Q3 2024 ASML Holding NV Earnings Call - Pre-Recorded CFO Interview
Well, so the installed base management to a business. It was hired unexpected at a 1.254 billion euros.
Gross margin for the quarter came in at 50.8%, which is within our guidance net income at 2.1 billion net bookings came in at 2.6 billion, which I think is a reflection of some of the market dynamics that we're going to talk about later it later on.
Part of the 2.6 billion was a 1.4 billion euros for F. R. E V systems, and I would remind everyone that said that's you know we ended the quarter with a backlog of still over 36 billion euros, Although I would say and you know it's been a solid quarter in terms of in terms of financials.
It's also a quarter, where there have been quite some market dynamics.
Speaker Change: For Q4, we expect a significant step up in sales. We expect total net sales between $8 8 billion and $9 2 billion part of that big step up again in the installed base revenue, we expect that to arrive around two one.
Speaker Change: 1.91 billion a couple of reasons for that again I think first off we.
Speaker Change: We expect to meet certain very specific performance targets for our Fort UV and that should translate into a into that.
Speaker Change: Revenue directly related to that and we also have a few U V. Eh performance upgrades of productivity upgrades that said that we expect to kick in in the in Q4. So that's the reason why we're looking at an installed base revenue number it is quite a bit higher than what we've seen in the past couple of past couple of quarters.
Speaker Change: Gross margin, we expect to land somewhere between 49 and 50%. So what are the moving parts in that and that's in that gross margin.
Speaker Change: First off.
Speaker Change: You know we have the installed base business that we just are alluded to them and obviously that is going to drive up the gross margin and but then we're also looking at the dilutive impact of recognizing too high knee systems because that is the expectation we have too high in E systems that we expect to recognize in revenue in Q.
Speaker Change: For and we expected diluted impact of that to revenue recognition on the gross margin for the quarter of approximately a three and a half a percent.
Speaker Change: If you didn't take that guidance, we translate that into the full performance for 'twenty 'twenty four we're looking at the midpoint at at around 28 billion euros and in revenue.
Speaker Change: And the gross margin for the full year and at that midpoint landing at approximately 50.6%, which I think is in line with what we said at the beginning of the year. When we said that the gross margin was going to be a little bit down from what we had in 2023.
I think on the technology side with their with E V or making really good progress both on <unk> and on the on Heinie, if we start with it with low and a point thirty-three, we see more and more customer assess shifting their demand towards the 3800.
Speaker Change: Which is no surprise because as you know the 3800 shows a 37% improvement in terms of throughput over the 3600 D model.
Speaker Change: We also expect for Q4 for the majority of the of the illuminate UV tools to be 38 to 38 hundreds.
Speaker Change: We've demonstrated in the past quarter in our factory are the full productivity.
Speaker Change: For the 3800 to eat tool and.
Speaker Change: So that gets you to 220 wafers per hour throughput. So that has been demonstrated and we're well on track to you know to get the the systems in that full specification to a customer starting early next year. So early next year, we will start shipping the 3800 at that full 220 wafers per hour a specification when it comes.
Too high in a and as I just mentioned, we were close to to having decided acceptance that's concluded with our with the customer for the two systems that we've already shipped and we expect that to conclude in this in this quarter and that also leads to the revenue recognition that I talked about it before.
Speaker Change: We're actually in the process of shipping a third a high and a tool to a second major a major customer. So I think that is very much on are on track.
Speaker Change: Proposition for high in a I think it's pretty clear we've demonstrated a resolution of eight nanometers and that actually gives you a approximately three X increase in transistor density in comparison in comparison to a low and a low and a system.
Very importantly, we've told you that you know quite a few wafers are being exposed and at this stage I think we will expose our customers have exposed are around 10000 to 10000 wafers multiple customers logic customers and memory customers. Both in our edge joined ASML imac high in a lab, but also.
In the in the field.
And we've presented in September we presented that L. A lithography conference via the latest data as far as that is concerned and I think those latest data really show that there are significant benefits in imaging and overlay and can't contrast, and that really is a is a clear value proposition to drive down the cost of it.
Of patterning for our for our customers. So I would say all in all if you look at the progress made on the on the 3800 tool and also the progress in the feedback that we're getting from customers on high and a very much on track and you know very much delivering the value to our customers that we anticipated.
Speaker Change: That's been quite some quite some market dynamics dynamics in the past couple of a couple of months very clearly a strong and a strong performance of AI. You know clearly continues and I think it continues to come with their with quite some quite some upside but you also.
Speaker Change: See that in other market segments.
Speaker Change: Longer to recover their recovery is there, but it's it's it's more gradual than what we anticipate it to before.
Speaker Change: And it will continue in 2025 and that does need to some customer cautiousness.
Speaker Change: If you take that element you translate that to the different market segments are done you know clearly this said this this more gradual recovery has an impact on logic and if you combine that with a very specific and a competitive you know competitive issues in our in the in our in the foundry business you do see that for some.
Speaker Change: Customers there is a slower ramp of new nodes and that leads to you know fast some some fat that push outs and obviously also leads to a change in a delay in etch and litho demand to lesser demand timing.
Speaker Change: If you look at the memory. If you look at the memory business. You know this this customer cautiousness that I talked about leads to limited capacity or capacity additions while at the same time, we do see a lot of focus and strong demand when it comes to technology transitions and particularly as it is related to two high bandwidth memory and two D. D. R F.
Speaker Change: So again, there anything related to AI is strong but other than that there are limited capacity additions or.
Speaker Change: Also important the China business and we do expect you know the China business and the percentage of the China business as part of our total business to show a more normalized percentage are in or our order book and also in aura in or in our business.
Speaker Change: In summary, our longer longer term trends are still very very strong very very positive.
Speaker Change: Boeing are good signs of a good signs of upsides, but a development in the past couple of months and customer specific circumstances that I that I mentioned have now led to a more gradual growth curve for our business.
So you know at our Investor day in 2022 we looked at 2025, when we provide it market scenarios for 'twenty twenty-five between 30 billion and 40 billion euros.
If you recognize the the recent market dynamics that I, just just alluded to we do see the 20th twenty-five revenue actually moving to the lower half of that range. So therefore, our expectation now is that we're going to see our net sales in 2025 between 30 billion at 35 billion 8 billion euros.
Speaker Change: Primarily driven by a significant reduction in our in a low and a EV tools, we expect that at the midpoint of our expectation, we expect that to be below 50 tools for 2025.
Speaker Change: And also what I just mentioned in terms of China, We do see China trending you know towards more historically a.
Speaker Change: Normal percentages in our business. So we expect China to come in at around 20% of our total revenue for for next year, which would also be in line with its representation and already in our backlog.
Speaker Change: So again, referring back to our Investor day of 'twenty 'twenty. Two there we said we're targeting a gross margin between 54, and 56% and a very important driver of that improvement of gross margin was it was on the on <unk>.
Speaker Change: E <unk> because remember on the one hand, obviously, we are we're going to see 2025 be dominated when it comes to the low on a business by 3800 tool and as we said before and which is also actually happening that 3800 tool you know it does come with a higher ASP and a you know a good improvement in the gross margin so that.
Speaker Change: I'd actually manifested itself.
Speaker Change: That's another element you know why we believe that the gross margin was going to be up was that we expected a significant increase in the number of <unk> units for 2025, and I think as a result of what I just what I. Just described in terms of the demand that increase in numbers is actually not happening right says as we said we.
Speaker Change: Specter of less than 50 low in a UV tools at the midpoint of our guidance. So that has a that has a significant impact on them on or gross margin expectation.
Speaker Change: And we also talked about the China business as you know a lot of the China business actually is on on immersion immersion as you know comes with a significant a significantly higher gross margin than the corporate gross margin. So the fact that there was some pressure there and it also means that we're that we're having some theres some pressure on the gross margin. So it's those two combined.
Bind as the result of which we now look we're now looking at gross margin expectation for 2025 of between 51 and 53%.
Speaker Change: If we then compare the gross margin that expectation of 51 to 53, two where we are today. So the gross margin for 'twenty 'twenty four I think on a positive note. Obviously there is the the improvement of the gross margin for the third at hundreds of per tool. Obviously, a 3800 has a better gross margin than a third.
600, so that is manifesting itself clearly.
We see improvements in EV service margin, so that helps and also for high in a we see that you know the gross margin that we're going to recognize in a in a in 'twenty twenty-five will improve we get better at producing the heinie tools, we get faster in installing them and also in 'twenty five we're going to.
Speaker Change: C. The first high volume 50 to 100 tools being recognized in revenue. So all of that helps but the flip side. Obviously is that we're going to see more of a high and a tool is being recognized in revenue in 2025 and comparison to 'twenty 'twenty four and that has a dilutive effect.
Speaker Change: So opex in 'twenty 'twenty four we expect to end around 5.4 billion set so that's a combination of R&D and SG&A.
Speaker Change: And if we look at 'twenty twenty-five I expect that we're going to end somewhere at the upper limit of the bandwidth that we gave at the at the Investor day in 2022 so that would be approximately 6.1 $6 1 billion.
Speaker Change: We are still you know very very much driving a very comprehensive R&D roadmap. So you know we were where we're progressing on that asset as planned and that means that the wage inflation, obviously that we incurred after 2021 we're able to absorb that wage wage inflation you know within the within the banks.
Speaker Change: Width of the guidance that we've given and in 2022.
Speaker Change: So if we look at the free cash flow in 2024.
Speaker Change: You know the things that that drove down the free cash flow first off lower order intake because lower order intake obviously comes with their with lesser Downpayments.
Speaker Change: And secondly, as you know we continue to prepare for them you know for an uptick in the in the business. So we've taken in quite a bit of inventory, particularly I would say on EV. So this is inventory that that relates to heinie, but also inventory that said that relates to a two two <unk>. So you know, we're still preparing for that to for that future ramp and that.
Speaker Change: <unk> lower down payments higher inventory, obviously, creating pressure on the on the free cash flow.
Speaker Change: You know if the business if the business comes back then obviously those are those two dynamics. There should you know should it should become a positive for us because that means that as soon as we restart orders coming back in that will that will also lead to two more significant down payments for us and obviously also it would lead to a normalization of the inventory.
Speaker Change: Torry, you know to the extent that indeed, the the inventory that we now have is being a ship to two customers. So with the normalization of the business. We would also expect a normalization in all cassia and our cash conversion.
Speaker Change: In terms of the capital allocation policy really hasn't changed right. So you will continue to see us invest in our roadmap you will continue to see us invest in our in the in capacity because we firmly believe in the in the continued growth of the business. So you will see us do that.
Speaker Change: We continue to.
Speaker Change: Two to plan for growing dividends and also in Q3, you know we're looking at an interim dividend of <unk> of one point to 52 to be yet to be to be paid share.
Speaker Change: Share buybacks share buybacks will there will happen with the with excess cash so to the extent that excess cash manifest itself. We will we will use debt and and you know you believe you would use that in their buying back shares.
Speaker Change: If you look at the long term outlook and I believe the growth drivers are still very much intact. The secular growth drivers are clear and they are strong I think you know.
If you look at AI, very very strong very clear and undisputed taking an increasing share in the business of our customers. So I think that is going very strongly.
Speaker Change: And also if you look at energy transition electrification etcetera, those secular trends are very very much in the intact. It expands the application space for you know for both advanced and mature nodes and it also means that we will continue to work to prepare for new fab openings that are you know that our planned by our customers and yes.
Speaker Change: You know there might be some some delays here and there but still if you look at the if you look at the planned fab openings in the next couple of years. It is pretty significant and as you know it really is across the across the globe.
So as I mentioned before you know we continue to build capacity to respond to that significant demand increase as we expected for the remainder of this of this decade.
Speaker Change: I'm very happy to see many of you at our Investor Day on November 14th in 'twenty 'twenty four and this will be the main topic of conversation.
Speaker Change: How we see the market how we look at 2030 and the journey towards that 2030, how we look at the market. How we look at litho intensity as a key driver on the roadmaps of our customers. So.
Speaker Change: And we hope to see you all are there and they look forward to having a good and solid discussion there.
Speaker Change: Yes.
With regard.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: With regard.