Q2 2022 ASML Holding NV Earnings Call
Speaker 2: Thank you for standing by. Welcome to the ASML 2022 second course of financial results conference at school on July 20th, 2022. For our today's introduction, all participants will be in the Senate only mode. After ASML's introduction, there will be an opportunity to ask questions. If you'd like to ask a question, please press 0-1 to register. If you'd like to withdraw a question, please press 0-2 at any time during the call. If you'd like to register, please press 0-2 at any time during the call.
Speaker 2: If any participant has difficulty here in the conference, please press star zero for operator assistance.
Speaker 2: I'd now like to turn over the call to Mr. Skip Miller. Please go ahead sir.
Speaker 3: Yeah, thank you operator. Welcome everyone, this is Get Miller, Vice President of Investor Relations, that ASMR.
Speaker 3: Joining me today on the call are ASML's CEO Peter Winick and our CFO Rojay Dawson.
Speaker 3: The subject of today's call is ASML's 2022 Second Quarter Result.
Speaker 3: The link to this call will be 60 minutes and questions will be taken in the order that they are received.
Speaker 3: This call is also being broadcast live over the internet at ASML.com.
Speaker 3: 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.
Speaker 3: Before we begin, I'd like to caution listeners, the comments made by management during this conference call will include forward-looking statements within the meeting of the Federal Security Law.
Speaker 3: These four looking statements involve material risks and uncertainty.
Speaker 3: For discussion of risk factors, I encourage you to review safe harbor statement contained in today's press release and presentation found on our website at asml.com and an Asml annual report on form 20F. Another document has filed with the Security and Exchange Commission.
Speaker 3: With that, I'd like to turn the call over to Peter Winnick for a brief introduction.
Speaker 3: Thank you, Skip. Welcome everyone and thank you for joining us for our second quarter 2022 results conference call. I hope all of you and your families are still healthy and safe. And before we begin the Q&A session, Roger and I would like to provide you with an overview and some commentary on the second quarter 2022, as well as provide our views of the coming quarters. And Roger will start with a review of our second quarter 2022 financial performance.
Speaker 3: It's a matter of comments on a short amount, Luke, and I will complete the introduction.
Speaker 3: with some additional comments on the current business environment and on our future business outlook.
Speaker 4: Thank you, Peter, and welcome everyone. I will first review the second quarter financial accomplishments and then provide guidance on the third quarter of 2022.
Speaker 4: That fails command at 5.4 billion euros, blind to above our guidance.
Speaker 4: We shipped 14 EUV systems and recognized 2 billion euros revenue from 12 EUV systems this quarter.
Speaker 4: Net systems say of the 4.1 billion euros which was driven by logic at 71% remaining 29% from memory. Net systems say of the 4.1 billion euros
Speaker 4: Install base management sales for the quarter came in at 1.3 billion euros above guidance.
Speaker 4: Growth margin for the quarter came in at 49.1% which is at the lower end of our guidance primary due to increasing stationary costs.
Speaker 4: On operating expenses, R&D expenses came in at 789 million euros and FG&A expenses at 122 million euros as guidance.
Speaker 4: Net income in Q2 was 1.4 billion euros, representing 26.0% of net sales and resulting in an EPS of 3.54 euros.
Speaker 4: Turning to the balance sheet, we ended the second quarter with cash cash equivalents in short term investments at a level of 4.4 billion euros.
Speaker 4: Moving to the auto book, Q2NES system bookings came in at a record 8.5 billion euros, reflecting the contingent strong customer demand for both advanced amateur notes.
Speaker 4: From an order intake of 5.4 billion euros for EV.33 and EV.55 and A systems, at 3.1 billion euros for non-VV system. A system, at 3.1 billion euros for non-VV system.
Speaker 4: Total net system booking was driven by logic, 60% of the bookings and memory accounting for the remaining 40%.
Speaker 4: Without all, we'd like to turn to our expectations for the third quarter of 2022.
Speaker 4: We are experiencing increasing supply chain constraints.
Speaker 4: which resulted in delays, systems starts, and requires us to increase the number of fashion and then Q3. In order to supply our customers with systems production as quickly as possible. The production is quickly as possible. The production is quickly as possible.
Speaker 4: With more fascism on the planet quarter, it will increase the amount of revenues delayed to subsequent quarters.
Speaker 4: We expect Q3 total net sales.
Speaker 4: between 5.1 billion euros and 5.4 billion euros.
Speaker 4: This excludes around 1.1 billion euros of net delayed revenue for Q3 as a result of more fast shipments at the end of Q3.
Speaker 4: and at the end of Q2.
Speaker 4: We expect our Q3 install base management sales to be around 1.4 billion euros.
Speaker 4: Both margins for Q3 is expected to be
Speaker 4: between 49% and 50% similar to flyer quarter.
Speaker 4: Effective R&D Excesses Q3 are around 810 million euros and FGNA is expected to go in at around 235.
Speaker 4: I will estimate the 2022 annualized effective sex rate of expected severe
Speaker 4: between 15% and 16%.
Speaker 4: Thank you, too. ASMAL TAD, final dividend of 3.70 euro for ordinary share.
Speaker 4: Together with the interim dividend paid in 2021, this results in a total dividend for 2021 of 5.50 euros per ordinary share.
Speaker 4: We plan to grow our dividends and will move from a pie annual to a quarterly dividend pay out starting date.
Speaker 5: this year.
Speaker 4: This will provide more timely return of cash to our investors and more evenly balance our cash across the year.
Speaker 4: Risk quarterly interim dividends over 2022 will be 1.37 euro for ordinary share and will be made stable on August 12th, 2022.
Speaker 4: In Q22022, we repurchase around 2.3 million shares for a total amount of around 1.2 billion euros. For a total amount of around 1.2 billion euros.
Speaker 4: Total share is bought underneath 2021-23 program until end of FUSU is around 12.4 million shares over a total amount of around 7.9 billion euros.
Speaker 4: With that, I would like for the friend to call back over to you.
Speaker 3: Thank you, Roger. As Roger highlighted, revenue and profitability for the quarter basically came within guides. We expected sales in Q3 here to be a similar guided range as Q2 as increasing supply constraints drive more fresh systems and delay than revenue we set to subscribe course. and remember to hit the subscribe button.
Speaker 3: Looking at the more near-term market dynamics, we see...
Speaker 3: the call of mixed messages.
Speaker 3: Some customers are indicating they are seeing signs of slowing down or a slowing demand in certain consumer driven market segments, primary PCs and smartphones.
Speaker 3: Automarket segments like high performance computing and automotive are still seeing strong demand.
Speaker 3: Little tool utilization and our customers is still at very high levels by re-ocusing chip inventory levels training towards pre-COVID levels.
Speaker 3: But the matter for our systems will significantly exceed supply this year, and we will see no change to this matter. I will see no change to this matter.
Speaker 3: We are planning to ship a record number of systems that we have faced with an increasing number of supply constraints, which, as seems to date, are likely to continue throughout the year. Which, as seems to date, are likely to continue throughout the year.
Speaker 3: In an effort to recover from these delays, we're increasing the number of fast shipments to get systems to customers as quickly as possible. With this effort, theabbos has long reached out to us before the shipbears arrive.
Speaker 3: And as a reminder, a fast shipment process skips some of the testing in our factory and final testing and four-wire acceptance then takes place at the customer side.
Speaker 3: This leads to a withdrawal of revenue recognition for those shipments until formal customer acceptance, but this provides all the customers with early access to labor output capacity.
Speaker 3: As far as statements, the latest revenue recognition to subsequent quarters, we are seeing more the latest revenue that will move into next year.
Speaker 3: The value of fast shipments in 2022 leading to revenue recognition in 2023 is expected to increase from around 1 billion euros as previously communicated to around 2.8 billion euros, an increase of 1.8 billion euros.
Speaker 3: This then also leads to 1.8 billion euros lower revenue recognition in 2022.
Speaker 3: We therefore now respect you on the revenue growth of our 10th century.
Speaker 3: As a reminder.
Speaker 3: We began the year expecting a revenue growth of around 20% or approximately 22.3 billion euros.
Speaker 3: and 1 billion euros value of our shipments at the end of this year.
Speaker 3: We are now expecting a revenue growth of around 10%, which is approximately 20.5 billion euros, and 2.8 billion euros value of fast shipping to agriculture.
Speaker 3: So, the total business value...
Speaker 3: The total business volume for 2022 is essentially unchanged.
Speaker 3: Well, e-rebusiness.
Speaker 3: We still expect to see if we can find something.
Speaker 6: you
Speaker 3: as a result of the high enough refreshiveness.
Speaker 3: We now expect recognized EUV revenue this year on 40 systems to be around 6.4 billion euros which is similar to revenue last year.
Speaker 3: Compared to last quarter's view, the number of EV fast shipments in 2022 that will now be recognized as revenue in 2023 as increased by nine systems to a total of 15 systems with a sales value of around 2.4 billion euros.
Speaker 3: In our deep PV and application business, we still expect significant growth.
Speaker 3: both in immersion and dry systems, as well as continued strong demand for metrology and inspection systems.
Speaker 3: Due to a higher number of fish, shipments on the QV systems, you now expect a revenue of around 8.6 billion euros or an increase of over 15%.
Speaker 3: For any system-based measurement drone?, shoulders rock in the middle of your helmet, you will see that it's on your original scale. Go on and go in and start the other 199cm holes. Throwing in system are all 2 pieces of gun holes. you
Speaker 3: The customers will continue to look for upgrade opportunities to improve the performance of systems and the thefts.
Speaker 3: will be limited by high utilization levels which will dictate their ability to install upgrades.
Speaker 3: Still expect 2022 install, base revenue to grow around 10% year on you.
Speaker 3: Regarding the market segments…
Speaker 3: There has been no change in customer demand.
Speaker 3: As the majority of the additional 1.8 billion euros of delayed revenue is EUV.
Speaker 3: and therefore relates to a logic segment in our expected logic system revenue to be up around 5% here and here and then it's just a revenue to be up around 20% here. And then it's just a revenue to be up around 20% here.
Speaker 3: On Gross Margin, we started the year with an expectation of a Gross Margin for 2022 of around 53%
Speaker 3: And we adjusted this to 52% last quarter due to increased inflationary cost.
Speaker 3: There are a few developers that have furthered back on our expected close milestone here.
Speaker 3: First, the higher delayed retina.
Speaker 3: increase of 1.8 billion euros relates to our higher margin EUV and emerging systems.
Speaker 7: Secondly.
Speaker 3: The supply chain issues lead to delayed system starts and therefore we will have lower fixed cost coverage on a lower number of system starts this year compared to what we had planned last quarter.
Speaker 3: Next course also increased due to our plans to have capacity faster in preparation for what still seems to be a good growth year in 2023. For what still seems to be a good growth year in 2023.
Speaker 3: And finally, straw inflationary effects related to material cost of trade and labor compete to impact cost of sales.
Speaker 3: Combination of these effects result in the expected 22 gross margin.
Speaker 3: I'm 496%.
Speaker 3: Recurrently in discussion with our customers and suppliers to find a fair way to share in this inflationary cost increases.
Speaker 3: It is important to emphasize that the reasons for the lower margin guides are a result of short-term shocks in our ecosystem and can be adjusted over time in collaboration with our ecosystem partners. It can be adjusted over time in collaboration with our ecosystem partners.
Speaker 3: Therefore, our longer-term gross margin ambition of 54-56% in 2025, as communicated during a vested-day last year, is still valid.
Speaker 3: Over the term, if we look at the secular drivers, the global megatrends driving our industry are still in place, a fueling demand for both advanced and mature networks.
Speaker 3: The expanding application space for semi-competitors and secular trends are driving long-term structural demand.
Speaker 3: The growth of the market is very strong, a semi-cadaptor content scales with increasing automation and electrification. with increasing automation and electrification.
Speaker 3: Customers are also indicating increasing demand for semiconductors as part of the green energy transition and the build up of the smart grid.
Speaker 3: The matter of more mature technology notes is furthermore driven by the internal things.
fueling to the matter of sensors, power ICs and actuators.
Customers are seeing very strong growth due to demand from high performance computing applications.
As applications require higher performance and low power.
we see the energy efficient path to transistor growth driving the need for larger die sizes.
Finally, there are a number of facts being planned or already in progress driven primarily by technological sovereignty, investments and subsidy schemes.
next to increased foundry competition. Growth in semi-category end markets increasing the top of the intensity.
pushing through the matter of voice services.
This is evident in our quarterly order flow of over 6 billion years for the past 5 quarters.
and a record ordering date of 8.5 during the Euros this fast-forward.
Our backlog has grown to over 33 billion euros and we expect a contingent high order intake this quarter.
almost 85% of this backlog is for EUV and immersion, which is planned for at Valve's notes.
The mouth for our boys this year a next Gri?ske Extreme S Apply.
There is a clear concern in the market regarding recessionary fears and the impact this could have on the man.
Of course, if we were to go into a significant recession, we would not be immune to this, but we don't expect our 22 business to be impacted. And also for 2023, given our backlog, we believe we are well covered.
Customers keep stressing that they will not cut CapEx for little despite current market conditions.
That's it.
So, assuming that we have the supply chain issues addressed to the area of the year, for your next year.
We're still positive that we should be able to turn the and visits capacity for 2023 for more than 60 E-Ree systems and more than 375 DPV systems into another healthy growth to be able to do it for ASML. the information for the equation milk.
As mentioned in April , we are actively engaging with our supply chain to add capacity so that we will be able to have shipment capacity in 2025 of around 90 EUV 0.33 NA systems and around 600 DPV systems.
We are also discussing with our supply chain partners to secure a shipment capacity of around 20 EUV 0.55 high N-A systems in the medium term.
Our 2025 capacity targets, as well as updates to our longer term scenarios, will be addressed at our investor date later this year.
So it's over.
Although we are currently experiencing obvious supply chain challenges, we are still working to maximize output to meet the strong customer demand for many.
Still expect the man's legacy supply, dishy, and next.
And even though there are currently clear macroeconomic concerns, we expect strong continued demand for semiconductors.
and support the ongoing digital transformation.
We are working to increase our capacity next year with a plan to further increase this by 2025 as communicated last quarter.
We remain confident in the opportunity this provider will have you to grow, which we plan to update you during our infestudate, on November 11th.
Really hope to see you there. With that, we would be happy to take your questions.
Thank you, Roger Ann Peter. The operator will instruct you momentarily on the protocol for the Q&A session.
Beforehand, I would like to ask you to kindly limit yourself to one question with one short follow-up if necessary. This will allow us to get to as many colors as possible.
Now, operator, could we have your final instructions and the first question, please?
Thank you. At this time we'll begin the question and answer session. Again, please press 01 to register your question and 02 to withdraw your question from the queue. If you're using the speaker equipment today, please lift the handset before making your selections.
or moment-place for the first question.
And the first question comes from the line of Joe Quattrochi of Wells Fargo. Please go ahead, your line is open.
Yeah, thanks for taking the questions. We talked about...
your customer conversations, indicating that even in a moderate recession they're still wanting your tools and so maybe you don't see cancellations but how do we think about the delays and potentially for delays and delivery times and how do you think about that relative to your backlog, I guess, is obviously well covering 2023 at this point.
Yeah, I think the list in the river times.
Having said that, there's a lot of talk, and I said it in my introductory comments, there's a lot of talk about recessionary fears. And nobody can really give a good insight or foresight into how deep a recession will be. When it's a deep recession and everybody gets hit, I think we have different problems than customer push-outs. When it's a model recession, that's what I've had to.
refer back to what I said earlier in my answer to your question. I think we're going to shift those machines because they're needed.
Thanks for all the details.
Thank you. Our next question comes from the line of Francois Bouziner of UBS. Please go ahead, your line is open.
Thank you very much. I have maybe one clarification. It's on the DQV for 2023. So, Peter, if I look, Class Quater, you expected to reach, I think, the full DQV capacity in 23 at 375. There's a demand of 600. Now, since Class Quater, we experience a slowdown that you flagged as well. And especially maybe on the memory side, which is a bit more aggressive since Class Quater.
So in light of this change and maybe that the memory represents a meaningful part of deep UV Do you still expect to reach 375 tools next year?
Yeah, thank you. Like I said, also in my introductory comments, we don't see, yes, we are not, of course, not deaf. So we listen and we also read what customers had actually said and especially to specific memory customers that at least when we see a slowdown, especially in the consumer segment of PCs and on smartphones that they hastened.
to pick up the phone and accept, the one thing, you know, don't think you can give our machines to other people. You also miss, we want those machines. For the reasons I just gave as an answer to the question that, you know, many just asked a few minutes ago. So, yes, I mean, we see it, we hear it, but we also listen to what customer said, that we have these strategic investment projects, yeah? And we need those machines.
And whether they're memory customers in Korea or in the US or in China, for that matter, they won't go to machines because they still aren't getting what they plan. Now, could their demand go down? Yes, it could go down, but there's still a significant gap as you point it out between what we can make and what they ask for us. Now, and that ask can come down, but before it hits, that 375 and before it hits.
the real strategic investments that they are doing and all these facts.
We need to wait, we have a real slowdown and as anybody's guess at this moment of time.
Thank you very much, Peter. And maybe my quick follow-up is how should we think about the pricing of the tools in 23? I mean, given the inflation, is it something that you renegotiate maybe the pricing, which is EUV maybe more driven by your innovation and updates of tools, but what about the deep EUV pricing strategy going forward?
Well, I think it applies to both two types. I think when you look at the purchase orders, the purchase orders are an agreement with the buyer and seller, and over the last couple of decades we never had to deal with this very short term sharp rising inflation. So in fact, we don't have any formal agreement in contracts that would allow us to just check up the price. However, we are in discussions with customers and we have some indications that customers arelisting toe the ?
We understand your predicaments and your issues. So we're in discussion with those customers and then see what's fair. But clearly for having that's no deal going forward, you know, that's clear. That we will adjust our pricing to discover the inflationary pressures wherever they will go. I think that's also clear. But you know, there is a we need to actually and we are in discussions.
without customers to say, listen, you know, this is a short-term shock effect. So how are we going to deal with it? And that's happening as we speak.
Thank you very much.
Thank you. Our next question comes from the line of Alexander Duval at Goldman Sachs. Please go ahead, your line is open.
Yes, hi everyone and many thanks for the question. A quick one on gross margins. Given that a certain amount of fixed costs are being recognized this year for some of the EUV and DUV systems that will have related revenue recognition not until next year, which obviously has a negative impact on gross profitability this year, should we expect that this is going to translate into a margin boost next year and how large could that be? If you could help us understand a bit the moving parts and quantify perhaps that would be very much appreciated. Thank you.
Alexander, the principle in and by itself is correct, right? So to the extent that we have less starts this year, that means that you get less fixed cost coverage. And of course, to the extent that you catch up on that, of course, you get a bit more fixed cost coverage on that. So that is true. On an EV system, that's a couple of million that you're looking at, $4 or $5 million approximately is the amount there per system that you're looking at in terms of fixed cost coverage.
So that is part of it. Of course, it goes back to an earlier question that we had, which is at what stage do you expect that the effect of fast shipment is going to reverse itself? So that's what it is related to. But then you have a little bit of an indication on the direction of travel and the amount involved.
Thanks.
Thank you. Our next question comes from the line of Alexander Pedrick of the Society General. Please go ahead, your line is open.
Yes, hi. Thank you for taking my question. So just one clarification person then a quick follow up. The clarification would be when I listen to your comments Roger, it seems to me that you implied that a couple of years out will either see the delayed revenue recognition going away naturally. As you no longer have to fast ship, or you think that there will be a change in revenue recognition so that the final test will no longer be acquired because...
It is proven yet, and largely has redundant. So should we think that, say, by 2025, we don't have this variable buffer of revenue that is hard to estimate and that changes revenue across the square root. And then I'll have a quick follow up. And then I'll have a quick follow up. And then I'll have a quick follow up.
To be honest, I hope we don't have to wait all that long for that. But at a certain point in time, it is, as I said, either it just becomes standard practice and it would become standard practice. And I think we've also been able to persuade customers that this works and that we're not exporting problems from the factory into the field. And then I think we should be in a position to also get customer fine off when the steps are done here in the factory.
and that we should also be able to get revenue recognition there. Or we determined that we're no longer going to do fast shipments and that we're going to go back to what we did before. I think it's pretty likely that it will be either one of those two outcomes. And therefore, I think at a certain point in time, you will see the fast shipment effect reverse itself. To be honest, I don't hope that that's going to last another three years. I think the communication with you guys will be significantly enhanced.
if we no longer have to go through all the adjustments around fashion, but that's a realistic assumption that I would have, and I hope that at least somewhere next year, we're going to be in a position to determine whether we're going to go left or right. Yeah, and you have to realize that this fashion has only got one goal, and that is to reduce the cycle time from the moment that we start a system until we get it accepted at the customer side.
That's the only goal. And the only reason why customers say, ship me the tool is because we now have evidence, because we're doing this for nine months now. That, as Roger explained earlier, the installation time between a fast shipment and a non-fast shipment is exactly the same. So what we have effectively done, we have reduced the cycle time from the start of the system to the installation at the customer's house with about a month. Well, if this is something that we can still have some abs, back when there was some other.... UCToday, that sermon, you
that makes standard practice. And then, eventually, we need an older.
The ESO, our cover quarters, to come to the conclusion that that is the predictable outcome. Then we could also call to the customer said, hey, that we should act, basically change the acceptance current in our factory.
by just doing less tests. And I think we're just building that food data, but that would effectively mean a reduction of cycle time. And that's due to the benefit of small payers and now and the customer. So it's not an accounting thing. Unfortunately, accounting is what we have to deal with. But just from a business point of view, it takes all the sense.
Thank you very clear and follow up. Just on what's going on in terms of EUV, average selling prices, your guidance for the year seems to imply that it will land for the year at 160 million per system approximately. As H1 was significantly higher, I think, around 172 million. What is driving the lower ASB in the second half is just a question of makes and features for anything else that's laid here.
No, I think it really wasn't anomaly in the first quarter. So in the second quarter, you would see that the ASP is 163, so that's around the 160 that we say that we advise you to take. As you know, last quarter, we had a very limited number of tools that we had in revenue recognition. And there was some one-off effects which drove off the ASP very, very high. That was the one-off effect that we explained in the first quarter.
The second quarter affected normal and therefore the expectation to use 160 footer to remain door of the year is probably the right way to go.
Thank you very much.
Thank you, and our next question comes from a line of VDA of Bank of America. Please go ahead to your line and show me.
Good afternoon gentlemen, this is Emmanuel from Bank of America. I just wanted to double check one thing related to this fast shipment. So if I understand correctly, if fast shipments become the norm, that effectively means you are shaving off a month of cycle time and obviously it's a lower cost for you obviously because you don't have to do the test on site. But does that mean that there is no difference at that point from between shipments and revenues?
Is that the right way to think about it? And I've got it for all time. Yeah, under the commission that the customers agree, because the customers need to accept ownership and also the economic ownership of that machine, when it leaves our factory here in the Netherlands. I mean, that is currently not in our documentation. That's something for whether the accounts would require. But it's something where customers would then say, fine, you know, with all the proof data that we have gathered over this period of time. This is where we need to go, because then it will be just out. But to be clear, we're not.
that that's a facetement is going to be to standard on the GoPro basis.
Understood. I've got a follow up from the UV. So a lot of questions I've got from investors are about to your 600 UV capacity target. And even at 375 that you are sort of talking about for 2023. Can you run us through the drivers of that taking demand? How much of that is driven by effectively lagging edge capacity kept to intensively going up? So we see.
you know, the likes of Texas Institute for the others, you know, talking about the potential to get more than double their historical levels in part because they can no longer buy, you know, bankrupt, your own fab for, you know, ten cents or a dollar in part because I suspect there is no limited second-hand equipment available on the market. And how much of that is driven also by... and how much of that is driven also by...
by higher layer count for 3d NAND. You could give us a sense of...
the destructural shifting in higher viewing to the man.
Yeah, you know, I wish I had something like a time war machine bringing us to November 11th of this year because that's exactly what we're going to talk about. So I won't give you the data because we're working on the data and actually we have some data here that we are actually looking at, like by using in our own models. But I think generally, DPUV, what if...
It's technically underestimated. The man for deeply tight nose. The man for deeply tight nose.
whether it's the 20th nanometer, 45, 65, 90, well, 4.18 micron, and the application space it's being used for. We actually,
have evidence
that the number of products
that our family customers are running on these nodes is significantly higher than two or three years ago. So the number of products.
and is driven by the need for, and that data, which I'm not going to share with you and we need to find a way out we want to show that to you in November 11th. The fact of the pattern is that the number of products that are used in this 28 millimeter up to 0.18 micro or even higher, that the number of products are significantly higher and less due to. The number of products that are significantly higher are less due to. The number of products that are available
And that's driven by the end markets and we talked about this and I gave you that in my introductory remarks. Whether it's automotive or whether it's the internet of things, whether it's anything that comes with sensors, power IC, more optical sensors, you know, micro-controller, that space has grown significantly. Because the nodes that I just mentioned, that's exactly the nodes that are working for those applications. That's exactly the LAXop hardware that we are launching from. Because a number of other devices do lead to more slow management and increase the capacity of the electrical field. I believe that there's a whole variety of different systems that make that use a high level of technology, but the ::
And this is what we are seeing today, and that's not going down. And yes, I think Mary said, we are at record high infantoids. Well, not for everything. And especially in that space, yes, everywhere I think we see infantoids growing, but they're growing at a moderate space.
So that's what we are seeing. And that's also where the man from our customers comes in. And it's anecdotal. But the Chinese customer says they want to build a 12-inch fat. They don't want to do that planning. And they're going to do it a 12-inch way for fat for 19-animate products. And that's what you're going to use for the moment. And it's for the energy transition. And that's a 12-inch fat. And that's 90.
99.90 and we cannot get those tools out of the market, but you are right. I mean the old VRAM fads are not for sale anymore. The thing that we used to do to take
systems out of the memory fast and you know reuse them in logic and in the area of fast. Those systems are not there anymore. They're all gone. So you have to buy new. These are all trends that we will discuss in more detail at November 11th. But for us the trends also clear many many more applications and products.
coming out of these nodes used for these applications, which are not leading edge, but which are basically everywhere. It's the Internet of everything.
Great, thanks very much.
Thank you. Our next question comes from Krish Sankar of Cowan Co. Please go ahead, your line is open.
Thanks for taking my question.
How to think about how much domestic China is going to grow this year? Last, last word is a 20 person. I want to find out if that's what growth is going to be. And also any color you can give on some press speculation on the US banning DPV shipments to China. And then a quick follow for Roger.
See, hyperdically speaking, it's supply constraints, there was absolutely no supply constraints today. Would there be no fascism anymore? Thank you.
Well, let's answer the China growth question. I think we said it last quarter. I think China growth with the same percentage as the rest of the world. We go 10%, which means yes.
All in all, every geographical...
and all, every geographical shift to region.
It grows with 10%, which includes China. They grow with 10%, just like the rest of the world. I think all the US batteries, they'll love us.
Speculation but also media coverage on this which which you know said is what new I mean this being able from time to time it pops up You know and which is just a political position which is have to wait what the politicians come up with but having said that
I think we need to realize that our China is an important player in the semiconductor industry and especially in the more that's not mature enough but in the more mainstream semiconductor. Everything that has to do with DPV and it ranges from 20 and an even up to 28 to 45 65. It's an immersion. It is dry and a very significant supplier of the global markets. So we just have to be gathered with what we're doing. That's just I'm there.
We've also been saying publicly that we can ignore the fact that China has a manufacturing capacity out there of DQV, which the world needs.
I'm sure a question on hypothetically, if there were no supply constraints, would you stop doing facetements? Well, I think if there hadn't been supply constraints, we probably wouldn't have started facetements, I think, in reality. The problem of average, we might actually like it. And this goes to the early point that's the remains. I mean, indeed, we do find out that we can omit a number of testing steps in the factory that's ultimately...
do not in any way lead to erosion of the quality of the product that we ship and therefore doesn't lead to any problems on installation. We might actually like it so much because it gives us more capacity.
So that's why it's hard to answer the hypothetical question now that we've done it. We might actually like it and we might actually at a certain point in time make it a negative sound.
Connor, thank you for your time.
Thank you. Our next question comes from the line of ATTM2Q of Credit Suisse. Please go ahead to your line as I think.
Yeah, good afternoon guys. I had two questions. Firstly, you talked about roughly 150 bips of inflation related gross margin headwinds since the beginning of the year, including the downgrade in a resort three months ago. So when you look at your pricing contracts and renegotiations timelines, and you give us some color on when you expect to repricing to offset this margin headwinds, I'm just trying to get a sense of how much of a margin headwind or shift factor in.
my numbers for 2023 when I think that my first margin for 2023 and then I've got a follow-up for my firstay so on the philosophy..)
Yeah, I think you know when you, and I said it before, we don't have any formal agreement with that, that gave us the let's say.
the supply of power to just raise the price of any level that we want. That's not the case. And you also need to look at the 150-day points that we talked about this year, which really relates to shorter shocks. And what of which, when it's afraid, is a significant one. The freight cost has got quite a bit of a, I mean, it's just gone through the roof, which...
Of course, we're in close negotiation. Now, we're the customer, hey, why did you pick up the cost? Because it's the cost for, it's normally in the contract. But this is something which is so extraordinary, where say, this does not make sense. Which would be relatively short and fixed. Now, as many reasons go to 150 base points, is labor. And especially in the service space, when you go to Asia and you go to Korea and to Taiwan, we say, we're in a very short time. And we say, we're in a very short time. And we say, we're in a very short time.
labor cost the inflation up to 20% this year and it's not planned It's just 20% because we're losing people hand over fist if we don't do it So these are the short-term shocks that of course will also be corrected in the service contracts
So having said that those are really the short term inflation shocks and the short term fixes that we can get through with our customers.
The bigger things are of course in the future, but longer term.
And that logic is material because they're material for our UV systems has already been sourced. It's over here. So it's the inflationary pressure that we might see next year. This is why the negotiations with the customers are about next year and the appeal. So this is where I think it has to come to a fan as we are looking at.
unavoidable pressures above what I would call as a normal inflation percentage of 2-3% that we always take into consideration. And anything above that, we just have to get compensated with our customers and we're right in the middle of the negotiations on this issue. So you have to really split between short-term effects, short-term fixes, long-term effects, and long-term fixes.
Got it, understood. And just as a full-up to Rocher, when we look at these far shipments, do your customers give you milestone payments on top of free payments, or will they just pay you just when they sign off on the tool after you've done the testing or the customers? I just want to better understand the cash flows on these tools.
Yeah, Adi, there is in essence no cash flow impact from fast shipment because what happens is, as you know, with a number of tools we get down payment and the remainder in essence with the lion's share of our shipment is upon shipment. So upon shipment we get paid. So that is not influenced by the fact that this installation is going to happen later on. So no impact I would say on the profile of the cash flow. So we don't have to accept this as an simply standard signpost in another section but
Got it at length, essentially there are no milestone payments then on this washroom.
No, no, there are no. And effectively, you know, the invoice goes out at the same, whether it's a fast shipment or not a fast shipment, the invoice goes out at the same time. And it's a positive. So for the cashflow point of view, the invoice goes out at the same time. no difference.
Okay, got it. Thank you.
Thank you. Our next question comes from an alignment of CJ Muse that ever called ISI. Please go ahead and join us. Please go ahead and join us.
Thank you for taking the question. I guess first question Peter, in the video remarks that you provided I was intrigued by the fact that you thought your supply chain headwinds could be corrected by the end of 2022. So can you please discuss your thoughts around that as well as how you are kind of dealing with some of the gas and energy issues in Germany and the implications to your key supplier Carl Zeiss.
Yeah, I think the surprise you had, I mean it is an assumption and the assumption is based on the fact that
when we look at the
the material escalations that are really delaying the output.
We saw a big thing last month. It's coming down a bit, and we're just trying to extrapolate that trend, which of course is dangerous because, you know, it's just, you know, you just look at the graph. And then if we follow that trend, then it could be a possibility by the end of the year, early next year, it could be a situation where we are more in control of those, you know, supply-code strains. Having said that, there is still guarantees, you know, because if you look at the supply chain, it's...
It comes down to the first year supplies that if you really look through it, they often, the issue is not in the first year supplies, but in the second or third or fourth year, they don't need a further database materials.
And that transparency is limited. We're pretty transparent, I think, in the first and second period.
beyond that, it becomes more difficult. So we're just following the trend. And it's a bit, you know, trend extrapolation that we're doing, it might give us the end of the year, beginning of next year or more, you know, relief. But like I said, it's a baseline limited trend that you don't think of the curve yet.
Now on the energy situation in Germany and especially on Carl Zeiss, I mean, they of course are taking measures and have taken you know measures. I think the dependence of Carl Zeiss on gas is going to be limited. I mean they're switching to, you know, oil. They are not a a big gas user either, but you know what is true in
for the transparency that I mentioned on our own, supply chains also probably true for the energy, supply chain, you know, how transparent is our, you know, it's starting to potential energy risk or gas risk in Germany, we don't know. I mean, it could be far down in the third or four of fifth layer suppliers. Having said that, I'm having said that.
I think.
Ladies and gentlemen, we're also countries are on top of this issue.
And there will be gas, whether gas comes from different sources, it doesn't matter price, which is going to be an inflation issue. But I think every supply that we know of, and that we have some insight into, is working on securing their energy resource.
And also, yes, some of our suppliers are actually claiming a very strategic status and getting veterans. So all of our work in process, I think we don't have a full transfer, so you have to give you a definite answer. And I think I'm more confident than I was a couple of months ago that our suppliers are doing the right thing.
That's helpful. As I follow up, interesting that memory orders actually accelerated 40% to coincidentally. And I think to a new record high for ASML. And that's in that, you know, obviously weakness that we've heard in terms of CapEx trends from Linux and Micron. So I guess as you look at the memory complex, obviously you're benefiting from EUV technology vibes, but we're one to year.
your overall thoughts there, both both technology focused on strengths and perhaps what kind of weakness you have in your build plans around new capacity ads. Thanks so much.
Yeah.
The week that's in our old build capacity I understand you correctly, CJ, are you asking this also what we see in our own build capacity because we don't see any week that's in our build capacity. No, no, no, this is just how you're thinking about, you know, memory control. Okay. Okay. You're right, you're right, you're right, again. You're right, you're right, again.
So basically weakness that our customers are talking about and to build capacity. It also goes back to what I said earlier. I mean, yes, EUV plays a significant role. The EUV transition in memory, especially here it is happening, and it's essential. When we talk about the eight new EUV fabs, some of them are memory fabs, which is an essential part of the ROPEM transition and...
EUV is critical in that sense. Well, building these big 15 billion dollar plus fabs, you know, you need to fill those fabs with the latest and greatest technology, which is EUV, is EUV driven. But of course, you cannot make this device without immersion and without, you know, dry DPV. So this is what our customers also told us. You know, yes, they are acknowledging their weakness. Yes, they are concerned about the infrasturists that are going up, but they're not backing off.
which it didn't do in the past either. They're not begging off of their innovation role maps, which are essential for their future competitiveness. Which are essential for their future competitiveness.
So this is why they say, they pick up the phone and they tell us, listen, we talk about weakness but don't you guys dare to just change your shipping pattern to us.
This is what I'm holding on to, this is why we have this big order back, this order back up and we know where to ship to.
So yes, of course there is a longer-term correlation between structural, lower-term weakness and our ability of ASL to shift to those customers. But shorter-term and longer-term are currently two different things.
Very helpful. Thank you.
All right, thank you. If you're unable to get through on this call and still have questions, please feel free to contact the ASML Investor Relations department with your questions.
Before we sign off, I'd like to remind you that our investor day is currently planned to be held in belt open on November 11th of this year.
We hope you'll be able to join us.
Now on behalf of ASMR, I'd 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 now concludes the ASML Q2 2022 financial results. Thank you for participating. You may now disconnect.
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