Q2 2022 ASML Holding NV Pre-Recorded Earnings Presentation
Speaker 1: about 1.3 in insolent basement which is slightly ahead of our guidance. We had Gross margin coming in at 49.1%, which is a bit lower end of the guidance, just to do with the increased inflationary effects that we've seen. Net Ingham, 1.4 billion and very good order intake, 8.5 billion of orders, which is a quarterly record. Now all in all, I think solid quarter, however.
Speaker 1: There was no without challenges and mainly because of supply chain challenges. Supply chain constraints parts not coming in on time but we manage the quarter.
Speaker 1: What's your guidance for the third quarter? Like I said, what we saw in the second quarter, which is basically an acceleration of supply chain constraints, is actually also happening in Q3. I think it will happen throughout the remainder of the year, which will mean that in the third quarter, we will see more fast shipments than we planned. And this will also be throughout the remainder of the year. Now we have to remind what the fast shipment is, and the fast shipment is, in fact, a way to reduce the cycle time by cutting.
Speaker 1: or not doing certain tests in our factory, which could lead up to one month of cycle time reduction. Very important when the customers are waiting for those machines. So we only do those tests at the customer side, which means the revenue recognition will move to that moment in time, which means yes, we will have more fast shipments, so we'll have more deferred revenue than we anticipated. So when we look at Q3 and look at the guidance of Q3, I would say that it's more or less in line with the guidance that we gave for Q2.
Speaker 1: So, it's between 5.1, 5.4 billion of sales, between 49 and 50 percent margin, and about 1.4 billion of install base management. So are there any changes to your view for 2022? Well, first of all, 2022, we have to put this into context. 2022, the demand is still significantly higher than what we can make. This is the situation that last quarter and is still the same.
Speaker 1: We don't see any demand reduction. But what we do see is what is earlier is that shipments will be indeed later. So we have more fashion shipments. So we have revenue recognition delayed. Now, we set a quarter goal that the impact of those fashion shipments, this revenue recognition delay, was going to be about 1 billion for this year. Now, where we are today, we think it's going to be 2.8 billion.
Speaker 1: So we have about 1.8 billion of more revenue recognition delays. And those delays, of course, translate into our 2022 sales number. So currently we think sales will grow with about 10%, which if you do the math would come around 20.5 billion for 2022. Now, in summary, if you then look at what we said a quarter ago and where we are today, a quarter ago we said sales are going to grow with 20%.
Speaker 1: which bring you to 22.3 billion, but with one billion of different revenue recognition because of fast shipments, where we are now, we say, well, 10% will bring you to 20.5 billion, with 2.8 billion of the third revenue because of fast shipments. So when you look at business volume or the shipment value, it's effectively, these quarters are basically the same. So our guidance from that point of view has not changed.
Speaker 1: What does it all mean for the different business segments for the year? Well, when you look at EUV, we're shipping 55 systems. We said that before. However, because of those fast shipments and the revenue recognition delay, the deferred revenue, we are now looking at, which by the way are 15 EUV systems, we are now looking at a booked revenue for 40 systems, which is about...
Speaker 1: 6.4 billion in sales. Now, on DPUV, we see a significant number of DPUV shipments, a significant increase as compared to last year. But also there, we are seeing the impact of these fast shipments. So we think we'll end up around 8.6 billion in sales for DPUV, which is just over 15% increase as compared to last year, which by the way, previous quarter we thought it was going to be 20%. And I'll install base management.
Speaker 1: 10% growth as compared to last year, 5.5 billion in total. So add up the 6.4 for EUV, 8.6 for deep UV, 5.5 for install base management, 20.5 billion for 2022, which is about a 10% increase. So we see an increase in delayed revenue. There are concerns around inflation. How does this all impact your gross margin for the year? Yeah, we started the year with a gross margin expectation of about 53%, and we corrected that in Q1 with one percentage point of about 52%.
Speaker 1: cost. So it's fixed cost coverage and you have to remember that fixed costs are also going up because we are planning and we will ship more systems next year as we see it today. So we need to invest. And last but not least, we see inflationary effects. I mean, we've seen an acceleration of inflationary pressure on labour, on freight specifically, on parts. And all in all, if you then look at it...
Speaker 1: We expect that it goes March of 2022, land up between 49 and 50%. Now having said that, of course, we're in discussion today with our ecosystem partners, our suppliers and our customers to see how we can basically fairly share the burden of all these cost increases. And no, looking at it.
Speaker 1: will end up between 49 and 50%. Now having said that, of course we're in discussion today with our ecosystem partners, our suppliers, and our customers to see how we can basically fairly share the burden of all these cost increases. And looking at it, I think...
Speaker 1: It's really when you look at 2022 and look at the lower guidance on gross margin, it's driven by these short-term effects. It's inflationary effects that we didn't plan for. It's the supply chain challenges that led to deferred revenue. It's all shorter term. And of course we're in discussion with our customers to see how we can fairly share this. But I think longer term, we're going to have to look at the short-term effects of this.
Speaker 1: There is no reason whatsoever we see currently to change our ambition for our gross margin targets around 2025, which is between 54 and 56 percent.
Speaker 1: Let's have a look at the market, what's your current view on the market, both in the near-term and the longer-term? Yeah, good question. I think near-term, clearly we see a very mixed messages coming out of the customer base. With respect to consumer-related products, we clearly see a slowdown, the particularly NPCs and smart phones. And the other hand, in the industrial space, when you talk about high-performance compute.
Speaker 1: talking about automotive, the demand is still very, very strong. I think it's also evidence by the utilization rates of our machines in the insol base, which are historical high. And it's still the case today. But we were also seeing across different semi-conductor nodes, infantories going up towards, let's say, pre-covert type levels. And that's pretty broad-based.
Speaker 1: So all in all, yeah, it's a bit of a mixed picture, shorter term. Longer term, I think there is no denying that the digital transition that's taking place will continue. And we see it very clearly in automotive, you know, talking to customers and customers, customers. We see a quadrupling or quintupling of the semiconductor content. Lately our customers are talking about the energy transition.
Speaker 1: The renewable energy transition, which is very topical these days, will require semiconductors for wind and for solar and for the smart grid. On top of that we see the internet of everything, everything that we've seen in terms of sensors and actuators needing semiconductors. It's happening, it will not go away. On top of that, more energy efficient high performance compute need more transistors, so the die are getting larger. We're needing more extra wafers.
Speaker 1: The geopolitical situation, the technological sovereignty that countries are after is driving these big investment and subsidy programs. And we also think that, we look at the announcements, the competition in the Foundry Space will also go up. So all in all, longer term, very healthy and abated, views, good and very healthy growth, shorter term, big signals.
Speaker 1: What does this all mean for the demand for your products this year next year? Well, at the first of all, say that when we look at 2022 and 2023, you look at the order intake. 8.5 billion of order intake is which is a quarterly historical high. Very engaged order discussions with our customers, this quarter. We see a backlog of over 33 billion. So I think that looks very healthy.
Speaker 1: Now, having said that, I think for 2022, we are of course not blind for anything that we hear with respect to inflationary pressures, probably recessionary concerns. So for 2022, I don't think it will have any real effect in terms of shipments.
Speaker 1: For 2023, you really have to ask the question, you know, what kind of recession are you looking at? If it's a moderate recession, I think the impact will be very limited. For a simple reason that we have such a big backlog, that our customers are coming to us and saying, listen, if we see a slowdown, sure, one thing is certain, we want your machines. And that's logical. Those machines are very critical, long lead time. And you have to remember that of our backlog, 85% is for advanced.
Speaker 1: a semi-conductive manufacturing, high-end immersion and EUV. Now, if the remaining 15% mature technology also needed for advanced production.
Speaker 1: So I think all of them
Speaker 1: pretty healthy. And for 2023, if we see the supply chain constraints going away by the end of the year, which we're planning for, or even if it's the first part of 2023, we will definitely need our capacity that we are planning, which is over 60 EUR systems, and over 75 DPP systems, and with this.
Speaker 1: potential risk of a moderate recession. We will all need that capacity because our customers tell us so it's going to be a good and a healthy year Anyhow strong demand do you expect that strong demand to continue beyond 2023? Yeah, absolutely. I think you know, I talked about the the big secular trends You know, these are the longer term trends and semiconductors are everywhere And it's also obvious that big societal challenges need big solutions and semiconductors go to the heart of those So
Speaker 1: and beyond 2025 we want to build at least 20 high-end-a systems. I think that is still very much intact and we're working with our suppliers to get it done. Now clearly we will go into some more detail on those capacity numbers and on the drivers for those capacity numbers during our capital market day which is on November 11th of this year.
Speaker 1: Can you give us an update on your plans for the use of cash? Yes, I think the future is very bright, so our cash generation will be quite significant. But first of all, like we've always done, we will use the cash first to run our business. And secondly, then we will pay a dividend, which is going to be an increasing dividend. And by the way, we've decided to move from a semi-angual dividend to a quarterly dividend, starting in Q3.
Speaker 1: an interim dividend for the first time this quarter and you know an any excess cash we will use for share by by the excess we have done in the past so no change to our policy.
Speaker 1: How would you all summarise this?
Speaker 1: Well, if you look at the big picture, you have to really make a distinction between the short-term issues and the long-term issues. You know, short-term there's no denial that there are concerns. There are inflationary concerns, recessionary concerns. As it relates to ASML, we have supply chain constraints that lead to fast shipments and deferral of revenue recognition. So deal with that.
Speaker 1: But also short term, we look at an order backlog which is very strong. We look at a customer demand for 2022 and 2023 that is unabated, which can withstand any moderate recession in our opinion. And then, of course, we have the longer term trends. I think the longer term trends are, like I said earlier, unabated. I mean it's obvious that the digital transformation will continue.
Speaker 1: and will provide a very, very healthy growth profile for the company going forward with us and with our customers. And of course we'll go into more detail. We'll go into more detail in November , November 11th, as I said before, where we'll definitely share with our stakeholders and investors our views as to the drivers and to the capacity needs for this industry and for ASML specifically. So we're looking forward to that.
Second quarter ended 5.4 billion in sales and about 1.3 in install placement, which is slightly ahead of our guidance. We had gross margin coming in at 49.1%, which is a bit of a lower end of the guidance, just to do with the increased inflationary effects that we've seen. Net income, 1.4 billion and very good order intake, 8.5 billion of orders, which is a quarterly record. Now all in all, I think a solid quarter, however, it was not without challenges and mainly because of supply chain challenges, supply chain constraints, parts not coming in on time, but we managed to quarter.