Q2 2023 ASML Holding NV Earnings Call Pre-Recorded

Speaker 1: Quarter was a solid quarter. I mean sales came in at 6.9 billion, which is at the high end of our guidance range installed based business 1.3 billion We had good cost margin 51.3 percent That is the result of the fact that we sold more immersion systems than we had before.

Speaker 1: gross margin number in Q2. Net income 1.9 billion, 4.5 billion on auto intake, solid quarter.

Speaker 1: What's your guidance for the third quarter? Third quarter, we expect sales to come in anywhere between 6.5 and 7 billion, about 1.4 billion of install base business, 50% of the margin. And actually, our guidance for Q3 is pretty similar as the guidance we gave.

Speaker 1: three months ago for Q2.

Speaker 1: Let's have a look at the market. Have there been any recent changes in market dynamics? Yes, I think you can say so. I think it's all driven by macroeconomics. You know, macroeconomics, we still see relatively high inflation rates, high interest rates, so fear of recession in Europe , in the US.

Speaker 1: The geopolitical environment is also difficult from time to time. So yeah, I think the macroeconomic situation has not improved. Now on the end markets, we see some first reports coming in that some end markets seem to be bottoming out.

Speaker 1: which is good, but it means that our customers are still dealing with relatively high inventories, high levels. And how do you deal with that? Basically by reducing the wafer output. And wafer output means that of course the utilization of our tools is also less. What does it mean? I mean on our EUV business?

Speaker 1: we see some shift in the mount timing that is largely driven, I would say predominantly driven by FAB readiness. The FABs are not ready and why is that? There are skills issues. Now we've said before, whether it's in Taiwan or whether it's in the US.

Speaker 1: no skills issues, people who actually have the capability to build these very advanced labs. There's also some element in there of course the macroeconomic situation where people have some concerns about.

Speaker 1: the duration of this down cycle. I think that's what we're seeing for EUV....on deep UV...

Speaker 1: Yeah, the demand is still higher than what we can make. Now of course DPV also has been impacted by what I said on EUV, you know, because we've seen some pushbacks, some pushouts in terms of the demand across different segments in the industry.

Speaker 1: However, we also need to realize that our Chinese customers had over the last two years a so-called demand fill rate, so how much of your demand can we ship, of significantly less than 50%. So our Chinese customers said, we're happy to take the machines that others don't want because

Speaker 1: their fabs are ready, they can take the tools, so when they become available they will take the tools. So all in all our DPV business still looks pretty strong. And that has to do with the fact that what I just said, that there is a significant demand which is still higher than what we can make.

Speaker 1: With the recent communication from the Dutch government on export controls, can you provide an update on the expected impact to your deep UV business? Yeah, it's specifically on deep UV. A few weeks ago the Dutch government came out with the final ruling, which was more or less in line with what we...

Speaker 1: communicated about a quarter ago. And I think that in itself was not a major surprise. It will become effective for September 1st and it deals with our what we call advanced DPV immersion systems.

Speaker 1: which is our tool type NXT 2000 and subsequent numbers, so 2000, 2050, 2100 and up. That's what it's all about. It's not about EUV, because EUV is already under export control.

Speaker 1: Now, so we just have to wait to really get a final answer on your question. We also need to understand what the American government has done. The Japanese government has come out with their ruling end of May. The Dutch government a few weeks ago. So we're waiting for the American rules to come out.

Speaker 1: There have been some media reports that the Americans are contemplating some additional measures. Now, of course, that's speculative. We don't know what it is. But what we understand will not have a major impact on what we said before. So I think all in all, when you look at export control measures in total, there are some

Speaker 1: We don't expect a significant impact on our 2023 year, but also not on the longer-term outlook that we gave during the Capital Markets Day last year.

Speaker 1: With regard to fast shipments, have you made any progress with your customers on revenue recognition when it comes to fast shipments? Yes, we did, as a matter of fact, particularly on DPV immersion. As you know, we fast ship DPV immersion and EUV, but on DPV immersion, we have a lot of

Speaker 1: installation at the customer side. Now, having said that, what does it mean? It means we're going to recognize more revenue in 2023, and we expect at about 700 million euros worth of revenue now being booked in 2023, which we originally said was going to be pushed to 2024. So our revenue that we now defer.

Speaker 1: out of 2023 into 2024 is not the 3 billion that we said last quarter, but this 3 billion less 700 million is 2.3 and that's only EUV. So it actually means that deferred revenue because of fast shipments not only applies to EUV.

Speaker 1: And of course there we will book revenue when we get the final sign off at the customer site for EUV systems.

Speaker 1: What does all this mean for your business outlook for this year? This year business outlook like we said earlier there is an impact on the macroeconomic situation but if you then break that down into deep UV, EUV and install base oil.

Speaker 1: installation at the customer side for DPV immersion systems, which all in all gives us a higher sales number for DPV immersion this year, where we originally anticipated that DPV would grow with 30%, but now it will go with 50%. So the DPV business looks a lot more healthy.

Speaker 1: so we will ship the tools later. That means that the original quoted growth number of 40% for EUV revenue this year will go down to about 25%. And on installed base, that's a reflection of the macroeconomic situation and the cautiousness or the conservative.

Speaker 1: way that customers look at doing upgrades. You know, you don't need to do an upgrade when you're reducing the utilization of your install base. So we now expect instead of a five percent growth on install base that to stay flat for this year. But if you take it all together, higher deep UV, lower EUV, flat install base.

Speaker 1: then the total sales of the company are now expected to grow towards 30% instead of the earlier 25% that we set last quarter. What does this all mean for your gross margin in 2023? Well, if you take everything together, you take higher DPV sales, lower EUV but the install base being flat.

Speaker 1: Let's have a look at the longer term outlook. What are your expectations for 2024?

Speaker 1: Well, if you look at 2024, it will be driven by the macroeconomic development. We said it before, macroeconomics show higher interest rates, higher inflation numbers, some fear of recession here and there. And that actually means that...

Speaker 1: What we all thought that we would see this year, it would be a recovery in the second half of 2023. I think that's going to be later. That's now a general view that that's going to be later. Now having said that, ASML has a very solid and strong and healthy backlog of about 38 billion.

Speaker 1: On top of that, when we look at the firm demand that our customers put on us, together with the good backlog for next year, I think we see a very clear opportunity for growth in 2024. However, given all the increased uncertainties, I think it's too early to give you a prediction of any forecast for 2024.

Speaker 1: It's really the solid belief we have in the megatrends that are not going to go away. You could even argue that some of these megatrends, when you think about AI, are even more important than we thought at the end of last year.

Speaker 1: But it's not only AI, it's also the energy transition, it's the electrification of mobility, it's industrial IoT, it's everything that's driven by sensors and actuators. So effectively we see very strong growth across the entire semiconductor space, whether it's mature or whether it's advanced.

Speaker 1: And that because of these mega trends, we still have a very strong confidence in what we said at the end of last year, that by 2025, depending on what market scenario you are choosing, higher or lower, we will have between 30 and 40 billion of sales and gross margin by 2025 timeframe between.

Speaker 1: 54 and 56 percent. And if you extend that then to 2030, we are still very confident that by that time, also dependent on a lower or higher market scenario, sales will be anywhere between 44 and 60 billion with gross margin between 56 and 60 percent. So, yeah, we have short-term cycles. This is what the industry is all about.

Speaker 1: But we have a very strong confidence, even more ever strong confidence in what the longer term future is going to bring for this company.