Q3 2022 ASML Holding NV Earnings Call
Thank you for standing by welcome to the ASML 2022 third quarter financial results Conference call on October 19, 2022.
Phase construction, all participants will be in listen only mode.
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I'd now like to turn the conference call over to Mr. Skip Miller. Please go ahead Sir.
Alright, Thank you operator.
Welcome everyone. This is skip Miller, Vice President of Investor Relations at ASML, joining me today on the call are <unk> CEO , Peter <unk>, and our CFO Roger Dassen.
The subject of today's call is asked about 2022 third quarter results.
The length of this call will be 60 minutes and questions will be taken in the order they are received.
This call is also being broadcast live over the Internet.
The milk Dot com.
A transcript.
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 would 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 ethanol Dot com.
And then the smell of the annual report on form 20-F, and other documents as filed with the Securities and Exchange Commission.
I'd like to turn the call over to Peter Winick for a brief introduction.
Thank you skip welcome everyone. Thank you for joining us for our third quarter 2022 results conference call.
And before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the third quarter 2020 results and as well provide our view of the coming quarters.
Roger will start with a review of our third quarter financial performance, which are medical mental that short term outlook and I will complete the introduction.
Some additional comments on the current business environment, and our future business outlook versus if you will.
Thank you Peter and welcome everyone.
I'll first review of the third quarter financial accomplishments and then provide guidance on the fourth quarter of 2022.
Net sales came in at five 8 billion euros above our guidance due to faster completion of installations triggering earlier revenue recognition.
Deferred income on a factory option, which has now been accepted at customer sites as well as higher installed base business.
We shipped 13, ERP systems and recognized $2 2 billion euros revenue from 12 systems this quarter.
Net system sales of $4 3 billion euros, which was again driven by logic at 6% to 8% and the remaining 32% from memory.
Installed base management sales for the quarter came in at $1 5 billion euros above guidance due to higher up fit upgrade revenue.
Gross margin for the quarter came in at 51, 8%, which is above our guidance primarily due to the pull in of revenue from both the reason deferred income on a factory option as well as additional upgrade business.
On operating expenses R&D expenses came in at 819 million euros, and SG&A expenses at 236 million euros as guided.
Yeah.
Net income in Q3 was $1 7 billion euros, representing 29, 4% of net sales and resulting in an EPS of $4 29 euros.
Turning to the balance sheet, we ended the third quarter with cash cash equivalents and short term investments at a level of $3 4 billion euros.
Moving to the order book Q3, net systems bookings came in at a record $8 9 billion euros, reflecting the continued strong customer demand for both advanced and mature nodes.
Strong order intake of $3 8 billion euros for UV systems, including high in Asia, as well as $5 1 billion euros for non EZ systems, which is D TV metrology and inspection systems.
Total net systems bookings was driven by logic with 77% of the bookings.
Memory accounted for the remaining 23%.
With that I would like to turn to our expectations for the fourth quarter of 'twenty two.
We expect Q4 total net sales to be between $6 1 billion euros and $6 6 billion euros.
This excludes around 100 million euros of net revenue for Q4 as a result of more expected shipments at the end of Q4 and at the end of Q3.
We expect our Q4 installed base management sales to be around $1 6 billion euros.
Gross margin for Q4 is expected to be around 49%. The improved margin effect of higher volume relative to Q3 is more than offset by negative margin effects, primarily from deep UV mix well end.
Of revenue recognition on higher margin factory options from Q4 into Q3 and inflation costs hitting us this quarter.
This translates to an expected gross margin approaching 50% for the full year.
The expected R&D expenses for Q4 are around 880 million euros and SG&A is expected to be around 265 million euros are.
The higher R&D guidance is primarily due to additional head count and labor cost increases.
Higher SG&A is mainly due to additional head count and spending.
There are also some small negative foreign exchange effect on both R&D and SG&A.
Our estimated 2022 annualized effective tax rate is expected to be around 15%.
In Q3, <unk> paid a quarterly interim dividend of 137 euro per ordinary share the.
The second quarterly interim dividend will be $1 37, Europe ordinary share and will be made payable on November 14th 2022.
In Q3, 2022, we purchased around $2 1 million shares for a total amount of around 1 billion euros.
We've now completed our 2021 2023, a share buyback program on November 11th 2022, we will hold our Investor day, where we will provide an update on our long term business plan, including any new share buyback program with that I'd like to turn the call back over to Peter.
Good.
As Roger has highlighted the revenue and profitability for the quarter came in above guidance we.
Expect sales in the fourth quarter could be higher as we continue to work through supply chain issues and reduce cycle times.
Relative to last quarter, we now expect stronger revenue growth for the year with a full year 2022 sales of $21 1 billion euros that are using the midpoint of the Q4 guidance.
This includes a higher ERP system revenue of around $6 8 billion euros as well as hydrogen based revenue.
Due to the fast shipments we also expect delayed revenue of around $2 two days into 2023.
The total business volume for 2022 is basically unchanged from the start of the year.
Looking at the current market environment.
There's clearly a lot of uncertainty due to a number of global macro concerns regarding inflation consumer confidence and a real chance of a recession.
As we've shown in the past in such an environment, we need to maintain flexibility in our supply chain workforce.
Manufacturing capability.
You would also expect an impact from customer confidence around the type of spending and in fact, we do see some customers running at lower utilization levels in revising their cap expense for next year.
Now while some customers are now adjusting the desired time ago their demands the vast majority of our customers are still requesting shipments of the litho systems as soon as possible.
This is clearly driven by the strategic nature of these little investments in support of technology transitions capacity additions, which require time for wafer output to materialize.
As well as governments global investments in pursuit of technology sovereignty and as a matter of fact, our 'twenty to 'twenty three shipment demand is still significantly above our built in shipment capacity for next year.
This is supported by our record bookings this quarter of $8 9 billion euros, and our largest backlog ever over 38 billion euros.
Almost 85% of this backlog is for you via an immersion, which is used for advanced notes and related wafer capacity expansions.
With regard to our supply chain, we need to continue to manage risks, but over the past quarter, we see the predictability of the move rates in our supply chain improving.
As a result, we now foresee a further improvement in our output capability in Q4.
Looking at the net sales in the quarter plus deferred revenue profile shipments you see an increase in shipments value over the year.
Starting with cobalt 9 billion jaws in Q1 to $5 7 billion euros in Q2.
$6 billion in Q3, and we expect about $6 4 billion euros in Q4 building on this progress we feel we are well positioned to further increase our capacity next year.
Now looking into next year and bearing in mind. The current environment, it's too early to provide specific guidance.
With demand expected to remain significantly above supply and based on discussions with our customers. We are planning to increase our system up with next year. So assuming we will have to address the supply chain issues in the coming quarter, we're planning to ship over 60, ERP systems and over 375 digital systems in 2023.
About 25%.
The deputy assistant being immersion.
Regarding gross margin is which I mentioned, we expect to approach 50% this year.
And as discussed last quarter, we already discussions with customers to share extraordinarily inflationary costs from freight labor as well as system components.
These discussions are.
Our are progressing.
And in general customers understand our request to share these extraordinary cost increase and as such we expect to receive a reasonable level of inflation compensation over the course of next year.
Assuming successful progress on this item based on current macroeconomic conditions and inflation levels and considering that next year, we will likely have less gross margin impact from fast shipments than in 2022, we expect gross margin to improve next year.
We will continue to make the required investments as we need to ramp our capacity in anticipation of medium to long term growth of our industry.
Clearly these investments might put some pressure on the gross margin next year, but all in after the boy if we want to maintain the longer term growth profile of the company.
That said, we do see a clear gradual progress from today towards our longer term gross margin ambition of 54% to 56%.
25.
As I said before longer term, the expanding application space, where semiconductor secular trends driving structural demand and this is why we are actively adding capacity and are planning to further increase our <unk> shipments in future years to meet customer demand.
As announced earlier today, the upcoming appointment of Wade Allen to the board of management as our strategic sourcing and procurement officer underscores the significance of working with our supply chain to further drive future capacity growth.
Regarding our capacity for 25 and beyond we are actively working with our supply chain to achieve the earlier communicated targets up 90 units for three low and <unk> at 600 units for <unk>, along with a medium term target of breath of units four points higher.
<unk>.
Next month at our Investor Day on November 11, we will provide updates on how we see the changes in the end market growth driving increased demand for our litho systems.
What this means for our capacity plans as well as the impact on our longer term financial scenarios for 2025 and 2013.
Finally.
With regards to the announcement earlier this month from the U S government export control restrictions, we have performed our initial assessment and expect the direct impact on <unk> overall shipments planned for 2023 will be limited.
However that could be an indirect effect due to the inability of other equipment suppliers to ship their systems.
Our current expectation of such an indirect impact.
We'd be around 5% of our backlog.
This percentage is based on the share in our backlog of purchase orders from Chinese Fabs.
Our growth assessments are seen as meeting the technology criteria as indicated in the updated U S export control restrictions.
We will continue to refine our assessment as the situation evolves.
While ASML is of course fully permitted to comply with all applicable regulations. The new regulations do not directly change U S export controls on lithography equipment.
As a European based company with limited use technology in our systems.
I'm not going to continue to ship all multi UV lithography shipments.
To China out of the Netherlands.
Additionally, we can ship most U S origin spare parts to most customers in China that I wouldn't know mature notes without the U S export license.
New export controls are directed at advanced nodes, while our business in China is predominantly directed that mature enough.
Lastly.
Export control related reasons, we cannot ship the more advanced Fabs in China.
Have more than sufficient demand for these systems elsewhere globally as demand continues to exceed supply.
In summary, while in the current environment, there's a lot of uncertainty due to macro concerns our customers' demand for our products continues to exceed supply.
We are working to increase our capacity next year with a plan to further increase this by 2025 as communicated earlier this year since we remain fully confident in the opportunity. This provides for our future growth.
We plan to update you all on this during our Investor day on the phone.
11th and <unk>.
Certainly hope to see you there.
We would 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'd 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.
Now operator, we have you or could we have your final instructions and then the first question. Please.
Thank you at this time, we will begin the question answer session again, Please press star one to register a question.
CRH, if you need to have to a question from the queue.
If you are using speaker equipment today, please lift the handset before making the selections one moment. Please for the first question.
The first question comes from the line of Ethics Spoofing Yay.
Yes. Please go ahead your line is open.
Hi.
Can you hear me.
Yes.
Okay, great. Thank you very much for taking the question.
One on 2023 outlook, especially for deep UV your 375 deep UV tools.
For next year.
If we assume that's more than 40, maybe 50% of deep UV will then use these for memory can.
Can you help us reconcile that.
Your guidance and what your customers are seeing for example, we may be to the wafer fab equipment memory Capex down.
More than 40% into next year, just trying to think about the litho intensity, excluding <unk> and I mean could it be driven by inventory build or anything more fundamental that would suggest you know deep UV.
Especially we situate them on memory being resilient. Despite what your customers are seeing just trying to reconcile that number would be helpful.
Yes.
Okay. Thank you.
When you look at the backlog of 38 billion.
About a quarter of its memory and about 75%.
For our logic customers.
The backlog is based on.
What our customers are currently thinking about what they need in terms of lithography investments for.
<unk> 2023 capacity additions, which you need to remember it is not only.
Main stream capacity is also for advanced technology nodes now.
Having said that.
So all of our customers and I would not exclude memory customers. Indeed looked at the Capex guidance for next year and have taken it down but those same customers in the same breath tell us listen we.
Do you need those machines and these are the machines that we need for 2023, because they are strategic long term nature.
Shipments were $8 3 million will only be 2020 for output.
That has to do with the long lead time.
Character of our systems. So these are our strategic tools and we've never had we've said it before and I think I've said it over the last more than 20 years, mostly be in over 100 times, we never look at Dolby Abbvie as an indicator because it is a lagging indicator customers will do what they need to do.
And what we really focus on this discussion with our customers on their strategic roadmap and the strategic expansion of capacity and that drives the <unk>.
Order intake.
This is where we all fully understand that that could meet in a particular year because of these particular regions. We are in a quite a particular environment.
The litho intensity numbers might spike up like if we're coming out of the downturn that it will come down.
Wherever you go into it up there. These things are just relative percentages that yes in any given year it might be different but we.
Look at the long term.
The investment profile of our customers, where we have very close contact and so this is what they tell us and when they come with an order we're in a business, where we actually accept orders.
So.
I think it is it could be.
What changes might be a bit of an anomaly.
Normally if you look at that listen if that's what the percentage is.
At the end of <unk>.
It turned out that.
We actually came down.
Much as you currently think.
And Alex maybe one comment I think you are a function that more than 40% of ultra deep UV comes from memory I think that's not correct. If you look at if you look at the if you look at our backlog.
It is it is more or less in line with the overall representation of the backlog so the.
No.
One quarter three quarter.
Representation of the backlog also hold for <unk>.
You mean on revenues all your needs because I wasn't looking revenues.
That's right that's right.
Okay. Okay. Thank you and maybe a quick follow up is on the installed base management I mean that has been.
A bit stronger I mean this quarter you mentioned some upgrades now if we look about 2023 and imaging.
<unk>.
Industry slow virtualization due to lower demand should we then expect you know your installed base management to perform better in this environment as you will have more downtime machines and and maybe run above your.
Midterm targets of 11% in this kind of environment.
Yes that could be but also.
<unk>.
And then normally what you what you see.
In an upturn is that to your point there is no available time to do upgrades.
The downturn is available time, but then the upgrades that have to do with productivity enhancements.
Costs are not that needed, but all of us, which basically has to do with the lithography requirements the patterning requirements might be so.
Yes, that's good that could be but I think it's too early to tell right now.
As you have probably seen over the last quarters or the last couple of years.
The installed base management business is there.
Relatively short term business so customers can take those decisions on relatively short term and we can actually implement.
Those upgrades are also relatively short term so we'll have to see well, there's always some opportunity in a downturn like situation, but that's clear.
Thank you very much.
Thank you. Our next question comes from the line of care Cortisol at Wells Fargo. Please go ahead. Your line is open.
Yes. Thanks for taking my question I wanted to follow up on the on the question around 'twenty two 'twenty three outlook.
I guess I wanted to understand.
It sounds like obviously some of your customers or maybe changing some of their delivery schedules and just given that you guys have the longest lead time for tools, even in the <unk> space right now.
Do you worry about this meeting, creating some sort of kind of <unk>.
In your pocket in demand when you look into 2024.
Well, that's a reasonable question, but yes, we have no clue.
Because.
What were those 2024.
Struggling to understand 2023 and for Us 2023.
On the demand side.
We are.
More or less protected you could say because there's still such a big gap between the demand side and what we can make.
That's still a significant gap between our demand profile for franchisee, which as we said it has come down somewhat.
Paul.
Minor as compared to the gap that still exists between the current event at our output capability. So.
I don't know about within that global 2024.
The shipping still tied to 'twenty three.
But thanks for all that.
No clue.
I think the way to also add to that.
Fully agree with what Peter said, but also the way to look at that is we believe that the over 60 in the over 375 that we've indicated before would be a normal trajectory towards our objectives on 2025.
So I guess your question of an air pocket is only relevant to the extent that you are really trying to get.
Together you on are we entering into recession territory and are we entering into a very long and very deep recession.
In essence, what you're asking.
This might not be.
That question Thats, one so that was my point.
So what do we know about 2024.
Yes.
But longer term you have to also realize that longer term.
There is.
So I think we're fully confident in the growth of this industry.
Many of our customers with healthy balance sheets at the same confidence, which actually with our largest customer we have dose.
In depth discussions and some of them either went public with saying, we're going to spend a lot of capex, because we need that capacity is not going to be capacity it needs to be HBM high volume available by the end of anything you see going into 2024. It will be 2025 26. So it's longer term and this is why these investments are office.
Dziedzic nature, and we get continuously get the confirmation from our customer base, which includes our largest customers that spent most of the capex money that they will continue.
Got it that's all I can appreciate that.
2024 is quite a quite a long way away just as a quick follow up on clarification. The comments that you made around customers looking to change delivery schedules and some declines and maybe tool utilization.
Is that strictly on the memory side or you're also seeing that on the logic side.
Yes.
We see if you if you look at the decrease of utilization it is.
Actually still at a level, which we would.
At the end of 2020, Walmart lots 22, while it's still very healthy.
So it comes off a peak that we've never seen before so it's not that you see a steep decline you see it leveling off and even the area of increasing I think it's.
Bolt in some logic applications and.
Memory applications.
So, it's but it's not significant in that sense, but we do see it.
And in terms of the change in delivery schedules schedules of course.
I'm not going to be Joe, we're not going to be customer specific here, but I guess, if you read the newspapers about the sentiment that says some of our customers are sharing that probably gives you a pretty good indication of where you might see a little bit more.
A little bit more softness versus the others, yes, some of our memory customers I've actually been pretty vocal and pretty public about what the what I'll do with the Capex. So.
Usual suspects that means that they're not going to mention names.
Display that form.
Media reports.
Okay.
Perfect. Thank you.
Thank you. Our next question comes from the line of Alex Hockman Tony at Citi. Please go ahead. Your line is open.
Thank you.
And then the one on the purchase <unk> from Citi.
As a quick question if I may go back to the topic of booking.
On our calculations over the past few quarters, the quoted about $17 billion.
Of the to be booking the metrology and inspection booking.
Even in the context of the run rate of 600 shipment capacity 600 capacity by 2025.
Quite extreme.
Could you help us understand.
Who's placing these orders.
What type of consideration and just the case of demand being pulled forward trying to get some confidence in what seems to be a very healthy.
<unk> ordering pattern, even in the context of the capacity that you have talked about by 2025 and I have a quick follow up.
Yeah. It's a good question I think.
You may remember that.
In 2016 capital markets day.
And even I think in 2018.
<unk>.
Anticipated our debt our DPP shipments would go down as a result of the cannibalization of the UV.
Actually the opposite happened it Didnt go down it group.
Difficultly across our entire customer base.
As the customer base that is focusing on consumer products, because youre looking at the $70 million that you just quoted the historical order intake it's consumer industrial.
Automotive its energy transition.
Just the.
Sure application space.
Has grown so much and the problem that we have.
Yes, you have that discussion with our supervisory board yesterday.
That nobody connected all the dots theres not one firm on the planet that actually has the full insight into where all these chips are going and where they are being designed into with what I do know is that the number of mask.
Sets that are being run.
In logic.
From let's say 20 nanometer upwards of 28 $45 $65 91, three micron the number of masks over the last.
12 years has been relatively stable running through our tool except for the last two years we.
We see a significant increase in the number of matches up to 40% being used in that technology category.
Which actually means that the number of applications that are using deep UV technology grow significantly double digit.
Every year and if you ask me to peanut tell me exactly where it is we don't know this yield what are our largest customer said when I asked the question is that because you have a very significant market share you should know that I have no clue.
This is actually I think there is nobody connected.
So when you look at the facts the facts are that it is in the <unk> space and it's the application space and if you ask me exactly where it goes I have to also say that we don't have that full clarity, but what we do though is that the number of designs in the DPP space.
Above 20 nanometer is significantly increasing.
And that's where it goes.
And this is why we do see your order intake across a broad spectrum.
Customers that have not asked any significant capex for the last 10 years or in our order book now quite significantly as a group.
And those are the ones that likely vary Matt leathers.
But they still don't have the tools all the time.
Two weeks ago still gets us there.
So I think that this is ware.
Blame on us blame us as the industry that we don't have that visibility because we don't.
We do know, there's a shortage and a significant increase in the number of designs.
And to add a few number of Stuart's Amit in terms of trying to get an understanding what is the goal. There is no real anomaly in the composition right. So the.
The $25, 75% in terms of memory versus logic that we just talked about for the full backlog as I. Just mentioned Thats also what you would see in the composition of the non <unk> part of the backlog so.
That's pretty consistent so no huge inconsistency there as it being skewed towards one or the other it's just the typical $25 75 in terms of China.
China and if you look at the last couple of years, China typically was around 16% to 18% of of our assistance sales and that's also about the percentage that you would see in the backlog. So there's no anomaly in the backlog when we say it often does how can that be and I think thats to support the comment the theory that it makes it goes in many many different directions.
There is no.
Anomaly in the end the composition as well overwhelming direction and it'll be a very wide a certain application.
That's very helpful gentlemen.
And secondly, as a quick follow up if I mean.
It might be called Cleveland totally changed the net deferred revenue run rate in Q4.
It's down to just <unk> 1 billion.
We then could be logical to assume that as we look towards 2023.
Should be no reason why this flip again back above one in other words.
But to do that is getting deferred into 2023.
Deferred to a deal.
Significantly smaller portion might go out from 2023 and potentially the six four that youre doing in Q4 is a good basis quarterly and look towards 2020.
Yes, I think I mean.
Clearly the first quarter for the quarter, where most of the fast shipment effect was hit with their that escalate in the case of <unk> you see that it starts to normalize and used that you already saw it in Q3, you see it in Q in Q4, and our expectation for Q4, you can see that.
The normalization effect of fashion and then starts to it starts to trend starts to trend down.
In essence.
If you stabilize your output at a certain stage you would expect that what you get into the quarter.
It's about what you what you see go out of the quarter. So that's the normalization at a certain point.
<unk> He would say you would see so.
You know that we're having discussions on another.
Another way to to recognize revenue here I mean, we've been having those discussions and we told you as soon as we as we have that and as soon as we see the potential to start recognize recognizing revenue again upon shipment of course, we will let you know.
So we're looking we're looking into that but.
Assuming that nothing is going to change then in all likelihood.
We should be more or less neutralized for 40 years and for the effect of fact shipment somewhat gets into 'twenty. Three is sort of what you expect to also go out of 'twenty three in terms of fashion.
Thank you Roger.
Thank you. Our next question comes from the line of Alexander Duval of Goldman Sachs. Please go ahead to alongside them.
Thanks for the question you talked about you're aiming to help counteract in place any pressure from your discussion with customers.
Giving them because you need a mechanism for doing nice to adjust pricing based on delivering greater value in the form of higher prices for chip. How confident are you in your ability to do that given the potentially softer demand environment in 'twenty three.
And implicitly in some areas.
Perhaps less robust prices pod device and I've got a quick follow up.
Yes, youre talking about the inflation question, because you were a bit soft in the.
You were talking about the inflation correction towards customers.
It's really.
Okay, Yeah I think.
The software environment for 2022, I think we were clear the demand because we have a significantly higher than our.
Shipment capacity.
Issue that we are of course, having as debt.
When you look at the backlog the great thing about this is Greg.
Great backlog is that it's a great backlog, while the bad thing about the backlog that you have signed sealed and delivered purchase orders with prices in that so.
That means that you have to go back to the customers or at least an extraordinary circumstance is with <unk>.
Inflation percentages.
Reaches of the world, but a significant double digit that is such an extraordinary circumstance, where you really need to shift to get us there.
What's fair value pricing.
That's a good point, but also what you see in certain areas of the semiconductor industry that wafer price also growing up because there's also value. So it's just that as well.
And how.
How can you sit.
<expletive> together look at the combined business and about the fact that we are mutually dependent let's say walk there I think.
This is where we are and I think we will come up with a with a reasonable solution next year.
Many thanks, and just as a quick follow up you referenced again, you supply a day and reiterated do you aim to put in place. The 90 E systems and 600 D V systems capacity beyond 25 could you just give us any more color on how the discussions with customers are proceeding.
And you sort of confidence level of the supply chain will be able to proceed.
That kind of level of production.
Yeah.
Good question.
We are seeing.
As a gradually bit more stability.
The number of supply issues that we have where we really need to put massive manage the management attention is actually shrinking and number of number of.
No surprise with Cigna.
Significant management attention and action from ASML side at those suppliers, we feel that we have.
A clear roadmap towards better performance.
In the year 2023, I think.
It is our internal target to basically a buy.
At the end of Q1 of next year.
We work with all suppliers in the Shadow of Carl Zeiss is Ics, our land supply OPEC supply, which some of.
Our <unk> are not in the shadow of.
<unk> and Carl Zeiss can deliver those over 60, <unk> systems and over 375 BGP system. So this is basically the target that we have and I think we're on our way we have identified the key areas and with a lot of management attention in all confidence that has gone up.
Okay. Thanks.
Thank you. Our next question comes from the line of <unk> <unk>.
Erica. Please go ahead your line is open.
Yeah. Good afternoon, everyone and thank you I just wanted to ask Keith you could there be helping us to understand your points on the fact that Q2s Ive got little content from the U S. Intellectual property standpoint, there is a lot of questions from investors on that point that I've got a follow up thank you.
Yes, I think.
Export control rules.
Because of the <unk>.
Low percentage of U S content rule.
Actually are such that because of that percentage, we can ship the lithography tools. So that's.
That is that is you could argue that's it that's a predominantly European product.
However, those tools need to be maintained.
There are spare parts that are that are U S origin parts and therefore, the export control rules. So for the spare parts you need to apply this will control rules and Thats, what we do.
And that also is true for the people that saw the people U S. Citizens that are working on technology that is.
That is mentioned in the export coal tools, that's not allowed.
Sure.
It's not so much the system shipments, it's the box ship it but those spots needs, but those systems need service. So this is why with the U S origin spare parts you are in the real world export gold jurisdictions that are affecting.
<unk>.
More advanced.
Factors of our customers in China.
So that's actually very interesting. So so that will impact more your installed base management business than your initial tool shipments.
Yes, no yes, but.
Indirectly as I said in my prepared remarks, we make an assessment of which fabs.
<unk> customers in China are potentially affected but that's under the assumption that our peer.
Company colleagues.
For the same company.
Same conclusion iveco percent co pollution, we said that we see about 5% of our backlog being potentially impacted by the indirect effect because if you don't meet.
You cannot get the older.
Equipments why would you need a litho tool.
So it's that.
That is what we mean with the indirect effect.
And then of course.
Hasn't it.
And that has an effect, but also if you cannot maintain the installed base that of course also has an effect that's why DSO based magazine business, but that's relatively small.
The biggest impact is all.
Nope.
Shifting to our advanced customers in China, because they simply don't meet the machines.
Understood and then maybe one clarification you mentioned very current need that 5% of the backlog impacted by goods restriction.
Indirect split rules apply directly to you effectively.
Relative to the 15% to 16% of sales going into China can you give us a sense of a weight of multinationals or hynix, Samsung Intel, but it was less vehicles in China and then B.
Mature nodes with both 14 nanometer finfet since you could just give us $5 five again.
Skewed either way.
Yes.
Listen.
Like I said, the 5% is based on our assessment that our peer colleagues.
Deposition and etch and metrology call. These will come to the same conclusion.
We came so that's that is.
Assumptions, but they have to do their own assessment.
So this is basically what we currently think.
And.
I think if you just go back to what we said earlier.
<unk>.
Our China sales is about between 15, and 20% less average F&D and 18% of our sales is the same in the backlog now so that if the 5% of the backlog maybe impact based on our assessment.
Of the advanced Fabs.
Yes.
The ratio.
And that is of course deep UV, because we cannot ship EV and we will not ship into China.
This is what you what you need to look at so limited, albeit slow base.
It's a 5% to 718% that we mentioned earlier.
Thank you.
Thank you. Our next question comes from the line of maybe Husseini.
Please go ahead your line is open.
Yes. Thank you I actually have the 'twenty to 'twenty two question.
But can you help me understand the mix of backlog.
The mix, we're playing in.
This is <unk>.
Well, it's a bit of.
But I think from a backlog point of view.
Over just over 50% this is <unk> related and.
And that is just under 50% as deep UV, yeah about $55 45.
People look at it.
Okay.
We can hear you booked a couple of more.
In Q3, and I'm just trying to understand.
How should we think about the incremental increase driven by higher new versus the other tools that limited because it's sort of.
Lights.
The detailed backlog due to shipment.
Yeah, Matt we typically do not disclose the the the high any numbers and I think in the last call. We also explained why is because there is.
The number of customers taking high ha tumors is so small that within that ecosystem.
They very quickly on the sand, who is ordering and because that is competitively sensitive. That's the reason why we're not disclosing it so sorry, we're not going to answer that question.
We're not we're not giving you a number if all the value of it.
It is a there is a healthy intake of lowering eight machines in the number there as well that is something that I can but I can assure you.
So when I.
Thank you.
It's all <unk> and tie it together.
Sure.
Okay and then.
In terms of.
The.
Capacity increase.
Okay.
There's been a capex that you can offer.
If you already have plans to increase.
With the $3 75, and then eventually grew to 600 zero Capex you can help us we can keep that model.
Wasn't it.
The cash flows and how does it impact your costs.
Yes, I think what you've seen many of you have seen our typical capex numbers and I think what we've told you is that for every year all the way through 2025.
You might expect another 500 million for that specific capacity expansion thats the way to look at so on top of your regular run rate in terms of Capex at about $500 million for the year between today and to end the 2025.
Got it thank you.
Thank you. Our next question comes from the line of Sandeep Deshpande JP.
J P. Morgan. Please go ahead.
Right.
Yeah, Hi, Thanks for letting me on I have two questions, but trustee actually this is a follow up from Amit question.
Got this $2 2 billion, which is deferred into next year.
What I remember you having said before that you will have capacity to do <unk> two next year.
If you take that into consideration and you take that into consideration also that you would have a higher capacity of deep UV next yes, I mean.
I mean, the revenue that you can generate all of that is going to be like.
Next year is quite much higher bandwidth.
Just looking for you for 'twenty three so maybe you can help us understand the puts and takes did you mean that the two 2 billion that indirectly.
'twenty three will still be remaining in the so called free shipping.
Shipments that pushed out again into 'twenty, four or how should we be looking at 'twenty.
Yes, so I'll leave it all very much depends on what's going to happen in terms of revenue recognition.
If you operate on the assumption that nothing is going to change in revenue recognition I E. Also for 2023, we will continue to recognize revenue.
Upon upon installation first and foremost, particularly down for UV I don't think it's prudent to assume that the amount that youre going to get into 2023, you're also going to lose out of 23 and 2024, it's only at the point in time, where we're going to recognize that recognize revenue again upon shipments. That's the point in time, where you are.
Going to realize this.
Additional let the additional this additional value so when we talk about the 60 over 60 in the over 375, that's really related to the output.
Capacity that we see for next year.
So that should then in that circumstance means be translated into revenue.
And then you would get.
Two point to win and you would get sort of a similar amount out if the revenue recognition is going to change in 2023.
During 2023, then you're going to get to $2 2 billion. In addition to that that's how the math would work.
Understood.
A follow up also on your capacity then we'd look at.
Uh huh.
Shipment this year I mean, I'm, just looking to 18 'twenty to 'twenty two.
Despite these huge orders you've had from the beginning of the it doesn't seem to be any acceleration in the coupon.
That it comes up your shipment is this because of your inability to get box, which was clearly evident in.
In the first half of the AR or is this something else.
Capacity, what your capacity for <unk>.
No no I think it's the ASML.
System integration capacity in the Netherlands is higher.
But there's nothing to integrate if you don't get the parts.
To the point that you just mentioned that we had a higher planned for 2022.
But.
We were just limited by the supply chain issues, which we extensively discussed in previous quarters, which by the way I said earlier.
Kind of getting our hands around.
So with the intention by the end of Q1 of next year.
Supplier again in the shadow of our Opex supply as ice at which we can support you, which are 60 and $3 75.
Thank you.
Thank you Al next question comes from the line.
But that type of Societe Generale. Please go ahead your line is open.
Yes, Hi, I just have one question one quick follow up.
Thanks for taking the question so first of all.
The outlook for growth for memory and logic, you'd previously communicated and how these two will contribute two systems growth in the year. So has this changed meaningfully.
The recent changes in.
Capex intentions, but some of your customer groups.
How would you see this developing into 'twenty three and then the second is just a follow up for me to understand correctly, if all goes to plan.
With a better offset other inflation pressures that you currently see it and you all go.
Margins, but also in your Opex, so assuming everything goes to plan.
Gross margins to improve next year, along the trajectory of traced we should do that is reflected back through higher average selling prices across your systems is that how we should model. It. Thank you.
I think the letter.
Rajiv will detect the inflation pricing question, because especially at all what has changed throughout the year in terms of the demand.
I think we said it before there's been some announcements.
Without being specific on our customers, but in the memory space clearly we have seen some.
Re planning off but.
Like I said already it's not significant but we've seen some plant some readjustments of the shift in planning and that has been gobbled up very quickly by other customers of which by the way.
Those customers that are gobbling up are in the logic space, but also here we have one customer that's fine. Thank you very much if I can get.
It took a little bit earlier. Thank you. Thank you.
Well. Thank you very much always it's been a bill of both but the trend is clearly what you also read in the paper that the.
The memory customers or the memory shipments.
Given it a bit not much but a bit.
In favor of the logic shipments.
Okay.
For next year.
For next year.
And the.
On the inflation side, so, yes, you're right I mean, the way that would ultimately pan out of discussions that we're having with customers are both on systems and on the Opex side. So the installed base revenue that will obtaining.
I think it's fair to assume that most of the compensation were seeking through the price of the system. So the impact of that would be that you would see the price of the system the asps.
Go up that would be the that's the way.
If we would find compensating for the inflation that we've been incurring this year and next.
Thank you very much.
Thank you. Our next question comes from the line of P. F N b.
Research. Please go ahead your mindset.
Hi, Thanks, a lot for taking my question.
Thanks for setting up the.
The CEO on that on an earnings call today, refreshing and I think it's good to remember that it's difficult.
Hey, guys, what's going to happen next and with that in mind I have two very.
Specific place.
Question on things we've discussed it up on the call today. The first one is.
In the way you've commented about 2023.
Where do you stand on memory.
Do you take into accounts.
The fact that your main clients on veterans have announced.
Like David you're actually spending on Capex.
Capex reduce figures you can see and so is that already part of your plan.
So you get you still need to see coming through because it takes time, Paul as a whole.
Supply chain process.
And then my second question is more on your inputs.
Such a billion but out of backlog.
Can you explain to us.
In a scenario in which seeing slowdown in Saudi significantly how.
How would you congratulation without these backlog go can you Clarence I ask you to reschedule shipments to cancel.
All of those.
What are they tied to whats you will come on.
Factories to manage a situation where your clients are giving you like if all of those and as you say if you take all those and that's what we'd expect you to do but any ease of web changes everything slows down then you have to be recruiting people.
Yeah.
Great question, well first of all though with for 2023.
There has been a re planning of that Capex spend is already in but like I said, if you have a significant.
The reduction in the demand from our customers, which by the way is not significant but it is.
A reduction but that gap between the mountain and the capacity.
There's still so big.
Then the impact on our total shipments.
Basically zero.
What you do see is a shift.
As a bit of a shift between memory and logic for.
2023, so it's in there, but it doesn't change the absolute numbers, let's say the over 60 and over 375, it's just a different allocation.
And on the 38 billion.
To deal with that if they really get into a deep.
Recession.
But we've always seen in every recession that I've seen in the last 25 years or downturn.
Customers never cancel.
That's where a rescheduling of the shipment and that's basically depending on their capex plans on the depths will grow the session about their ability to finance it.
It depends whether it's a few months out of or through a few quarters out that's what normally happens so would you.
Just get that the time in which we now plan.
To ship the backlog in a situation where you have a deep recession, then the time to shift the backlog is just going to extend that's what's happening.
Ever goes away.
Okay.
Excellent.
Yeah.
Alright, we have time for one last question. If you are unable to get through on this call and still have questions. Please feel free to contact the ASML Investor Relations Department with your question.
Now operator may we have the last caller. Please. Thank you that comes from the line of CMS Youku at Credit Suisse. Please go ahead. Your line is open.
Yes. Good afternoon, guys. Thank you for squeezing me in two questions. Please firstly it sounds like you've been able to put together these machines quicker in the field and that's part of the reason for some of the pull in of.
Our revenue this year.
If my understanding is correct can you give us some color on how long installation cycle times are tough.
Sites previously maybe in the first and second quarters and what are they now and if the cycle times have come down.
If not give you more confidence in being able to push out less into 2024, and you're pushing out into 2023.
And that's my first question and then I'll go to follow.
Yes, <unk> good question.
Indeed, that's the case so the installation time.
It's going more and more rapid often comparisons at the beginning of the year.
And to give you a better flavor for that I think at the beginning of the year, we were somewhere around 14 to 15 weeks and I think we were able to shave off around 10 days to 14 days.
That number so that's the that's what we've been able to do because there are differences at some customers.
It's.
It worked more rapidly than another.
Quite some differences there, but on average I think thats about what youre, what youre looking at.
That does two things one thing about this is an important element also in the discussion earlier on this is an important element also on demonstrating that fast shipments are not more difficult to install than normal shipments, which is an important element in the year and the revenue recognition.
Significant exercise that we've talked about so there is an important factor element and then ultimately trying to get to the situation will become once again recognize revenue upon the upon shipment. That's one thing that it does that's helpful. Secondly, Youre right I mean, this could lead to a situation where maybe what you pushed out of the year is less than what you get into the year.
In a stable situation if you grow of course down.
Under normal circumstances, you would push out more so NSS in an earlier response that I would expect about the same to go out of the year, what would come into the year.
Of course that would also assume growth. So that's that's the reason why I think net net with a growth situation, but that's the benefit of.
Being more economical and efficient on the installed that kind of gets you to an expectation of a stable situation.
Understood and then my follow up is on your China based customers can you can you talk about your ability and the ability of your peers to crack and control, which node a particular tool to Houston.
Is it relatively easy for you to be able to say, which.
I Wouldnt know that particular customer was using chip supply then.
Can I ask is if cracking it's not that easy.
If you have to stop shipping to light up our notes and you may be thinking at the moment.
Yes, I think I think.
Relative question I mean, when you talk about nodes.
That's working off the technology node.
It could be an 18 nanometer node or whatever note.
I think 18 nanometer as an example.
It's a pitch node, which basically you have many have pitches.
So the definition of what is exactly meant is extremely important and I think this is exactly why the industry and the industry equipment makers are of course in contact with the US government interpretation of this yeah.
And because you are right.
Difference.
You have to northern pledge, which is used for marketing and you have to normally glitches that is used for the real physical size.
And then you know.
Just to give you an indication if you could talk about the pitch, which is a line in the space.
Rich.
Assumes that the width of the physical structure of the line is as big as the space Well Trust me there are spaces.
Lola.
The physical line it actually means.
And in marketing terms, they referred to the space and not through the physical structure. So.
All things need to be worked out and needs to be clarified.
The U S government.
And with.
With the agency that's actually doing.
This particular assessment and it's going to take some time and it's why we continuously referred to.
Initial assessment and it needs to work and interpretation.
A clarification.
Got it and what would you say that 5% is conservative or would you say that there could be.
I'm sorry, the downside risks.
Right.
I wish I actually knew.
I mean, it is what we really need is actually a clarification.
I'm talking about Theres downside I have no clue, if I would.
No that that would've already.
More or less.
We are directional.
Interpretation of the U S Gulf.
Which of course, we need to figure out.
Have you seen it.
Alright, thank you.
On behalf of ASML I would like to thank you all for joining US today, we hope you'll be able to join us at our Investor Day on November 11 of this year and both of them.
Operator, if you could formally conclude the call I'd appreciate it.
This concludes the ASML 2022 first quarter financial results Conference call. Thank you for participating you may now disconnect.
Yeah.
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