Q3 2023 ASML Holding NV Earnings Call

Subject of today's call is Asml's 2023 third quarter results.

The length of this call will be 60 minutes and questions will be taken in the order that they are received.

This call is also being broadcast live over the Internet at ASML Dot com.

A transcript of management's opening remarks, and a replay of the call will be available on our website. Shortly following the conclusion of this call.

Before we begin I 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 the presentation found on our website at ASML Dot com and in Asml's annual report on form 20-F, and other documents as filed with the Securities and Exchange Commission.

With that I'd like to turn the call over to Peter <unk> for a brief introduction.

Thank you skip welcome to everyone. Thank you for joining us for our third quarter 2023 results conference call.

Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the third quarter 2023, as well as provide our view of the coming quarters.

Rajeev I will start with a review of our third quarter financial performance with added comments on our short term outlook and I.

I will complete the introduction with some additional comments on the current business environment and our future business outlook Rajeev you will thank.

Thank you Peter and welcome everyone.

I will first review the third quarter financial accomplishments and then provide guidance on the fourth quarter of 2023.

Let me start with our third quarter accomplishments net sales came in at $6 7 billion, which is around the midpoint of our guidance.

We shipped 10, <unk> systems and recognized $1 9 billion euros revenue from 11 systems this quarter.

Net system sales of $5 3 billion euros, which was mainly driven by logic at 76% with the remaining 24% coming from memory.

Installed base management sales for the quarter came in at $1 4 billion euros as guided.

Gross margin for the quarter came in at 51, 9%, which is above our guidance, primarily driven by deep UV product mix as well as some one off cost effect.

On operating expenses R&D expenses came in at 992 million euros and SG&A expenses came in at 288 million euros, both basically as guided.

Yes.

Net income in Q3 was $1 9 billion euros, representing 28, 4% of net sales and resulting in an EPS of $4 81 euros.

Okay.

Turning to the balance sheet, we ended the third quarter with cash cash equivalents and short term investments at a level of 5 billion euros.

Moving to the order book Q3 net system bookings came in at $2 6 billion euros, which is made up of 5 billion euros for EV bookings and $2 1 billion euros for non UV bookings. These values also include inflation corrections.

Net system bookings in the quarter were driven by logic with 80% of the bookings while memory accounted for the remaining 20%.

As expected we did see some moderation in orders this quarter as.

As the industry is working through a cycle customers remain cautious in the current environment managing cash flows and delaying purchase orders.

In addition, there were no <unk> orders this quarter, while our bookings were lower than in previous quarters. Our backlog at the end of Q3 remained strong at over 35 billion euros.

With that I would like to turn to our expectations for the fourth quarter of 2023.

We expect Q4 net sales to be between $6 7 billion and $7 1 billion euros.

We expect our Q4 installed base management sales to be around $1 4 billion euros.

Gross margin for Q4 is expected to be between 50 and 51% the positive impact of higher sales volume is more than offset by the diluted impact from a change in deep UV mix and one off effects relative to last quarter.

The expected R&D expenses for Q4 are around one point over 3 billion euros and SG&A is expected to be around 285 million euros.

Our estimated 2023 annualized effective tax rate is expected to be between 15% and 16%.

An interim dividend of $1 45 euros per ordinary share will be made payable on November 10th 2023.

In Q3 2023, we purchased shares for a total amount of around 100 million euros.

As mentioned in previous quarters in the current environment, we expect to see ongoing pressure on our free cash flow.

As a result, we will be prudent in managing our cash flows and maintain relatively high levels of cash with that.

Turning the call over to Pete.

Thank you. Thank you Roger and I have a bit of a cold so apologies.

As Ross has highlighted another good quarter, especially considering the current market environment.

Uncertainty remains in the markets driven by global macro concerns around inflation rising interest rates lower GDP growth in certain economies.

Geopolitical environment, including export controls.

However.

Yes.

The industry seems to be passing through the cycle through.

Wow.

Yes.

Some improvement in end market inventory levels downstream.

So you have to kind of bit of Walter.

Yeah.

Although.

Although inventory levels.

Upstream remain elevated.

As a result, our customers continue to moderate wafer output by running at lower utilization levels.

While there are pockets of tool utilization are still running at levels lower than normal relative to last quarter <unk> utilization in logic continues.

To show signs of improvement, while memory has yet to Tara.

We concur with our customers that still expect to see an inflection point, indicating the start of a recovery by the end of the year, although the shape and slope of the recovery remains uncertain.

Looking further ahead to 2035.

We expect a significant growth year is more than 50% of our <unk> and deep UV shipments will go through new fab projects.

On top of this we expect existing fabs will be adding capacity driven by continued recovery cycle.

Turning to our business, we now expect revenue to grow towards 55% year over year and increased from around 50% communicated last quarter.

Primarily driven.

And by an increase in imaging revenue.

China demand for deep UV systems continues to be strong and trends, we've talked about in previous quarters.

Our system shipments this year to Chinese customers. The majority of the orders were booked in 2022.

The demand still rate for our Chinese customers over the last two years was significantly less than 50%.

So the Chinese customers.

<unk> receiving a much lower number of systems then the audit.

This was due to that effect.

That timing from other customers.

Sorry, this was due to the.

As to the effect that the demand for our systems worldwide significantly exceeded supply.

With current shifts in demand diamond from other customers. We now have the opportunity to fulfill these orders to our Chinese customers.

<unk> supplies in fact, catching up to demand and we're shipping lithography systems for mature amidst critical notes to China.

While of course complying with export control regulations.

If you combine this with the fact that other customers are delaying their demand has been indeed, a higher sales percentage from China than we saw in previous years.

<unk> for 2023, we continue to expect year over year revenue growth through your view of around 25% as communicated last quarter.

The installed base business in 2023.

Our current utilization rates.

With uncertainty, particularly as it relates to the timing of the recovery Gus.

Customers continue to wait to perform productivity and performance upgrades on the litho systems.

Therefore, we now expect our installed base business this year to be down around 5% from last year versus the flat growth previously communicated.

In summary, based on our full year with higher <unk> revenue offset somewhat by lower expectations on our installed base business relative to last quarter, we still expect net sales for the year to grow towards 30% with a slight improvement in gross margin compared to 2022 overall.

Very strong growth year, especially considering the industry being in a down cycle.

On the geopolitical front.

As it relates to export controls.

U S government yesterday published updated export control regulations.

Part of the regulations is an update from last year's October communication and thought is the implementation of the U S regulation on the Trilateral agreement between the Dutch Japanese and U S governments.

Given the length of the documents will need to review the final regulation solely and make a detailed analysis, which will take some time.

But based on our preliminary assessment, we do not expect these measures to have a material effect on our financial outlook for 2023.

As for control measures could have an impact on the regional split of our shipments in the medium to long term, but we do not expect an impact on the global demand scenarios as communicated during our Investor day in November last year since.

Since our long term growth prospectus for our industry remains clearly unchanged.

Looking towards the next year.

Semiconductor industry is currently working through the bottom of the cycle and our customers expect the inflection to be visible by the end of this year as I mentioned before.

Although there is an opportunity for some demand to be pulled back into the back half of 2024. We currently prefer to take a more conservative view for the full year 2024, especially considering the inherent nature of the macroeconomic uncertainties.

Therefore based on our current view, we expect our revenue next year to be similar to 2023.

As such we see 2024 is a transition year, but also as an important year to prepare for the significant growth that we expect in 2025.

Now.

Based on discussions with our customers. We currently expect 2025 to be a strong year driven by a number of factors.

First the secular growth drivers in the semiconductor end markets, which we have previously discussed such as energy transition rectification NII.

The expanding application space, along with increasing lithography on future technology nodes drives demand for both advanced and mature nodes.

Secondly, the industry expects to be in the middle of a cyclical upturn in 2025, starting in 2024.

And lastly, as mentioned earlier, we need to prepare for the significant number of new fabs that are being built across the globe.

These steps are spread geographically are strategic for our customers and are scheduled to take our tools.

It is essential that we keep our focus on the future and build capacity to be ready for this room.

In summary.

Despite going through an industry down cycle.

We still expect very strong growth in our business this year.

And while there are still significant uncertainties, primarily driven by the macro environment. It appears that we're passing through the bottom of this specific cycle and the shape of recovery will ultimately determine the demand curve beyond 2023.

In the near term, it's understandable that customers remain cautious as they moderate wafer output to help lower inventory levels in the supply chain.

And look to build confidence around the timing and slope of recovery next year.

In summary, we cleared a few 2024 is a transition year as we are.

As we prepare for future growth and we expect strong year in 2025 and beyond.

We remain confident that we are well positioned for further long term growth as we discussed in the market scenario for 2025 and 2030 during our Investor Day in November 2022.

Yes.

With that we will be happy to take your questions.

Russia had Peter.

The operator will instruct you momentarily on the protocol for the Q&A session.

Beforehand, I would like to ask you 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.

Now operator could we have your final instructions and then the first question. Please.

Thank you as a reminder to ask a question you will need to press star one on one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one on one again.

We will now go to the first question.

And your first question comes from the line of J T.

From Wells Fargo. Please go ahead.

Yes, thanks for taking the questions.

Curious embedded in your expectation for <unk>.

More muted kind of 2024, how do we think about the gross margin puts and takes given there are several moving parts in terms of like mix and you guys are obviously, increasing our manufacturing output for later years and then I think there is some benefit from higher asps at the same time, you're also going to start shipping initial hyatt.

Tools as well.

Yes, Joe you're doing a very fine job and.

In analyzing at all.

Of course, you will appreciate that we're not going to give guidance on the quantitative guidance on the on the gross margin for <unk> next year.

I can give you some of the some of the drivers of the of the gross margin I think you mentioned a few of them, which are quite important. So I would say to 38 hundreds ASP is clearly one right. So 3800 is going to be.

An important part of the mix.

And next next year for <unk>, So obviously as a higher ASP, we talked about of more than $210 million last year on the call last that last quarter. So that comes with a higher ASP, but also drives drives to gross margin. So that's an important driver I think service on EV is one where we say we continue to make.

Progress on that one so that's another that's another positive.

I would say on the on the on the challenge side. So on the on the headwind that we're going to get in terms of gross margin for next year. It is as you said next year, we are preparing.

Obviously for a big year in 2025, because thats the way we look at it as we also mentioned.

Peter mentioned and as we also said on the video it's going to be a big year and that means that we're going to add some capacity to actually allow that to happen. So that's going to.

Got to have a headwind on the gross margin because those people will have to be trained in 2024 was primarily being productive only in 2025 and also on highway.

The Hyatt <unk> and <unk>.

The numbers next year, obviously, a very very small in terms of in terms of revenue and also output, but we are obviously preparing.

Our workforce both in their factory built in the field to accommodate <unk>.

25, and beyond at ramp of high any so RPC that also same story a lot of people that will be added there will be a drag on the gross margin for 202024.

Question, Mark obviously is on the installed base business that can go positively against Kengo negatively on the on the gross margin very much dependent on the on how the how the upgrade business will come back in 202024.

And then finally.

In light of all the puts and takes that you might think of in terms of revenue also in light of what was what Peter just said.

The China export controls you could maybe see less immersion tools into into China also less on the high end. So that could also be a bit of a headwind on gross margin. So that's it really Joe those are all the puts and takes I would see today.

And in the Q1 into Q4 call. So in January of next year, I think we have a much better handle on how those all of those patent panels.

Got it thanks for that and then as a follow up.

Wanted to reconfirm or fashion event, youre expecting still to exit this year in terms of revenue not recognized in the $2 3 billion Euro range and that does that get caught up next year as part of kind of a more muted growth that youre able to catch up to that demand.

I think Joel part of it will the way we look at it today, but again, we will confirm that in more detail in January but the way we look at it today, we expect less fast shipments by the end of 'twenty four than we would have by the end of 'twenty three so that would be a positive effect from <unk> shipment.

And the number four for next year.

Got it and that $2 3 billion still the right number exiting this year.

The $2 $3 billion is what we're currently driving towards that.

That's what to what.

We expect at this stage too to have shipments. This year are not recognized in revenue this year correct.

Perfect. Thank you.

Thank you.

We will now go to our next question.

And the next question.

Comes from the line of Chris Sakai from TD Cowen. Please go ahead.

Yes, hi, Thanks for taking my question two of them when you look into calendar 'twenty four.

Think of it from a unit standpoint, <unk> and deep UV, how do we look at units for <unk> in 2024 relative to 2023 would it be up down similar any color. There would be helpful. And then I had a follow on.

Yes, I think on the <unk> I think Rajiv said at the end.

The answer to the previous call in the deep UV of course, we've had a great year.

For China, because we were basically delivering out of the backlog you know these guys ordered and the orders were data where prepaid and we had the opportunity to ship I don't think that will repeat itself in that volume so much next year.

And on top of that of course, there is a.

New export control regulation.

That will.

Let's say, it's a handful of Chinese fabs.

Under the export control rules, where we cannot ship.

Immersion tools are just a handful off but that's still.

It is.

Sales that we had in 2023 that will not have any for us. So I think deep UV and could see some a.

The reduction.

Just on that now if then sales stay the same.

Or at the similar level that EOG growth.

But that.

Rush I also sat.

As an attitude of previous question.

We do expect that fast shipments.

Calling out of 'twenty 'twenty four will be.

Lower so theres going to be you could say a accounting windfall.

On the top line.

I think all in all this is a bit of the picture so somewhat lower.

Deep UV units.

EV units could be lower because of the fact that.

We actually have although we could see revenue increase as a result of our shipment move.

Indeed, we also somewhat lower but with highest.

Sales prices. So so this is.

What the picture is for next year.

Now Rosy I also said before we.

January after the fourth quarter results as probably the better time to go into a bit more detail but.

Directionally, that's what you can expect.

Got it got it that's very helpful. Peter and then.

On China I understand it was like 46, both of those in the last last quarter, probably averages around 30% for the full year, if you strip out the export control issues or the geopolitics.

All of these pending as a mature nodes kind of curious how long do you think.

This level of spending is sustainable or do you think at some point is going to be a natural consolidation or rationalization of the spending thank you.

Yes, I think.

You have to you have to understand where these tools are being used for.

The vast majority of our shipments to China as well.

Critical to mature and that's really where our business is.

Of course like I said earlier, there is a handful of Av.

Fabs not customers fabs that have been identified.

Ready for advanced semiconductor manufacturing. So those will those are now excluded but the vast majority is mid critical to mature we will that level off I don't think so and why do I think so because.

Do you need to realize where.

Those chips are being used for <unk>.

China is by far.

50% of all worldwide investments in renewable energy.

In China, that's wind that so that's the build out of the grid the electrification the buildup of the EV manufacturing capacity.

In China is significant.

<unk> Iot is a significant driver.

Next to that is also the <unk>.

Continuous telecommunications infrastructure rollout.

I'll Miss critical to mature stuff and.

As it happens.

Our China invest a lot there is a big country on $1 4 billion people. So there is a lot of.

Semiconductor indeed, and this is exactly when we look at the expansion plans all of our Chinese customers exactly what they are where they are putting that capacity.

At work in these areas and if you look at the total consumption of semiconductors by the Chinese.

Manufacturing industry.

China imports more semiconductors, then they import oil.

On top of that you will see a significant increase in these new transitions that means that if China wants to wants to come to a certain level of self sufficiency.

Perhaps still a huge gap to cover to be completely self sufficient. So it's also logical that they actually invest in this type of semiconductor technology because its for internal use.

And I think so it's I don't think we will see a peak.

Peak.

This year and actually but I think there will be going forward, a significant demand coming out of China for <unk> and mature technology is for all the reasons that I just mentioned.

Got it thanks, a lot Peter Thank you.

Thank you.

Well now go to the next question.

And your next question.

Comes from the line of Alexander <unk> from.

From Society Generale. Please go ahead.

Yes, hi, good afternoon. Thank you for taking my question.

Could you help us understand what is the percentage of shipments into China. This year that would actually fall under the restrictions that will be in place for the first of January of next year that will be my first question and then the follow up just very briefly you could tell us how far out you are currently booked.

In EV into 2024.

In deep UV. Thank you.

Okay, I'm, just writing down.

So on the.

That's correct.

The percent of shipment this year.

That.

<unk>.

It is now excluded it's anywhere between 10 and 15%.

So the vast majority is.

Mature in mid critical.

And I think like I said in answer to the previous call I think that is what will basically basically remain because of the built out of that capacity is actually needed for all the role of the transitions that I just mentioned.

So it's 10% to 15%.

Thank you.

And on the <unk> backlog.

We are currently looking at a backlog of around $19 billion four for EV.

But of course that is a combination of the shipments that we still have to go this year and then for 24 and 25 and by the way. It also includes the include tiny so thats. So.

There is a substantial part of the shipments that we envisage and 24 are included but not everything.

A substantial part is covered by the Baidu <unk> backdrop as I just referenced.

Okay, great. Thank you. It's just the <unk> hundred will be so next year's 3800.

None of our next next year will be will be a mix of 3600 38800.

Thank you.

Youre welcome.

Thank you.

We will now go to the next question.

And your next question.

This is from the line of Sarah Let's say from Bernstein. Please go ahead.

Hello, Thanks for taking my question. So in your results package. You had indicated that you are seeing memory utilization remaining on the low side, but you are beginning to see some recovery in logic and sort of indicated.

Potential bottoming out of this.

Cycle later this year can you give us any more specifics on the utilization levels and trends across memory versus logic any different like more specifics on the differences you're seeing across those end markets.

And I'm not going to give you a precise utilization levels because they are all different for our customers but.

It is bottoming out on lodging, that's what we've seen I think we've already indicated that.

I think last quarter that we saw this we were very early first indication I think that has continued.

So which is good but also I think that you need to look at that in the context of what I said earlier that inventory levels downstream.

Normalizing in upstream, there's still a bit elevated.

So this is in that context that that makes all sense.

Think on memory.

We don't see that that that upturn yet so we're just.

<unk> have to look at.

Just follow this closely.

When that will happen, but generally when we see it as upturn in logic somewhere down the line memory will follow as you know.

Logic working without memories is not.

It is.

It.

Does not make sense, either so it's probably a timing issue.

But we'll follow it closely and like I said there are other indications.

Also.

Some.

Articles that I, just read last week.

Korea that for the first time in 12 months, you see NAND shipments going up.

Firstly indications of a DRAM spot prices going up now. So these are early indicators. So that's why our expectation is that.

What we've seen for logic now over the last three months will also fall in memory.

Great. Thanks, and maybe just a follow up on the back on the backlog topic. So I'm in the past you've given us a sense for what share of the backlog is is China demand in and it's sort of a lot of 2022 orders led to the significant increase in China have you have you seen that shift at all it was sort of sitting around 20 <unk>.

<unk> is that shifted down now that you are able to ship more to China and meet more of those orders has that come down or does that continue to remain in that range.

No I think it's.

I think it's the same I think we said the China part of our business this year could be over 20%.

I think it's about the same range for the backlog.

So that has remained the same.

Great. Thank you very much.

Thank you.

And we'll now go to the next question.

And your next question.

Comes from the line of.

<unk> <unk> from UBS. Please go ahead.

Thank you very much so two quick ones from me. The first one is on maybe 2025. So you gave your market and market Tyson on your way to a capital markets day.

Now looking at the.

My quick environment I guess for many.

Alright.

People, it's Charlie.

Clearly we are more in the low market scenario is today in terms of macro.

If we look at your guidance on 2025 and taking into account the geopolitical environment should we.

We lean towards the low end of your guidance in a way I mean, it would still imply a significant recovery in 2025, but just wanted to check.

It's fair to assume given the comments.

It is generating the industry and you know the pushout that you also see on your side.

Dean towards the low end.

Of your guidance and I have a quick one.

I mean.

Let me explain the following I think.

Our industry is cyclical when we're in a downturn.

And the deeper the downturn is the higher the upturn and thats simply because the the underlying trend the secular trend of the capacity that is needed to support all these transitions that we all talk about and we all believe in if there's a downturn for whatever reason could be macro could be.

Macroeconomic shocks.

Deeper downturn is the higher the upturn.

It has been you just look at the <unk>.

The 30 year.

Cyclical behaviour of our industry, that's exactly what is always happening.

And it makes sense because the underlying trend is there now.

Having said that.

In my introductory comments I actually had three reasons for.

Why we believe 2025 is going to be very strong year.

One is these secular trends.

Are there and also that actually will actually means that we need to build the capacity to support our strengths.

If you don't build a capacity in 2023 2024 and for memory. It has even started earlier it's started in mid 2022.

It will have to be there to support those secular trends, which we all believe in so and.

And also going back to that Thats number one number two.

And answer to previous question it feels like most of our customers keep telling us that they feel as a fluff.

We're in this put up or we are very close.

And that means they will see growth in 2024, you can argue about the slope of the growth because of macroeconomic uncertainties, but they all tell us. Please prepare for 2025, so they strongly believe that growing in 2024.

And it will probably start slow, but will accelerate into 2025, so would it be ready that's number two.

Number three when you look at the number of new Fabs that are being opened geographically yeah.

Matt.

Extension that will that we will need machines in Europe in the U S across Asia.

Then.

That is already when we look at the demand already more than 50%.

All of our 2025.

Forecast the demand is on new Fabs for deep UV and EV.

So if you put it altogether also realizing that we actually look at 2024 and 25 together why is that because our lead times on more than 12 months.

Therefore for E Vita year, and a half so we need to have that very close connection with our customers and we have these insights into these news fab expansions.

Not so much where they're going to add capacity for the existing fast because that's basically that is a that is a.

That is a question of where the cycle is if you take those three things together and then we look at the demand that we're currently discussing with our customers.

And in 2025 is a very strong year.

And a very strong year doesn't jive with your low end of the guidance.

So it's again, it's a cyclical it's cyclical nature of this industry.

We are now let's say memory.

'twenty 'twenty four is not a full recovery year than memories in the downturn of two and a half years not just look at it historically.

That was followed by us by a strong recovery.

The same is true for logic and <unk> look at those building blocks of those rebuilding books that gives us.

The conviction at this moment in time to 'twenty to 'twenty, three if I was going to be.

There's a very strong year.

We need to prepare 2024, we can simply not wait until.

First quarter 2025, and then.

And then we start accelerating because the supply chain won't be there our lead times are simply too long. So we have to prepare that also in the year 2020 for it that's why it's a transition year, we look at 2004.

<unk> hundred 95, together why because of the lead times of our tools and discussions with our customers.

Are actually supporting all of that.

Sorry for the long answer no no no.

Thank you and maybe as a follow up then.

Pin and press pound when finished.

If we have long lead times on strong recovery in 2025, the orders I mean this quarter has been.

That's quite.

Quite low compared to many people expected, but just.

So on recovery.

Do you expect a very strong in 2025, and 30 times that you're describing yes.

Same is true for logic and even if look at those building blocks of those rebuilding blocks that gives us the.

Do we expect to see in the order of behavior in the first half of 'twenty plentiful I mean free taking through our control lead time. So how should we think about that because we should absolutely silver that's right. Yeah. No I think that's absolutely true and in Q3 of 2023, and we have more than $35 billion in the backlog.

Conviction at this moment in time to 'twenty to 'twenty, three if I was going to be as.

As it is a very strong year that we need to prepare 2024, we can simply not wait until the.

At first quarter 2025, and then we saw it and then we start accelerating because their supply chain won't be that our lead times are simply too long. So we have to prepare that also India 2024, that's why it's a transition year. We look at 2004 2025, together why because of the lead times of our tools and discussions with.

If you're a customer you can actually wait because they also see 2024 as a recovery year is it going to be.

Q3, Q4 Q1.

So when he said so they will just wait because they don't need to have it they have the capacity if they want that capacity. They can just call it off.

Our customers.

So that indeed, you are right now extending 25 is the kind of strong year that we expect then indeed it would have to see the order recovery in the first half of 2020 for absolutely no alright.

Are actually supporting all of that.

Sorry for the long answer and allow that further. Thank you. Thank you and maybe as a follow up then.

If we ever long lead times on strong recovery in 2025, the orders I mean this quarter has been a net seller.

Great. Thank you Peter.

Thank you.

Low compared to many many people expected, but if you expect a very strong year in 2025, and 30 times that you are describing yow do we expect that to see in the order behavior in the first half of 'twenty 'twenty four I mean the free.

We will now go to the next question.

And your next question.

Comes from the line of Ralph <unk> from New Street Research. Please go ahead.

Yeah.

Yes. Thank you for taking my question.

Your prepared remarks, you mentioned shifts in timing of them.

Say your question customers their demand profile could you give us some bit more detail on this but.

These push outs, primarily on the leading edge or is it more trailing edge and assess trends of push outs increased in recent months.

And pin and press pound when finished.

Yes, I think.

When you think about trailing edge.

We did not see push outs from many of our trailing edge customers because many of them are in China, but even the ones that are not in China, because they are supplying the mature market, which for instance supplies the.

The automotive industry and industrial Iot.

They actually kept pretty pretty pretty strong they were pretty healthy. So it is it is more in you could argue the leading edge than it was in the mature area and.

But don't forget leading edge.

Doesn't only need high and deep UV or needs high end immersion.

The only also needs mature at any scale rapidly to highlight so but if you want to split this them, but their demands.

A shift was probably more in those areas, where which illogical look at the end markets.

Smartphone sales.

<unk>.

The end markets, where and this is where the inventory. So there is also the area where you see the demand shifts.

But healthy or that's a relatively healthy was more in the mature space and of course, China because we.

Heavily under under shipped.

These customers, which of course with the orders in the order book and all and most of them four to a large extent prepaid yes of course, we will see we will ship those tools to them. If all those don't want them and Thats all mature.

Yeah.

Thank you very clear.

Thank you.

We will now go to our next question.

And the next question comes from the line of did yeah.

CCAR model Bank of America. Please go ahead.

Yes, hi, good afternoon, it's two DSO from Bank of America.

Lynch pin and press pound when finished.

I have a couple of questions first I wanted to just probe you a little bit again on 2025 revenue guide I think you answered that pretty well, but I guess, what I wanted to ask you is if we don't see those bookings coming through in the first half of 2004 is that is that roughly in July 24, where you would.

Consider changing that guidance or at least telling us that you would be towards the low end of that range or even below that and I've got a follow up thank you.

Well.

You by now know as DJ because we know each other for a long time, we just tell you how it is how we see the world at the moment that we have this call. This is how we see the world. So if we see the worldwide by Q1 of 2024 different we will tell you you will see a different by Q2 2020, we will tell you so.

This is what we currently see what we currently believe if the world turns out to be completely different better or worse by the middle of 2024, we will tell you.

I cannot say I cannot answer that question other than we will just tell you how it is.

No it makes sense second part.

On China restrictions.

Anything you can share with us with regards to the.

Yeah, you know what the sort of <unk>.

That might not be allowed to be shipped to those fabs I mean should we consider the 1982 b part of the band tools for those particular, fabs, but you could ship it to other China customers or is it too early to say at this stage.

I think that that's probably not too early.

It is it is as you indicate so.

The the way we read the rules now and of course, you can imagine that that part of the regulation, we have rep pretty carefully.

<unk>.

The.

The principle is that in that in principle.

Also the 19 eighties would fall under the export control restrictions, but only.

<unk>.

Those immersion tools are used for advanced semiconductor manufacturing.

<unk> advanced semiconductor manufacturing, we've been informed only applies to a handful of fabs.

So that means that the 1984 debt for those handful all fabs is off limits, but not for the vast majority of our Chinese customers for which we don't need an export control license either we could just ship.

Carlin pin and press pound when finished.

And also for the mature.

The pin you ended is not valid please enter your dial in pen and press pound when finished.

In the lower mid critical chips that are needed for all the transactions that I just mentioned.

So yes.

No.

Yes.

So that also has a majority of your immersion revenues next year in China will be.

As you indicate so.

The the way we read the rules now and then of course you can have you can imagine that that bought off the regulation, we read pretty carefully.

But at least some of the aged 1980, but probably moved to 19, <unk> 1930 sort of things for those for those customers.

No because the 1980 is the low end immersion tools are the only export controls.

The deep deep.

The principle is that in that that in principle.

We'll be on the 19th <unk> that go to a handful of Fabs.

Also the 19 eighties would fall under the export control restrictions, but only.

So it's not shipping 19, H Yep Yep.

All the other customers, which are using those chips.

When those immersion tools are used for advanced semiconductor manufacturing <unk>.

<unk> four four.

For non advanced semiconductor manufacturing that is actually used for mid critical lower mid critical mature applications, where our no security concerns.

<unk> advanced semiconductor manufacturing, we've been informed only applies to a handful of fabs.

So that means that the 1984 debt for those handful of Fabs is off limits, but not for the vast majority of our Chinese customers for which we don't need an export control license either but can just ship.

Can just ship dose.

And that's where you're in fact very much majority of our business.

Perfect. Thank you Peter.

Thank you.

And also for the mature.

Yeah.

And in the lower mid critical chips that are needed for all the transition that I just mentioned.

We will now go to our next question.

And the next question comes from the line of maybe Husseini from Susquehanna. Please go ahead.

So the asset at.

Yeah.

Yes.

So that also is the majority of your emersion revenues next year in China will be.

Thank you.

Couple of questions Peter.

But some of the H 1980, but probably moved to 1915 inch and 30 sort of things for those for those customers.

They're confused.

And I'm, just kind of focus on lithography I'm not going to ask you about double your fields, where we are in the semiconductor cycle.

No no because the 1980 is a low end immersion tools are the only export controls.

We will be on the 19 eighties that go to a handful of fabs.

I look at the leading edge.

We've had a couple of years does that slow start.

So it's not COVID-19, H Yep Yep.

But all the other customers, which are using does.

Three nanometer as matter of fact that leading edge has been trending and half bridge and I'm I was hoping that by next year that would be.

<unk> 44444, known advanced semiconductor manufacturing that was actually used for meet critical lower mid critical mature applications, whereas no security concerns.

A bigger demand for.

For leading edge, among foundry and your largest customer but.

Can just ship dose.

When I get from you is I'm, probably <unk> unit shipment is going to decline and what I wanted to ask your or give clarification is this.

And that's where you're in fact very much majority of our business.

Perfect. Thank you Peter.

Thanks.

Yes.

It kind of a pause as we insert a gate all around.

We will now go to our next question.

And the next question comes from the line of maybe Husseini from Susquehanna.

Is this something that happened when we went from planer to since then and we're going to see a repeat of that next year.

And then that would impact your UV shipment.

Any thought around gate all around would be I appreciate it and I have a follow up.

I think.

The gate all around.

And the.

No <unk> associated with that our 2025 2026 high volume ramps.

That will happen so that so the pause of OSA deposit or a lower unit shipment of <unk> next year is simply the cost of what we discussed earlier I mean, we're in a cyclical downturn.

Speaker 1: day do visitors?

Speaker 2: subject of today's call is the SML's 2023 third quarter results.

And pin and press pound when finished.

Speaker 2: The links to this call will be 60 minutes and questions will be taken in the order that they are received.

And markets that don't need that full capacity. So this is the reason.

The pin you entered is not valid Cleveland.

Speaker 2: This call is also being broadcast live with the internet at asml.com.

The R&D roadmaps are very much intact.

And as a matter of fact, our leading customers keep telling us this so.

Sure.

Speaker 2: A transcript of management's opening remarks and a reply to the call will be a Val-Warner website shortly following the conclusion of this call.

Is this a.

Kind of a pause as we insert a gate all around is this something that happened when we went from planer to <unk> Finfet and we can achieve a repeat of that next year.

I would not expect.

Even say if you would see the ATM volume ramp on the.

Speaker 2: Before we begin, I like to caution listeners that comments made by management. During this conference call, we'll include four looking statements within the meeting of the federal securities law.

<unk> all around the architecture is.

And then that would impact your UV shipment.

It's just the reason one of the reason why I think 2025 20 to 23 six is going to be a good year is a very strong year.

Any thought around gate all around will be appreciate it and I have a follow up.

Speaker 2: These four looking statements involve material risks and uncertainties.

But everything that we see today, it's got nothing to do with that has got nothing to do with the roadmap has got just got to do with the fact that we.

I think.

Speaker 2: For discussion or risk factors, I encourage you to review the Safe Harbor Statement contained in today's press release and the presentation found on our website at asml.com and in Asml's annual report on Form 20F and other documents as filed with the Securities and Exchange Committee.

The gate all around.

And the.

No <unk> associated with that of 2025 2026 high volume ramps.

In a down cycle, and we're climbing out of the down cycle whereby.

Deep <unk>.

Lastly utilization also at the leading edge is of course not at 100%.

That will happen.

So the Pos off of OSA depots or a lowly unit shipment of UV next year is simply the cost of what we discussed earlier I mean, we're in a cyclical downturn in our end markets that don't need that's all capacity. So this is the reason.

You just have to grow into it in the script to happen.

Speaker 2: With that, I'd like to turn the call over to Peter Winning for a brief introduction.

The cycle.

One difference this time compared to when we might get too since that is DRAM adoption of insertion of how you view their accounts for DRAM. If I've got to go back to your 2022 and 2021 analyst day.

Speaker 3: Thank you, Skip. Welcome to everyone. Thank you for joining us for our third quarter, 2023 Results Conference call.

Speaker 3: Before we begin the Q&A session, Raje and I would like to provide an overview and some commentary on the third quarter, 2023, as well as provide our view of the coming court.

The R&D roadmaps are very much intact.

How does the fact that more than 30% of the EU demand by 2025 is going to be driven by DRAM is that still the case and could that make you recovery a much stronger.

And as a matter of fact with our leading customers keep telling us this yeah. So.

Speaker 3: Roger will start with the review of our third quarter, 2020 financial performance with added comments on our short amount of outlook. And I will complete the introduction with some additional comments on the current business environment and our future business outlook. Roger, if you will. Thank you, Peter, and welcome everyone.

I would not expect I would say, even even say if you would see the HCM volume ramp yeah on on the gay.

With or without the adverse impact of <unk>.

Mr change yes.

Gate all around the architecture is just the reason one of the reason why I think 2025 20 to 25 six is going to be a good year is a very strong year, but everything that we see today. It's got nothing to do with that's got nothing to do with the roadmap has got just got to do with the fact that we are in a down cycle and we are climbing out of the down cycle.

Yes, I think that's absolutely true.

I still believe that.

Speaker 4: I will first review this third quarter financial accomplishments and then provide guidance in fourth quarter of 2023.

<unk>.

<unk> is still valid.

But like I said it is not today, but it is because we are where we are in the in the economic cycle.

Speaker 4: Let me start with our third quarter accomplishments. NAPSales come in at 6.7 billion euros, which is around the midpoint of our guidance.

So I think nothing has changed in that sense and you could even argue because they have quote unquote under invested in 'twenty three 'twenty four.

Goodbye.

Speaker 4: We shipped 10 UV systems and recognized 1.9 billion euros revenue from 11 systems

The capacity utilization also at the leading edge is of course not at 100%.

Now you just have to grow into it and start to happen.

That will definitely be in.

Speaker 4: Net systems sailed the 5.3 billion euros, which was mainly driven by logic at 76% with the remaining 24% coming from memory.

The cycle.

This should all driver on top of the roadmap insertion points that haven't changed.

One difference this time compared to when we migrate to sensors is DRAM adoption of insertion of higher layer counts for DRAM. If I were to go back to your 2022 and 2021 analyst day, you highlighted the fact that more than 30% of <unk> demand by 2025 is going to be driven by DRAM is that is.

So so yes, I mean, I would expect that to be the case in 2025, yes.

Speaker 4: Install date measurements says the quarter came in at 1.4 billion euros as a guide.

We just have to wait for the first half of two report to see that in your bookings.

Speaker 4: Gross margins for the quarter came in at 51.9%, which is above our guidance, from now you're driven by DPV product mix as well as some one-off cost.

Yes, yes.

And that is basically also I've said it before.

Still the case and could that make the EU recovery a much stronger.

Why we are conservative on.

Speaker 4: On operating expenses, R&D expenses came in at $992 million, and FGNA expenses came in at $288 million, both basically as guided.

Any forward because of our macro economic uncertainties and our customers are closely watching this also they're watching this.

With or without the adverse impact of transistor change.

Yes, I think that's absolutely true.

This inflection point trends.

I still believe that <unk>.

What we will also follow with them.

Percentage.

Speaker 4: Net income in Q3 was 1.9 billion euros representing 28.4% of net sales and resulting in an EPS of 4.81 euros.

<unk> is still valid.

They have a better view of inventories.

But like I said it is not today, but it is because we are we are A&D in the economic cycle.

We have a better view of utilization.

We have a better view of all the things that happened in the fab, we need to look at those inflection points and saying okay.

I think nothing has changed in that sense and you could even argue because they have quote unquote.

Speaker 4: Turning to the balance sheet, we ended the third quarter with cash, cash equivalents, and short-term investments at a level of 5 billion euros.

That means the trough, but then what will be the slope of the recovery and Thats basically a macro call.

Under invest in 'twenty three 'twenty four.

Thank you.

Speaker 4: Moving to the audiobook, Q3 Net System Bookings, came in at 2.6 billion euros, which is made up of 0.5 billion euros for EV bookings and 2.1 billion euros for non-EV bookings. These values also include inflation correct.

We'll definitely be an additional driver on top of the roadmap insertion points that haven't changed.

Okay.

Thank you.

Well now go to the next question.

Okay.

And your next question comes from the line of Sandeep Deshpande from Jpmorgan. Please go ahead.

So so yes, I mean, I would expect that to be the case in 2025, yes.

Speaker 4: Net system bookings in the quarter were driven by logic with 80% of the bookings, while memory accounted for the remaining 20%.

We just have to wait for the first half of two report to see that in your bookings.

Yes, hi, thanks for letting me on Peter I mean.

Yes, yes.

Sponsored earlier question you talked about that.

That is basically also I said it before you know it.

You will start seeing this order recovery potentially in 2024, which will help you 25 back given that at this point, what you see into 'twenty four.

Speaker 4: As expected, we did see some moderation in orders this quarter. As the industry is working through a cycle, customers remain cautious in the current environment, managing cash flows, and delaying virtualization.

Why we are conservative on.

Trinidad for because of our macro economic uncertainties.

And our and our customers are closely watching this also they're watching this this inflection point trends I mean this is what we will also follow with them.

Speaker 4: In addition, there were no high-enay orders this quarter. While our bookings were lowered and in previous quarters, our backlog at the end of Q3 remained strong at over 35 billion euros.

Demand is not as much as your capacity, particularly in <unk> would you pre build because I mean your tools don't have any policy risks. This is my first question and then I have one quick follow up.

They have a better view of inventories.

We have a better view of utilization.

We have a better view of other things have happened in the fab, we need to look at those inflection points and saying okay.

Yes, I think youre absolutely right. I mean, we are very also are our customers keep telling us. This is not that we are perfect isolation, although 20 of Florida and the downhole Zelzal. We'll think about this is because our customers also show us what they need and why so this is the 2025. We think is very real so that means we need to pre build.

Speaker 4: With that, I would like to turn to our expectations for the fourth quarter of 2023.

That means the trough, but then what will be the slope of the recovery and Thats basically a macro call.

Thank you.

Speaker 4: We expect our Q4 install base management sales to be around 1.4 billion euros.

Okay.

Thank you.

We will now go to the next question.

Speaker 4: Gross margin for Q4 is expected to be between 50% and 51%. The positive impact of higher sales volume is more than offset by the diluted impact from a change in DPV mix and one of effects relative to less.

We will see that in our working capital and working capital of our suppliers.

Okay.

And your next question comes from the line of Sandeep Deshpande from Jpmorgan. Please go ahead.

And if things change a bit faster will actually need that in the back half of 2024, So we need to prepare ourselves, but you're absolutely right because otherwise, we wont be able to react and their willingness and then we had a super crisis in 2025, because we can't make the tools that our customers want yes.

Hi, Thanks for letting me on Peter I mean.

Sponsored earlier question you talked about that.

Speaker 4: The affected R&D expenses for Q4 are around 1.03 billion euros and SNA is expected to be around 285 million euros.

You will start seeing this order recovery potentially in 'twenty 'twenty, four which will help you operate 25, but given that at this point what do you see integrate joining for the.

And then.

Thanks, Peter and then in terms of a follow up for Jay.

Speaker 4: Our estimated 2023 annualized effect at tax rate is expected to be between 15% and 15%.

Next year, if youre looking at a flattish yet I mean, you must have had.

The demand is not as much as your capacity, particularly in <unk> would you pre build because I mean your tools don't have any upsell listens risks. This is my first question and then I have one quick follow up.

Our spending plan on your Opex for next year, whether it's R&D or SG&A.

Speaker 4: An interim dividend of 1.45 euros for our never-share, will be made payable on November 10th, 2020.

Going to continue with that plan given that the environment is different from when you built that plant or are you going to continue spending as you would normally have done.

Yes, I think youre absolutely right. I mean, we are very also are our customers keep telling us. This is not that we are perfect isolation, although 20th floor in the downhole Zelzal well think about this is because our customers also show us what they need and why so this is the 2025. We think is very real so that means we need to pre build here.

Speaker 4: In Q3 2020-23, we've purchased shares for a total amount of around 100 million euros.

And thus there is an earnings impact next year in a flat this year, because you've got an upward trajectory on your expenses.

Speaker 4: As mentioned in previous quarters, in the current environment, we expect to see ongoing pressure on our free cash flows. As a result, we will be prudent in managing our cash flows and maintain relatively high levels.

Yeah Sandeep. So obviously in the current environment. We are frugal right as you as you might expect us to do so we're definitely controlling our SG&A expense there on the R&D side.

So you will see that in our working capital and the working capital of our suppliers.

Speaker 3: With that, I would like to turn the call over to Peter. Thank you. Thank you, Roger. And I have a bit of a cold, so apologies. As Roger has highlighted, another good quarter, especially considering the current market environment.

And if things change a bit faster will actually need that in the back half of 2024, So we need to prepare ourselves, but you're absolutely right because otherwise we wont be able to react and they were in this and then we had a super crisis in 2025, because we can't make the tools that our customers want yes.

That's long term and I think we would be an adviser to now go cut our R&D roadmap and it's not what we're doing right. So so we are continuing to.

To execute on the R&D roadmap.

Speaker 3: Uncertainty remains in the market, driven by global macro concerns around inflation, rising interest rates, lower GDP growth in certain economies, and the geopolitical environment, including export controls.

Might have seen that.

On the hiring of people, we slow down a little bit. This year. So part of that is in response to what I just mentioned on the SG&A. It's also in response to the fact that in 'twenty 'twenty. Two we hired 10000 people. So on the 40 42000 people that we have today. That's math, it's obviously you want a certain level of absorptions.

And then.

Thanks, Peter and then in terms of a follow up for Jay.

Next year is if youre looking at a flattish yet I mean, you must have had.

Speaker 3: However, the industry seems to be passing through a cycle thrust.

Our spending plan on your Opex for next year, whether it's R&D or SG&A are you going to continue with that plan given that the environment is different from when you built that plant or are you going to continue spending as you would normally have done.

Speaker 3: There has been some improvement in that market inventory levels downstream. So you have to get a bit of water.

What happened there and that's exactly what we're doing right, making sure that people are well absorbed the growth also on the heart on the R&D head count is nicely absorbed so that's why you see this slowing down a little bit on the on hiring hiring people, but no I mean, we continue to push down the accelerator orange on the R&D front because.

And thus there is an earnings impact next year in a flattish year, because you've got an upward trajectory on your expenses.

Yeah Sandeep. So obviously in the current environment. We are frugal right as you as you might expect us to do so we're definitely controlling our SG&A expense there on the R&D side.

Speaker 3: and upstream and remain elevated. As a result, our customers continue to moderate waiver output by running at lower utilization levels.

The opportunity is significant and in order for us to achieve the growth trajectory that we've talked about in 25% in 2030, we simply need to do that so yes, we will be frugal no we're not going to cut back on our R&D roadmap.

Speaker 3: While lithography tool utilization is still running at levels lower than normal relative to last quarter, tool utilization in logic continues to show signs of improvement, while memory has yet to turn.

That's long term.

Think we would be ill advised to now go cut our R&D roadmap and that's not what we're doing right. So so we are.

Thank you so much.

<unk> 222 to execute on the R&D roadmap you might have seen that.

Thank you.

Well now go to the next question.

Speaker 3: We concur with our customers that still expect to see an inflection point indicating the start of a recovery by the end of the year, although the shape and slope of the recovery remains uncertain.

On the hiring of people, we slow down a little bit. This year. So part of that is in response to what I just mentioned on the SG&A. It's also in response to the fact that in 'twenty to 'twenty. Two we hired 10000 people. So on the 40000 42000 people that we have today that is massive so obviously you want a certain level of absorptions.

And your next question.

Comes from the line of Dennard Menon from Jefferies. Please go ahead.

Hi, good afternoon, Thanks for taking my question.

I just wanted to go back to the question of the backlog.

Speaker 3: We expect a significant growth here, since more than 50% of our EUV and DPV shipments will go to new FAT projects.

Do have a sizable backlog of <unk>.

That happened there and that's exactly what we're doing right, making sure that people are well absorbed the growth also on the heart on the R&D head count is nicely absorbed.

Over 35 billion and over $19 billion on the UV side, So just referring to a previous question on push outs.

Speaker 3: On top of this, we expect existing fabs will be adding capacity driven by a continued recovery cycle.

Speaker 3: Turning to our business, we now expect DPV revenue to grow towards 55% year-over-year, an increase from around 50% communicated last quarter.

Why is it slowing down a little bit on the on hiring hiring people.

What do you do you see a risk I mean, if you were to look out into 2020 full especially on your <unk>.

No I mean, we continue to push down the accelerator orange on the R&D front, because the opportunity is significant and in order for us to achieve the growth trajectory that we've talked about in 25 and 2030, we simply need to do that so yes, we will be frugal no we're not going to cut back on our R&D roadmap.

Syed.

Is your uncertainty more on do we get any push outs on the existing backlog.

Speaker 3: China demand for DPV systems continues to be strong and trend we talked about in previous quarter.

Or is it a question of how many orders.

You can take in Q4 for shipment into 2020 for my question as well you've said that it's.

Thank you so much.

Okay.

Thank you.

That you've suggested that there's some conservatism in that and I'm, just wondering where the.

Speaker 3: The demand fill rate for our Chinese customers over the last two years was significantly less than 50%.

I will now go to the next question.

The risk or the upside could come from is it is it more that there could be a risk of push outs or is it just the amount of orders you've taken in Q4, yes.

Speaker 3: So, the Chinese customers were in fact receiving a much lower number of systems than they ordered. This was due to the fact...

And your next question.

Comes from the line of <unk> Menon from Jefferies. Please go ahead.

Yes, I think that's a good question gena.

Hi, good afternoon, Thanks for taking my question.

Yes.

Speaker 3: That so this was due to the to the fact that the demand for our systems worldwide significantly exceeded supply.

I just wanted to go back to the question of the backlog.

The way we look at this is is.

We look one of course, we have close contact with our customers and we are.

Do have a sizable backlog of.

Speaker 3: With current shifts in demand timing from other customers, we now have the opportunity to fulfill these orders to our Chinese customers.

Over 35 billion and over $19 billion on the UV side, So just referring to a previous question on push outs.

Discussing.

In depth with them, what they really need.

What they really need is also a function of where they are and what they see that they need going forward and of course, where they are is they're there.

Speaker 3: So, supplies in fact catching up to demand and we're shipping lithography systems for mature and mid-critical nodes to China.

What do you do you see a risk I mean, if you were to look out into 2024, especially on your <unk>.

Speaker 3: while, of course, complying with export control regulations.

Are there any clear on my own all of them.

And in a down cycle, where they feel it it's about that.

Speaker 3: If you combine this with the fact that other customers are delaying their demand, this means indeed a higher sales percentage from China than we saw in previous years.

Syed.

Is your uncertainty more on do we get any push outs on the existing backlog.

Through or we might be seeing the inflection points that will take us out of the truck.

Or is it a question of how many orders.

Speaker 3: In EUV for 2023, we continue to expect year-over-year revenue growth for EUV of around 25% as communicated last month.

So.

If you don't think about the psychology of the customer and they look forward and we see this inflection points towards the end of the year changing positively.

You can take in Q4 for shipment into 2020 for my question as well you've said that it's.

You've suggested that there's some conservatism in that and I'm, just wondering where the.

Speaker 3: For the install-based business in 2023, the current utilization rates, market uncertainty, particularly as it relates to the timing of recovery, customers continue to wait to perform productivity and performance upgrades on the left or the...

That means that we'll grow.

<unk> 2024.

That means what we discussed with them now as the you could say the minimums scenario.

The risk or the upside could come from is it is it more that there could be a risk off move outs or is it just the amount of orders you could taken Q4, yes.

If everything happens the way that we think in terms of inflection points. They will see growth there and I think this will be yet but that of course that is.

Speaker 3: Therefore, we now expect our install-based business this year to be down around 5% from last year versus the flat growth previously communicated.

Yes, I think that's a good question Jonathan.

The.

The way we look at this is is.

And in the current mind, they don't give us a lot of orders. So the current Midas, we have what we have.

Speaker 3: In summary, based on our full year, with higher DPV revenue, offset somewhat by lower expectations on our install-based business relative to last quarter, we still expect next sales for the year to grow towards 30%, with a slight improvement in gross margin compared to 2022. Overall...

One of course, we have close contact with our customers and we are.

Discussing.

In depth with them, what they really need.

We look forward to what we need as a minimum in 2024.

What they really need is also a function of where they are and what they see that they need going forward and then of course, where they are is they're there.

<unk> dealt with to establish a better prepare us for 2025 at the minimum.

It is what we call the conservative view because.

Speaker 3: a very strong growth year, especially considering the industry being in a down cycle.

Clear.

You could you could have a more positive view and say well it will turn into <unk> in the second half of 'twenty 'twenty four we don't have any indication that it's going to be that soon so this minimum position that they see is what they have discussed with us.

All of them are.

In a down cycle, where they feel it it's about that.

Speaker 3: As it relates to export controls, the U.S. government yesterday published updated export control regulations.

Through or we might be seeing the inflection points that will take us out of the truck.

Speaker 3: Part of the regulations is an update from last year's October communication and part is the implementation of the US regulation on the trilateral agreement between the Dutch, Japanese and US governments.

So.

And seeing those inflection points I think there is little risk to the downside.

If you don't think about the psychology of the customer and they look forward LSE. These inflection points towards the end of the year changing positively.

Answering your question.

Now could there be.

That means that we'll grow.

Speaker 3: Given the length of the document, we need to review the final regulation thoroughly and make a detailed analysis, which will take some time.

Could there be an opportunity to the upside that would effectively mean, that's what we see in 2025.

2024.

That means what we discussed with them now as deep because they the minimums scenario.

For reasons of a faster recovery of the cycle will be pulled in into the back half of 2020 for it that could be that could be an upside.

Speaker 3: but based on our preliminary assessment, we do not expect these measures to have a material effect on our financial outlook for 2020.

If everything happens the way that we think in terms of inflection points. They will see growth there and I think this will be yet but that of course that is.

And this is where we are this is where our thinking is that as we're thinking of our customers is this how we reflect on our.

Speaker 3: Yes, the control measures could have an impact on the regional split of our shipments in the medium to long term, but we do not expect an impact on the global demand scenarios as communicated during our investor day in November last year, since the long term growth perspectives for our industry remains clearly unchanged.

And in the current mines, they don't give us a little water sewer.

View of 2024.

Yeah.

At Midas, we have what we have.

Understood and just a small follow up on China.

We look forward to what we need as a minimum in 2024.

Yes.

As you referred to the.

<unk> dealt with Astellas you better prepare us for 2025 with a minimum in 2024 is what we call the conservative view because.

Tissue regulations coming out of the U S government yesterday.

Speaker 3: The semiconductor industry is currently working through the bottom of the cycle and our customers expect the inflection to be visible by the end of this year, as I mentioned before.

If you look at the Chuck overlay numbers of 2.4 nanometer it seems to capture the 1980 as well.

You could you could have a more positive USA well it will turn into <unk> in the second half of 'twenty 'twenty four we don't have any indication that it's going to be that soon so this minimum position that they see is what they have discussed with us.

Speaker 3: Although there's an opportunity for some demands to be pulled back into the back half of 2024, we currently prefer to take a more conservative view for the fully yet 2024, especially considering the inanimate nature of the macroeconomic concern.

And what you are saying is that.

Because it's.

Only the advanced manufacturing facilities will be covered by that and that's a handful.

And seeing those inflection points I think there's little risk to the downside.

Speaker 3: Therefore based on our current view, we expect the revenue net share to be similar to 2022.

But do you think that that could be a moving target through the course of the year I mean could you could new fabs continuously be added to that all.

To answer your question.

Now could there be.

Could there be an opportunity to the upside that would effectively mean, that's what we see in 2025 for reasons of a faster recovery of the cycle will be pulled in into the back half of 'twenty 'twenty four it that could be that could be an upside.

Speaker 3: As such, we see 2024 as a transition year, but also as an important year to prepare for the significant growth that we expect in 2020.

Taken away from that so does that sort of cloud the overall visibility on where China could actually end up just from a geopolitical standpoint over the next 12 months.

Speaker 3: Now, based on discussions with our customers, we currently expect 2025 to be a strong year driven by a number of factors.

Well I think that that last where the geopolitical Gulf of tissue would end up as it is.

But this is where we are this is where our thinking is that as we're thinking of our customers. This is how we reflect on our.

Speaker 3: First, the secular growth drivers in the Senna-Kindabland markets, which we have previously discussed, such as energy transition, electrification, and AI.

$1 billion question I suppose but.

View of 2024.

I think there's basically two answers one work.

Understood and just a small follow up on China.

The regulations.

Speaker 3: The expanding application space along with increasing lithography on future technology notes drives the man for both advanced and matureness.

Currently structured is like the Japanese have also done the same thing they basically say.

Yes.

Yeah.

As you referred to the of the official regulations coming out of the U S government yesterday.

[laughter] all immersion, but.

Speaker 3: Secondly, the industry expects to be in the middle of a sickle-gul upturn in 2025, starting in 2020.

Export controls will only apply to advanced manufacturing was your only those fives, perhaps now.

If you look at the Chuck overlay numbers of 2.4 nanometer it seems to capture the 1980 as well.

Speaker 3: And lastly, as mentioned earlier, we need to prepare for the significant number of new fabs that are being built across the globe.

Could that grow.

Yes.

Right.

What you are saying is that.

That has always been there.

Speaker 3: These paths are spread geographically, are strategic for our customers, and are scheduled to take out.

That particular risk in terms of export controls.

Because it's.

Only the advanced manufacturing facilities will be covered by that and that's a handful.

Speaker 3: It is essential that we keep our focus on the future and build capacity to be ready for this round. In summary, despite going through an industry down cycle.

Being and launched it what it is today, that's a risk that we've always had and so that is basically.

But do you think that that could be a moving target through the course of the year I mean could you could new fabs continuously be added to that or.

A function of what.

What you ended your question with is how.

Taken away from that so does that sort of cloud the overall visibility on where China could actually end up just from a geopolitical standpoint over the next 12 months.

Speaker 3: And while there are still significant uncertainties, primarily driven by the metro environment, it appears that we're passing through the bottom of this specific cycle, and the shape of the recovery will ultimately determine the demand curve beyond 2020.

Geopolitical escalation.

<unk> happen going forward, we don't know.

Well I think that that last where the geopolitical Gulf of tissue would end up as a $1 billion question I suppose but.

I mean, we just have to live with what the regulation is today and you need to realize.

That this regulation.

Speaker 3: In the near term, it's understandable that customers remain gosh.

Would you say the amalgamation a consolidation of the October seven proposal of last year with the Trilateral agreement.

And I think basically two answers one work harder.

Speaker 3: as they moderate wafer output to help lower inventory levels in the supply chain. I look to build confidence around the timing and slope of the recovery nest.

The regulations.

Currently structured is like the Japanese have also done the same thing they basically say.

Between the Dutch the Japanese and the Americans has led to this situation of these handful of apps.

All immersion, but thanks.

So it's so.

Export controls will only apply to advanced manufacturing was your only those fives, perhaps now.

This is also the result of.

You could say in depth discussions multilateral discussions between governments now I.

Speaker 3: We remain confident that we are well positioned for further long-term growth as we discussed in the market scenarios for 2025 and 2030 during our investment in November 2022.

Could that grow.

Yes.

I don't say that there is never going to change, but that's what you need to that's what you need to consider also so.

That has always been there.

That particular risk in terms of export controls.

Being and lodge to what it is today.

We are where we are I don't have a crystal ball to predict where geopolitics will go in and out will escalate but.

Speaker 2: Thank you, Roger and Peter. The operator will instruct you momentarily on the protocol for the Q and a

It's a risk that we've always had and so that is basically.

But we need to work from where we are and I can assure you that the results at currently on the table in terms of regulation are the result of very deep discussions between governments that are not just on the on the lazy Sunday afternoon.

Speaker 2: Before hand, I'd 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.

A function of.

What you ended your question with is how the geopolitical escalation will happen going forward, we don't know.

Speaker 2: Now operator, could we have your final instructions and then the first question please?

Or we just have to live with what the regulation is today and you need to realize.

Being prepared us very deep so yes. It can change, but then also I think the geopolitical situation first needs to change and then.

Speaker 5: Thank you. As we remind you to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To restore your question, please press star one and one again.

The dysregulation.

Would you say the amalgamation a consolidation of the October seven proposal of last year with the Trilateral agreement.

Of course, you know like I said, I don't have a crystal ball and you're not in a final element in the conversation building on what's what Peter was just saying and instead it before obviously the regulation really aimed at advanced semiconductor manufacturing and I think you simply have to recognize that most of the Chinese customers have gotten the message already last year and as a result of that.

Between the Dutch the Japanese and the Americans has led to this situation of this handful of apps.

Speaker 5: And your first question comes from the line of Joe Kuchotchi from Wells Fargo, please go ahead.

So it's so it's so this is also the result of <unk>.

You could say in depth discussions multilateral discussions between governments now.

Speaker 6: Yeah, thanks for taking the question. Curious, embedded in your expectation for, you know, more muted kind of 2024, how do we think about the gross margin put and take just given there's several moving parts in terms of like mix and you guys are obviously increasing your manufacturing output for later years. And then, you know, I think there's some benefits from higher EUV ASP, but at the same time, you're also gonna start shipping the initial, you know, high NA tools as well.

Really shifted to what we call net critical and mature manufacturing, that's what you see them do that.

Don't say that there is never going to change but.

That's what you need to that's what you need to consider also so we.

The result of that I would say the number of Fabs that are still involved.

Number of our customers in fact, there are still involved in advanced manufacturing have gone down dramatically and as a result of that we cannot talk about a handful of fabs that are associated with that so if thats the objective.

We are where we are I don't have a crystal ball to predict where geopolitics will go in and out what escalate but.

But we need to work from where we are and I can assure you that the results at currently on the table in terms of regulation are the result of very deep discussions between governments that are not just on the on a on a lazy Sunday afternoon.

Then that is completely <unk>.

Speaker 4: Yeah, Joe, you're doing a very fine job in analysing it all. Of course, you will appreciate that we're not going to give guidance on the, you know, quantitative guidance on the growth margin for next year.

Exactly with what has been achieved.

And that's a good point.

When we do the the roadmap discussions with our Chinese customers. They all moved back not forward they'll move back and they do that because it wasn't answered to a previous question because if you look at the demand for mid critical low mid critical immature semiconductors and you look at the significant transitions that all.

Being prepared us very deep so yes. It can change, but then also I think the geopolitical situation first needs to change and then okay.

Speaker 4: But I can give you some of the drivers of the gross margin. And I think you mentioned a few of them, which are quite important. So I would say the 3,800 ASB is clearly one. So a 3,800 is going to be an important part of the mix in next year for EUV. So obviously,

Of course, you know like I said, I don't have a crystal ball and Youre not in a final element in the conversation building on what Peter was just saying and he said it before obviously the regulation really aimed at advanced semiconductor manufacturing and I think you simply have to recognize that most of the Chinese customers have gotten the message already last year and as a result of that.

So China is going through and Wayne and many as their leading whether it's electric vehicles, whether it's the energy transition.

The square inches of silicon that is needed to support that are massive.

Speaker 4: As the higher ASP, we talked about more than 200 to a million lasts on the last quarter. So that comes with the higher ASP, but also drives to go with margins. So that's an important driver. I think service on EV is one where we say we continue to make progress on that one. So that's another, that's another.

I actually need to build that capacity, which by the way, they're not going to be self sufficient because the demand for local demand is simply too high I mean, but there will be more self sufficient but not fully.

That has really shifted to what we call met critical and mature manufacturing. That's what you see them do so as a result of that I would say the number of Fabs that are still involved a number of our customers in fabs that are still involved in advanced manufacturing have gone down dramatically and as a result of that we cannot talk about a handful of fabs that are associated.

So there is no downside for our Chinese customers to actually move their roadmap in that direction.

Speaker 4: I would say on the challenge side, so on the headwind that we're gonna get in terms of Ghost Margin for next year, it is, as you said, next year we are preparing, obviously for a big year in 2025, because that's the way we look at it, as we also mentioned, as Peter mentioned in his video, so starting the video, gonna be a big year, and that means that we're gonna add, you know, quite some capacity to actually allow that to happen, so that's gonna...

Understood. Thank you so much.

With that so if that's the objective.

Alright. Thank you all we are now at the end of the hour. So if you are unable to get through on this call and still have questions. Please feel free to contact ASML Investor Relations Department with your questions.

That is completely agency with.

Exactly with what has been achieved.

Thats a good point.

When we do the the roadmap discussions with our Chinese customers.

Now on behalf of ASML I would like to thank you all for joining US today, operator, if you could formally conclude the call I'd appreciate it. Thank you.

<unk> moved back not forward they'll move back and they do that because.

It wasn't answered to a previous question because if you look at the demand for mid critical low mid critical immature semiconductors and you look at the significant transitions that also China is going through and reined in many hours they are leading whether it's electric vehicles, whether it's the energy transition.

Speaker 4: going to have a headwind on the growth margin because those people will have to be trained in 2024 whilst primarily being productive only in 2025.

Speaker 4: And also on high-end A, the high-end A numbers next year, obviously, are very, very small in terms of revenue and also output, but we are obviously preparing our workforce, both in the factory, but also in the field, to accommodate the 25 and beyond ramp of high-end A. So obviously, that also, same story, a lot of people that will be added there will be a drag on the gross margin for 2024.

The square inches of silicon that is needed to support it a massive so it actually need to build that capacity, which by the way, they're not going to be self sufficient because the demand for local demand is simply too high I mean that there will be more self sufficient but not fully.

And so.

There is no downside for our Chinese customers to actually move their roadmap and their direction.

Speaker 4: question mark obviously is on the install base business, you know that can go positively, can go negatively on the growth margin very much depending on how the upgrade business will come back in 2024.

Understood. Thank you so much.

Alright. Thank you all we are now at the end of the hour. So if you are unable to get through on this call and still have questions.

Please feel free to contact ASML Investor Relations Department with your questions now.

Speaker 4: And then finally, you know, in light of, you know, all the puts and takes that you might think of in terms of revenue also in light of what was what Peter just said, the China expert control.

Now on behalf of ASML I would like to thank you all for joining US today, operator, if you could formally conclude the call I'd appreciate it. Thank you.

Thank you. This concludes the ASML 2023 third quarter financial results Conference call. Thank you for participating you may now disconnect.

Okay.

[music].

Speaker 6: Got to thanks for that. And then as a follow up, just wanted to reconfer for fashion and if you're expecting still to exit this year in terms of rather you're not recognizing the 2.3 billion euro range. And then does that get caught up next year as part of kind of a more muted growth that you're able to catch up to that demand?

Speaker 4: I think Joel, part of it will. The way we look at it today, but again, we will confirm that in more detail in January . But the way we look at it today, we expect less fascitments by the end of 24 than we would have by the end of 23. So there would be a positive effect from fascitment in the number four next year. Got it. 2.3.

Yes.

[music].

Speaker 7: The 2.3 billion is what we're currently driving towards. That's what we expect at this stage to have shipments this year not recognized in revenue this year. Correct. Perfect. Thank you. Thank you.

Yes.

[music].

Speaker 5: from TD Cowen, please go ahead.

Speaker 8: Hi, thanks for taking my question. I do have them. When you look into calendar 24, how to think of you from a unit standpoint, EUV and DPV, how do we look at unit for EUV and DPV in 2024 relative to 2023? Would there be up, down, similar? Any color that would be helpful in the night of follow-up?

Yes.

[music].

Okay.

Speaker 3: Yeah, I think on the DPU, I think Rejay said it in the answer to the previous call in the DPUV. Of course, we've had a great year for China because we were basically delivering out of the backlog. You know, the guys ordered and the orders were there, they were prepared and we had the opportunity to ship. I don't think that will repeat itself in that volume so much next year and on top of that, of course, there is a...

[music].

Okay.

Okay.

[music].

Speaker 3: a new export control regulation that will put, let's say, a handful of Chinese fabs under the export control rules where we cannot ship, you know, immersion tools. It's just a handful of, but it's still, you know, it is, it is, it is still, you know, sales that we had in 2023 that we will not have in 2024. So I think DeepUV could see some

Okay.

Okay.

[music].

Okay.

Okay.

Speaker 3: reduction based on that now if then sales stay the same or at a similar level than EUV gross.

[music].

Speaker 9: But what Roche also said, as an answer to the previous question, we do expect that fast shipments going out of 2024 will be lower. So there's going to be, you could say, a, you know, accounting windfall on the top line. So I think all in all, this is a bit of the picture. So somewhat lower.

Okay.

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Speaker 3: EUV units could be lower because of the fact that.

Okay.

Speaker 9: You know, we actually have, although we could see a revenue increase as a result of the fast shipment move, that could indeed be also somewhat lower, but with higher sales prices.

[music].

Okay.

Yes.

Speaker 9: So this is what the picture is for next year. Now, like Roger also said, probably January after the fourth quarter results is probably the better time to go into a bit more detail. But, you know, directionally, that's what you can expect.

[music].

Speaker 8: God, it got in a very helpful peter. And then on China, I understand it was like 46% of the last quarter, probably averages around 30% for the full year. It is super to export control issues or the geopolitics. You know, a lot of these pennings on matured nodes kind of curious, how long do you think this level of spending is sustainable? Do you think at some point there's going to be a natural consolidation or rationalization of this?

Okay.

[music].

Okay.

[music].

Sure.

[music].

Speaker 9: Yeah, I think you have to understand where these tools are being used for.

Speaker 9: You know, the vast majority of our shipments to China is a bit nith-critical to mature. That's really where our business is.

Speaker 9: Of course, like I said earlier, there's a handful of you know, fabs, not customers, fabs that have been identified as ready for advanced semiconductor manufacturing. So those are now excluded. But the vast majority is mid-critical to mature. Will that level off? I don't think so. And why don't I think so? Because

Speaker 9: You need to realize where those chips are being used for. I mean, China is by far over 50% of all world-wide investments in renewable energy is in China. That's wind, that's solar, that's the build out of the grid.

Speaker 3: the electrification, the build-up of the EV manufacturing capacity in China is significant. Industrial IoT is a significant driver.

Speaker 9: Next to that is also the continuous telecommunications infrastructure rollout. That's all mid-critical, too mature stuff.

Speaker 9: And as it happens in China, invests a lot there. It's a big country, or 1.4 billion people. So there is a lot of, you know, semiconductor need. And this is exactly when we look at the expansion plans of our Chinese customers. It's exactly what they are putting their capacity, you know, at work in these areas. And if you look at the total...

Speaker 9: of semiconductors by the Chinese manufacturing industry, then China imports more semiconductors than they import oil.

Speaker 3: On top of that, you see the significant increase in this new transition.

Speaker 9: That means that if China wants to come to a certain level of self-sufficiency, they have still a huge gap to cover to be completely self-sufficiency. So it's also logical that they actually invest in this type of semiconductor technology because it's for internal use.

Speaker 10: And I think so, I don't think we will see a peak this year. But I think there will be going forward to significant demands coming out of China for mid-Cover and mature technology. And for all the reasons that I just mentioned. Thank you.

Speaker 5: comes from the line of Alexander Peterek from Society General. Please go ahead.

Speaker 11: Yes, hi, good afternoon. Thank you for taking a question.

Speaker 12: Do you help us understand what is the percentage of shipments into China this year that would actually fall under the restrictions that would be in place for the first of January next year? That will be my first question. And then the follow up just very briefly could tell us how far out your current book in EUV into 2024 or in in in deep UV. Thank you.

Speaker 3: So on the China question, the percentage shipment this year that

Speaker 3: It's now excluded. It's anywhere between 10 and 15%.

Speaker 9: So the vast majority is mature and mid-critical.

Speaker 3: And I think, like I said, an answer to the previous call, I think that is what will basically remain because of the buildout of that capacity is actually needed for all the transitions that I just mentioned.

Speaker 4: And on the EV backlog, I mean, we're currently looking at a backlog of around 19 billion for EV, but of course, that is a combination of the shipments that we still have to go this year, and then for 24 and 25. And by the way, it also includes includes high and A. So that's so there's a substantial part.

Speaker 4: of the shipments that we envisage in 24 are included, but not everything, but a substantial part is covered by the UV backlog, as I just referenced.

Speaker 12: Okay, great, thank you. It's just that 3,800 will be, for next year, is all 3,800, right?

Speaker 4: No, no, next year will be a mix of 3,638 to 3,800. Thank you.

Speaker 5: And your next question comes from the line of Sarah Russo from Bernstein. Please go ahead.

Speaker 13: Hello. Thanks for taking my question. So, in your results package, you had indicated that you're seeing memory utilization remaining on the low side, but you're beginning to see some recovery in logic and sort of indicated a potential bottoming of the cycle later this year. Can you give us any more specifics on the utilization levels and trends across memory versus logic? More specifics on the differences you're seeing across those end markets?

Speaker 9: And I'm not going to give you precise utilization levels because they're all different for customers, but it is bottoming out on lodging. That's what we've seen. I think we've already indicated that. I think last quarter that we saw this very early first indication. I think that has continued.

Speaker 9: Yeah, so which is good. But also I think that you have need to look at that in the context of what I said earlier that you know inventory levels downstream are normalizing and upstream is still a bit elevated. So this is in that context that makes all sense. I think on memory.

Speaker 9: We don't see that upturn yet. So we just have to look at and just follow this closely when that will happen.

Speaker 9: Generally, when we see this upturn in logic, somewhere down the line, memory will follow. Logic working without memories does not make sense either. So it's probably a timing issue. But we'll follow it closely. And like I said, there are other indications.

Speaker 9: Some articles that I just read last week from Korea that for the first time in the 12 months, you see a Nan Shipments going up. First indications of the UNM's spot prices going up. Now, these are early indicators. So that's why our expectation is that what we've seen for logic now over the last three months will also follow in memory.

Speaker 13: Great, thanks. And maybe just a follow up on the backlog topic. So in the past, you've given us a sense for what share of the backlog is China demand. And it's sort of a lot of 2022 orders led to the significant increase in China. Have you seen that shift at all? It was sort of sitting around 20% is that shifted down now that you're able to ship more to China and meet more of those orders? Has that come down or does that continue to remain in that room?

Speaker 9: No, I think it's the I think it's the same. I think we said the China part of our business this year could be over 20%. And I think it's about the same range for the backlog. Yeah. So that has remained the same. Great. Thank you very much.

Speaker 5: And your next question comes from the line of Francois Boving-A from UBS. Please go ahead.

Speaker 14: Thank you very much. So two quick ones for me. The first one is on maybe 2025. So you gave your market low and market high scenario at your Capital Markets Day. I'm now looking at the, you know, current macro environment, I guess, for many, you know,

Speaker 14: People, it's actually, we are more in the low market scenario, at least today in terms of macro.

Speaker 14: If we look at your guidance on 2025 and taking into account the geopolitical environment, should...

Speaker 14: We lean toward the low end of your guidance in a way. I mean, it would still imply a significant recovery in 2025, but the

Speaker 14: I'm very very happy to assume given the current ideation rate in the industry and you know the push out that you also see on your side if you lean towards the low end.

Speaker 15: Well, I mean, let me ask...

Speaker 9: You know, our industry is cyclical when we're in a downturn.

Speaker 9: And the deeper the downturn is, the higher the upturn. And that's simply because the underlying trend, the secular trend of the capacity that is needed to support all these transitions that we all talk about and we all believe in, if there's a downturn for whatever reason, it could be macro, it could be macroeconomic shocks.

Speaker 3: The deeper the downturn is, the higher the upturn. That has been, you just look at the 30 year you know, cyclical behavior of our industry that's exactly what has always happened.

Speaker 3: And it makes sense because the underlying trend is there.

Speaker 9: Having said that, in my introductory comments, I actually had three reasons for why we believe 2025 is going to be a very strong year.

Speaker 9: One is these secular trends, they are there. And also actually means that we need to build the capacity to support those trends.

Speaker 3: And if you don't build the capacity in 2023, 2024, and for memory it's even started earlier, it started in mid 2022.

Speaker 3: then it will have to be there to support those secular trends, which we all believe in. So, and also to going back to that, that's number one. Number two.

Speaker 9: In answer to the previous question, it feels like, and also our customers keep telling us, that they feel there's a froth.

Speaker 9: we're in this trap, or we're very close, yeah? And that means they will see growth in 2024. You could argue about the slope of the growth because of macroeconomic uncertainties, but they all tell us, please prepare for 2025. So they strongly believe that growing in 2024, and it will probably start slow, but will accelerate into 2025. So they tell us, be ready. That's number two.

Speaker 3: Number three, when you look at the number of new FABs that are being opened geographically, FAB extensions that will meet machines in Europe , in the US, across Asia, then that is already, when we look at the demand, already more than 50% of our 2025 forecasted demand is on new FABs for DPV and EUV.

Speaker 3: So, if you put it all together, also realizing that we actually look at 2024 and 2025 together. Why is that? Because our lead times are more than 12 months.

Speaker 3: You know, for EUV, they're a year and a half. So we need to have that very close connection with our customers. And we have these insights into these new fab expansions, not so much where they're going to add capacity for the existing fabs, because that's basically, that is a question of where the cycle is. But if you take those three things together, and then we look at the demand that we're currently discussing with our customers,

Speaker 3: And a very strong year doesn't jive with your low end of the guidance.

Speaker 3: So it's again, it's the cyclical nature of this industry. You know, we are now, let's take memory. If 2024 is not a full recovery year, then memory's in a downturn of two and a half years. Now just look at it historically. We're always followed by a strong recovery.

Speaker 9: Same is two over logic and if you look at those building blocks of those three building blocks that gives us

Speaker 3: the conviction at this moment in time that 2025 is going to be a very strong year.

Speaker 3: But then we need to prepare 2024. We can simply not wait until, you know, first quarter 2025. And then we start accelerating because the supply chain won't be there. Our lead times are simply too long. So we have to prepare that also in the year 2024. That's why it's a, you know, transition year. We look at 2024, 2025 together. Why? Because the lead times of our tools and discussions with our customers are actually.

Speaker 14: Sorry for the long answer. No, no, no. That's very clear. Thank you. And maybe as a follow-up, then if we have a long lead times and strong recovery in 2025.

Speaker 14: The orders, I mean, this quarter has been, let's say, quite low compared to many people expected. But if you expect a very strong year in 2025 and the lead time that you are describing.

Speaker 14: We expect that to see in the order behavior in the first half of 2024. I mean, if we take into account the terms, or how should we?

Speaker 14: think about that because we should

Speaker 9: I think that's absolutely true. You know, we're in Q3 of 2023. And we have more than 35 billion in the backloin.

Speaker 3: If you're a customer, you can actually wait, you know, because they also see 2024 as a recovery year. It's going to be...

Speaker 3: Q3, Q4, Q1. So, so when it is, so they will just wait because they don't need to have the capacity if they want the capacity they can just call it off. Yeah?

Speaker 3: So, but indeed you are right, you know, if 2025 is the kind of strong year that we expect.

Speaker 3: then indeed, you know, you will have to see the order recovery in the first step of 2024, absolutely. No? Great. Thank you, Peter.

Speaker 5: And your next question comes from the line of Rolf Bulk from New Street Research. Please go ahead.

Speaker 16: In your prepared remarks, you mentioned shifts in timing also.

Speaker 16: say your, your Western customers, their demand profile. Could you give us a bit more detail on this? But these push outs primarily on the leading edge, or is it more trailing edge? And has his trend of push outs increased in recent months?

Speaker 9: When you think about trailing edge, I mean, we did not see pushouts.

Speaker 9: from many of our training at CUSC, because many of them are in China. But even the ones that are not in China, because they are supplying the mature market, which for instance supplies the automotive industry and industrial IoT, they actually got pretty, pretty strong, they were pretty healthy. So it is more in, you could argue the leading edge than it was in the mature area. And we don't...

Speaker 3: doesn't only need high-end DPV or needs high-end immersion. It only also needs, you know, mature. It needs KRF. It needs I-Line. So, but if you want to split this, then the demand...

Speaker 9: a shift was probably more in those areas where, which is logical, look at the ad markets, you know, smartphone sales, PCs, you know, the ad markets were, and this is where the inventory was, so this is also the area where you see the demand shift.

Speaker 16: But you know, healthy or that's a relatively healthy was more in the mature space. And of course, you know, China, because we heavily under shift these customers, which of course, their orders in the order book and most of them were to large extent prepaid. Yeah, of course we will shift those tools to them if others don't want them. And that's all mature. Thank you.

Speaker 5: And the next question comes from the line of Didier.

Speaker 5: See you tomorrow, Bank of America, please go ahead.

Speaker 17: Yeah, good afternoon, it's Didier Selamat from Bank of America.

Speaker 17: I have a couple of questions. First, I wanted to just probably a little bit again on 2025 revenue guide. I think you answered pretty well. But I guess what I wanted to ask you is, if we don't see those bookings coming through in the first half of 24, is that roughly in July 24, where you would consider changing that guidance or at least telling us that you would be towards the lower end of that range or even below that? And I've got a follow-up. Thank you.

Speaker 3: You by now know it's DJ because we know each other for a long time. We just tell you how it is, how we see the world at the moment that we have this call. This is how we see the world.

Speaker 3: So if we see the world by Q1 of 2024 different, we will tell you, if we see a different by Q2, 2024, we will tell you. So.

Speaker 3: This is what we currently see, what we currently believe. If the world turns out to be completely different, better or worse, by the middle of 2024, we will tell you.

Speaker 3: And so I cannot say, I cannot answer that question, other than we'll just tell you how it is.

Speaker 17: No, it makes sense. The second part on China restrictions, is there anything you can share with us with regards to the...

Speaker 17: you know, the sort of tools that might not be allowed to be shipped to those FABs, I mean, should we consider the 1980 to be part of the ban tools for those particular FABs, but that you could ship it to other China customers, or is it too early to say at this stage?

Speaker 3: No, I think that's probably not really. It is as you indicate. So the way we read the rules now, and of course you can imagine that that part of the regulation we've read pretty carefully, that

Speaker 9: The principle is that, in principle, also the 1980s would fall under the export control restrictions, but only when those immersion tools are used for advanced semiconductor manufacturing.

Speaker 3: And those advanced speculative manufacturing we've been informed only applies to a handful of apps. Yeah. So that means that the 1980 for that for us, handful of apps is off limits, but not for the vast majority of our Chinese customers, for which we don't need an export control license either. We can just ship. Yeah. And those are for the mature and a low-emits critical chips that are needed for all the transition that I just mentioned. Yeah. So yeah. So yeah, I kept that.

Speaker 17: So the majority of your immersion revenues next year in China will be at least some of the 1980s but probably move to 1950s, 1930s sort of thing for those customers?

Speaker 9: No, no, because the 1980 is a low-end immersion tool, so the only export controls will be on the 1980s that go to a handful of FABs.

Speaker 9: shipped in 1980. Yeah. And for all the other customers which are using those chips for non-advanced semiconductor manufacturing that is actually used for mid-critical, lower-mid-critical, mature applications where there are no security concerns, yeah, we can just ship those. And that's the vast majority of our business. Perfect, thank you Pieter.

Speaker 5: And the next question comes from the line of Mehdi Husseini from Susquehanna. Please go ahead.

Speaker 18: Thank you. A couple of questions. Peter, I'm a little bit confused. I'm just going to focus on lithography. I'm not going to ask you about WFP or where we are in the semiconductor cycle. When I look at the leading edge, we've had a couple of years of a slow start to three nanometer. As a matter of fact, the leading edge has been trending.

Speaker 18: and I was hoping that by next year there will be a bigger demand for a leading edge among foundry and your larger customers. But what I get from you is

Speaker 18: probably EUV unit shipment is going to decline and what I want to ask you or give a clarification is this a kind of a pause as we insert a gate all-around? Is this something that happened when we went from planer to SINFET and we're going to see the repeat of that next year and then that would impact your EUV shipment? Any thought around gate all-around will be appreciated and I have a follow-up.

Speaker 19: Gator all around.

Speaker 3: And the notes associated with that are 2025, 2026.

Speaker 9: That will happen. So the pause or a lower unit shipment of EUV next year is simply the cause of what we discussed earlier. I mean, we're in a cyclical downturn and there are end markets that don't need that full capacity. So this is the reason.

Speaker 3: the R&D roadmaps are very much intact. And as a matter of fact, our leading customers keep telling us this. So.

Speaker 3: I would not expect, I would even say, if you would see the HVM volume ramp on the gate all around the architect.

Speaker 3: It's just one of the reasons why I think 2025-2026 is going to be a good year. It's a very strong year.

Speaker 3: But everything that we see today has got nothing to do with that. It's got nothing to do with the roadmap. It's just got to do with the fact that we are in a down cycle and we're climbing out of the down cycle whereby...

Speaker 3: the capacity utilization also at the leading edge is of course not at 100%.

Speaker 3: No, you just have to grow into it and it's gonna happen. It's just the cycle.

Speaker 18: Now, one difference this time compared to when we migrated to Census is DRAM, adoption of insertion of higher EUV layer count for DRAM. If I were to go back to your 2022 and 2021, I know this day, you had a defect that more than 30% of EUV demand by 2025 is going to be driven by DRAM.

Speaker 18: Is that still a case and could that make the UV recovery much stronger with or without the adverse impact of

Speaker 3: Yeah, I think that that's absolutely true, but I still believe that percentage is is is still valid.

Speaker 9: But like I said, it is not today, but it is because we are where we are in the economic cycle. So I think nothing has changed in that sense. And you could even argue because they have...

Speaker 9: quote-unquote underinvested in 2324. Yeah, that will definitely be an additional driver on top of the road map insertion points that haven't changed.

Speaker 3: So yes, I would expect that to be the case in 2025, yes.

Speaker 18: We just have to wait for the first half of 24 to see that in your book.

Speaker 9: Yeah, yeah, and you know, and that is basically also I said it before, you know, it's.

Speaker 9: why we are conservative on 2024 because they're macro economic uncertainties. And our customers are closely watching this also. They're watching these.

Speaker 9: these inflection point trends. I mean, this is what we will also follow with them. You know, they have a better view of inventories.

Speaker 3: We have a better view of utilization. We have a better view of all the things that happen in the fab. We need to look at those inflection points and saying, okay.

Speaker 3: That means the thrust, but then what will be the slope of the recovery? And that's basically your macro call. Thank you.

Speaker 5: And your next question comes from the line of Sandeep Deshpande from JP Morgan. Please go ahead.

Speaker 20: Yeah, hi, thanks for letting me on. Peter, I mean, with response to an earlier question, you talked about that you will start seeing this order recovery potentially in 2024, which will help your 2025. But given that at this point, what you see into 2024, the demand is not as much as your capacity, particularly in EUV, would you pre-build? Because, I mean, your tools don't have any obsolescence risk. This is my first question, and I have one quick follow-up.

Speaker 3: Yeah, I think you're absolutely right. I mean, we are very, also our customers keep telling us this. This is not that we in perfect isolation on the 20th floor in the town called Veltov and think about this, because our customers also show us what they need and why. So this is the 2025 we think is very real. So that means we need to pre-build, so that you will see that in our working capital and the working capital of our suppliers.

Speaker 9: You know, and if things change a bit faster, we'll actually need that in the back half of 2024. So we need to prepare ourselves, but you're absolutely right. We have to be sure otherwise we won't be able to react.

Speaker 9: And then we're in a super crisis in 2025 because we can't make the tools that our customers

Speaker 20: And then thanks Peter. And then in terms of a follow-up for Roger, I mean next year, if you're looking at a flatish year, I mean you must have had a spending plan on your OPEC for next year, whether it's R&D or SGNA. Are you going to continue with that plan given that the environment is different from when you built that plan? Or are you going to continue spending as you would normally have done? And thus there is an earnings impact next year in a flatish year because you've got a lot of work to do on your expenses.

Speaker 4: Yes, Sandeep. So obviously, in the current environment, we are frugal, right, as you might expect us to do. So we're definitely controlling our FG&A expense there.

Speaker 4: On the R&D side, that's long-term, and I think we would be ill-advised to now go cut our R&D roadmap, and that's not what we're doing. So we are continuing to execute on the R&D roadmap.

Speaker 7: that the growth also on the R&D headcount is now if they absorb. So that's why you see this slowing down a little bit on hiring people. But no, I mean we continue to push down the accelerator on the R&D front because the opportunity is significant. And in order for us to achieve the growth trajectory that we've talked about in 25 and 2030, we simply need to do that. So yes, we will be frugal. No, we're not going to come back on our R&D roadmap. Thank you so much. Thank you.

Speaker 7: But no, I mean, we continue to push down the accelerator on the R&D front because the opportunity is significant in order for us to achieve the growth trajectory that we've talked about in 25 and 2030. We simply need to do that. So yes, we will be frugal. No, we're not going to cut back on our R&D roadmap. Thank you so much. Thank you.

Speaker 5: comes from the line of Denardon, Mennon from Jeffries. Please go ahead.

Speaker 21: Hi, good afternoon. Thanks for taking my question. I just want to go back to the question of the backlog. You do have a sizable backlog of over 35 billion and over 19 billion on the UV side. So just referring to a previous question on push out.

Speaker 21: you know, do you see a risk? I mean, if you were to look out into 2024, especially on your EUV side,

Speaker 21: Is your uncertainty more on do you get any push-outs on the existing backlog, or is it a question of how many orders?

Speaker 21: you can take in Q4 for shipment into 2024. My question is more, you said that it's, you know, that you've suggested that there is some conservatism in that. And I'm just wondering where the risk or the upside could come from. Is it more that there could be a risk of the shots or is it just a amount of orders you could take in Q4? Thanks.

Speaker 3: Yeah, I think it's a good question, you know, you know,

Speaker 3: The way we look at this is, we look, one of course we are close contact with our customers and we are discussing in depth with them what they really need.

Speaker 3: But what they really need is also a function of where they are and what they see that they need going forward. And, of course, where they are is that they're in a clear – all of them are in a down cycle where they feel it's about the

Speaker 3: the thrust or we might be seeing the inflection points that will take us out of the thrust.

Speaker 3: If you don't think about the psychology of the customer and they look forward and they see these inflection points towards the end of the year changing positively.

Speaker 9: That means there will grow in 2024. That means what we've discussed with them now, as the, you could say, the minimum scenario.

Speaker 9: If everything happens the way that we think in terms of the inflection point, they will see growth. They're not think this will be it. But that, of course, is that is...

Speaker 3: In their current mind, they don't give us a lot of orders, so their current mind is we have what we have.

Speaker 9: We look forward to what we need as a minimum in 2024.

Speaker 9: They better tell us, they tell us you better prepare us for 2025, but the minimum in 2024 is what we call the conservative view because, you know, you could have a more positive view and say, well, it will turn in the second half of 2024. We don't have any indication that it's going to be that soon.

Speaker 9: So this minimum position that they see is what they have discussed with us.

Speaker 9: And seeing those inflection points, I think there is little risk to the downside.

Speaker 9: to answer your question. Now, could there be an opportunity to the upside that would effectively mean that what we see in 2025?

Speaker 3: For reasons of a faster recovery and the cycle will be pulled in into the back half of 2024. That could be an upside. But this is where we are. This is where our thinking is. This is where our customers is. And this is how we reflect on our view of 2024.

Speaker 21: understood and this is more follow up on china uh... you know uh... uh... the as you referred to the the of the official regulations coming out of the u.s. government yesterday uh... if you look at the chuck overlay and numbers of two point four nanometer it it seems to capture the nineteen eighty as well uh... and and what you're saying is uh... that

Speaker 21: you know because it's only the advanced uh... manufacturing facilities will be covered by that and that's a handful but do you think that that could be a moving target through the course of the year i mean could you could new fabs continuously be added to that you know taken away from that so it is that sort of cloud the overall visibility on where china could actually end up just from a geopolitical standpoint over the next one month

Speaker 3: I think that last where the geopolitical confrontation would end up is a billion dollar question, I suppose. But I think basically two answers. One, how do regulations are currently structured, is like the Japanese have also done the same thing.

Speaker 22: or immersion, but...

Speaker 3: Transport controls will only apply to advanced manufacturing, which only does 5 steps. Now...

Speaker 3: Yes. But that has always been there.

Speaker 3: you know that particular risk in terms of risk for controls.

Speaker 3: being enlarged to what it is today. That's a risk that we've always had. And so that is basically...

Speaker 22: a function of what you ended your question with is how the geopolitical escalation will happen going forward. We don't know.

Speaker 3: I mean, we just have to live with what the regulation is today and you need to realize

Speaker 9: which is a amalgamation, a consolidation of the October 7 proposal of last year with the trilateral agreement between the Dutch, the Japanese and the Americans, has led to this situation of this handful of facts.

Speaker 3: So it's also the result of, you could say, in-depth discussions, multilateral discussions between governments.

Speaker 3: Now, I don't say that that's never going to change, but that's what you need to consider also.

Speaker 3: We are where we are. I don't have a crystal ball to predict where geopolitics will go and how it will escalate. But we need to work from where we are. And I can assure you that the results that currently on the table in terms of regulation are the result of very deep discussions between governments.

Speaker 3: that are not just on a lazy Sunday afternoon being prepared. This is very deep. So yes, it can change, but then also I think the geophysical situation first needs to change.

Speaker 4: And Janani, a final element in the conversation, building on what Peter was just saying, and he said it before, obviously, the regulation really aims at advanced semiconductor manufacturing. And I think you simply have to recognize that most of the Chinese customers have gotten the message already last year. And as a result of that, have really shifted to what we call a myth-critical and mature manufacturing. That's what you see them do. As a result of that, I would say the number of fabs that are still involved.

Speaker 4: A number of our customers and fabs that are still involved in advanced manufacturing have gone down dramatically.

Speaker 3: And as a result of that, we can now talk about a handful of FABs that are associated with that. So, if that's the objective, then that is completely in line with what now has been achieved. And that's a good point. When we do the roadmap discussions with our Chinese customers, they all moved back, not forward.

Speaker 9: And I do that because what I was an answer to in previous question, because if you look at the demand for mid-critical or mid-critical and mature semiconductors and you look at the significant transitions that also China is going through. And many are leading where it's elective vehicles or at the energy transition.

Speaker 9: The square inches of silicon that is needed to support that are massive. So they actually need to build that capacity, which by the way, they're not going to be self-sufficient because the demand to local demand is simply too high. I mean, but there will be more self-sufficient, but not fully. And so there's no downside for our Chinese customers to actually move their roadmap in that direction.

Speaker 2: All right, thank you all. We are now at the end of the hour, so if you were unable to get through on this call and still have questions, please feel free to contact ASML Investor Relations Department with your questions.

Speaker 2: Now, on behalf of ASML, 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.