this year or two to do more and more neutralize that so we're never guiding free cash flow, but I would say no to have an expectation that in the steady state we're going to we're going to look at.
Somewhere around 100% or a little bit below that because they're still growing I think it's probably a safe assumption for the free cash flow development. Many years to come now you've made a 100% cash conversion rate that's perpetuated exactly yep.
Excellent.
<unk>.
Our next question comes from Amit <unk> with Citi. Please go ahead.
Thank you Hello, everyone on the Cochin button from Citi two questions if I may.
My first question of detailed goods back to the comments you've made about assessing your capacity.
Fly ash.
<unk> continues to get bigger obviously.
Geopolitics and the background, although you're strategically thinking about bringing this capacity online.
Both seem to be you have.
Are you looking at doing more with depletion is it more regional diversification.
Trying to get a sense of how youre looking at it in terms of strategically adding capacity as you look to <unk> for the next five to 10 years.
And I have a follow up.
Yes, I think.
If you if you had been at our supervisory Board meeting I mean.
This is of course the questions that were that we are addressing.
Asking ourselves what is really good.
But we are addressing these questions I think vertical integration to answer that question I don't think that is something.
Which we always say we try to avoid it.
Sometimes we are forced to it I mean.
That in the glossary of our vertical integration, we actually acquired a supplier.
So some very clear reasons I mean, it has to do with succession planning at the supply, but also that the technology at that particular supply became more and more critical Florida for the performance of the system. So.
It's not an active it is more you could say that there's more of a reactive way.
Looking at growth.
Geographical clearly and always with but it's but geographical and especially against the background of the geopolitical discussions that are ongoing of course is something which is highly sensitive.
So Joe we actually look at it we need to build capacity, what's the best place to build capacity what are the best additions to add capacity, which is a number of issues that we will look at it has to do with.
The availability of suppliers that can help us a workforce talents are we going somewhere.
We will be heavily competing.
Full workforce talent.
With some other major players or you could say giants that.
That would of course put you into a more difficult situation. It is incentives that can be provided by governments I mean and that includes the <unk>.
We currently have our manufacturing locations, but also we are we are looking at areas where we.
Michaels has significant value.
Manufacturing, but so I think these are all things that we are looking at.
It's too early to give you there is a finite answer and I think where they've come to the conclusion that we need to go public we will go public debt, but these are all the things that we are discussing right now.
In the company in the in the management Board and with the Supervisory Board because you are right we need to add significant capacity. I mean this is this is not 5% to 10% extra.
Thank you Peter.
As an unrelated follow up you've talked about demand being unprecedented significantly higher than capacity of course, you put forth your simulation scenarios the BMD loss too.
So in terms of trying to manage against the risk of <unk>.
We're ordering double ordering.
What are you doing in terms of the checks discussions with your customers you know the secular trends are positive and the industry.
But what are you doing from your site many mines.
They call it the potential scope of oversupply of capacity comes online. Thank you.
Yeah.
The major thing is that our build capacity I mean.
Still when you are.
Look at our cost.
Cost of sales and I Wonder if you can comment on there, but the vast majority of our cost of sales is what we buy.
So I think before for ASML due to ads built capacities the minority of our cost of sales.
Because.
We're basically outsourcing, which is one of the reasons why.
We are not actively pursuing vertical integration, we actually love.
We have suppliers that are better at what they do then what we.
We do so having said that we are not afraid of investing in capacity nor is our supply chain, which is most of our critical suppliers are are either like zeiss are exactly the same position as we have.
And so while the supply is up more diversified so they are able to.
<unk>.
But you.
You are right there was always this risk off.
Looking at where we are today listening to the Capex expansion plans involve major customers.
In Asia and in the U S looking at the geopolitical situation Andy Andy.
And that's driving for more.
Technological sovereign peanuts complete, but more with is that incentive programs means that yes, we will add capacity now.
Now.
We can have.
Looking at our simulation model and looking at industry analysts we've been blatantly wrong. So we can do this again all we can say no. Let's look forward, let's let's have a longer term view.
I do believe and I think I'm not the only one of those of our customers.
The compound annual growth numbers for the semiconductor industry will lead to a trillion dollar business by the end of the decade.
Over 500 billion now, which means that it's 500 billion was created 40 years' time, so we'd have less than 10 years to just double it again.
So I think we will meet that capacity now.
Now your question is really this.
Create temporary overcapacity and could very well be these fabs are big humongous, it's all about scale. So yes, when everything is timed in the same the same couple of years now.
What we see overcapacity, but structurally and longer term, we need that capacity.
Not that concerned we should do it and my last reason why I think we should do it.
On some of these technologies.
We are unfortunately for the industry.
The sole source of supply.
I don't want to be in the situation as I stated before that we have to.
Pushing the overall demand.
From one year to the other.
We have to create a situation where we carry the responsibility together with our customers that we can supply what the market needs.
And that could indeed mean.
There is potential a bit of overcapacity.
Given the fact that with very bad at predicting the growth rate of this industry I'm, okay with that.
But as perhaps you know is an answer of an old man.
Thank you Peter.
Our next question comes from Stefan <unk> with <unk> BHF. Please go ahead.
Yes. Thank you very much good luck.
Afternoon, everyone.
I just wanted to have.
More kunal, maybe on your Chinese business.
Whats the size today of your Chinese business.
The growth over the last quarters and what is the outcome. Thank you very much.
I mean, you talked about the China business I guess in particular.
<unk> business I think that's definitely a focus on it.
And then.
China domestic business last year for 2021.
It was about 1.818 billion.
And our expectation is that this will grow at the same pace of the company growth. So it will grow about 20% for this year, which in a supply constrained environment is exactly what you would expect that China would grow exactly at the same pace as the other deep UV business would be would be growing and thats what you see so.
One eight last year expect it to grow to approximately $2. One day soon this year.
Okay. Thank you very much and the follow up would be about the same.
Service margin.
I think you said that it was improving.
When do you think it will get to the.
Corporate level are we still talking about two to three years.
Yes, so last year. It was about 30%, we expect us to get to about 40% of this year and then I think it will take.
Until 'twenty five ish timeframe I think until you really get it to corporate level. So I think we've made major steps and that's becoming more efficient. Obviously also the man to machine hour very much very much improving simply because of the scale.
EV, but ultimately that's the trajectory that wrong. So from this point onwards, the steps are going to be a lot smaller.
2025, I think we will get it to approximately corporate gross margin.
Thank you very much.
Alright, we have time for one last question.
You are unable to get through on this call and still have questions. Please feel free to contact ASML Investor Relations Department with your question.
Operator may we have the last caller please.
So for one last question when we have Jerome Romo with BNP Paribas. Please go ahead.
Yes, good afternoon.
Maybe a last question from Wuxi to come back to the free cash flow in Q4.
Just on the short term diabetes.
It can create by three beyond Q4 versus Q3 interpretable Triple last year is it purely the account payables and so can you give us a number for Q4.
Compared to Q4 last year. Thank you.
I don't know, it's not the account payables that would be a bit rough to our supply chain right. So.
That's not what it is it is primarily it really is the down payments so its down payments on new orders orders for.
For for 'twenty, one I'm, even even beyond that point.
Sort of consists of again when we're looking at a order intake this year of $26 26 billion.
And that's really what it is I mean, you're looking at at the end of this year.
At the end of 'twenty, one youre looking at $8 5 billion of Av.
Down payments and a significant part of that came in in Q4 for which youre going to spend that money on the <unk>.
Building the machines.
And investing in this year.
Get that money for nothing.
Okay.
Would it be fair to assume that mark of the down payment has been done and dusted gradually it you can normalize in the course of 2022.
Yes, exactly so that's why I say this is a very special year, because you've got all these down payments next year, you will still get down payments, but you would also do shipments where you only get where you only get a percentage because we already received the down payments in the year and the before and that's why I said that you will see cash conversion get too.
100%, frankly below 100% because of the because of the fact that this is still a growing company. So that's why I think in the longer term you would see cash conversion.
Below the 100% at that point.
Thank you very much.
Alright, 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 would appreciate it. Thank you.
This now concludes the a S M O 2021 fourth quarter and full year financial results Conference call.
Thank you all for participating you may now disconnect your lines.
Okay.
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Okay.