ASML Holding NV

AEX:ASML

Earnings Call Transcript 2021-Q2

[Unknown Attendee]

Mr. Wennink, can you give us a summary of the Q2 results?

[Peter T. F. M. Wennink]

Yes. Our Q2 results were very good. And as we indicated last quarter, we ended the second quarter with a sales number of EUR 4 billion, where we have to remind ourselves that, that EUR 4 billion may look a bit low as compared to the first quarter and a bit low as compared to our guidance for the third quarter. And we need to remember that in the second quarter we shipped a number of machines without what we call a factory acceptance test. So basically the revenue falls in the next quarter for revenue recognition purposes. It's about a EUR 300 million shift, yes, from Q2 to Q3, but it was a good quarter.And gross margin, 50.9%, is above guidance. It was driven largely by we're selling more software upgrades. I mean customers are looking for more productivity, but also there's a onetime release of some deferred revenue, which was an accounting release.So installed based business, EUR 1.1 billion, also good. EUR 1 billion of net profit.I mean I think most noticeable, I think, in the second quarter was the order intake, EUR 8.3 billion. I think it's the highest quarterly order intake we've ever seen, with EUR 4.9 billion for EUV, so pretty good.

[Unknown Attendee]

What's at present your overall view for 2021?

[Peter T. F. M. Wennink]

2021 -- it may not be a surprise. I mean it's going to be a very strong year. And we -- as a quarter ago, we guided about a 30% increase, as compared to last year. And I think now we're at 35%. So everybody is working extremely hard, us and our suppliers, to actually produce a bit more machines because our customers are craving for those machines. So I think it's good.If we then look at the segments. Logic, no surprise either, driven by everything that we see around us. It's the drive for artificial intelligence, high-power compute drive the desire or the demand for leading-edge chips, but it's not only that. I mean, when we think about the current market situation, you actually see that what we call the distributed systems, which are being supported by 5G, are growing so fast. And you have to think about what's a distributed system. I mean it's a car. It's an industrial machine. It's a home appliance. It's the working-from-home PCs. Those are all distributed systems that actually don't all need 5 nanometer or 7 nanometer. But they need compute power to assist the sensor, a lot of sensing happening in all these distributed systems. And that's matured, so it's not only advanced logic, but now we also see mature logic. And this is the reason why we think Logic will increase with about 35% this year, as compared to our previous estimate last quarter of about 30%.It's the same for Memory. Memory follows Logic. And for Memory, last quarter, we said we think this year it will grow with about 50%. Now we think it's 60%. It's about EUR 4.7 billion in sales this year, Memory, of which EUR 1 billion is going to be EUV. And that's important because EUV doesn't really add yet to the bit capacity this year, yes. So basically it's technology investments that our customers are doing for ramping next year and the year thereafter. And on installed base, we thought 10% growth last quarter. We now think 15% growth, also driven by the software and productivity upgrades that our customers are looking for. So all in all, 2021 is going to be a very good year, 35% growth.

[Unknown Attendee]

What about demand beyond 2021?

[Peter T. F. M. Wennink]

That's a good question. I think clearly we've seen in 2021 also the -- we could say, the reaction of the industry at large, the electronic industry, to the COVID year. So you saw, you can say, a catch-up effect. I think that will stretch into 2022, yes. Some of the supply chains have been disrupted and it takes a bit longer, but longer term, it's what I said earlier. I said it is really the driver, advanced semiconductors for artificial intelligence; high-power compute; and the demand for matured systems which are driven by what we call the intelligence edge, all these distributed systems that need a level of compute, yes, next to the sensors, yes. And that is a secular trend that will not go away very soon. Actually, we think it will continue throughout the rest of the decade.And then there's a third trend which is more that, you could say, the trend for technological sovereignty; that the big geographical areas in the world, like the United States and Europe, feel that part of that big growth that's coming should also be local. So -- and it's not a surprise then if you look at those trends and look at our order book. And our order book is currently about EUR 17.5 billion in sales of -- as a very significant part is EUV, yes. That order book is very strong, yes. And that's where it's just a reflection of where we currently are, and it's a look into 2022. I mean we'd even think that -- for instance, our EUV capacity next year, which we think will be around 55 units. When we look at the order book, about 80% is already booked as at the end of Q2 2021. So yes, I think, all in all, significant growth expected in the next couple years.

[Unknown Attendee]

Can you update us further on your capacity plans for EUV, for deep UV?

[Peter T. F. M. Wennink]

If you listened to my previous answers: I mean it's going to be growth. And I -- and we strongly believe that, that growth cannot be supported by the capacity that we currently have, so we need to extend capacity. Now how do you extend capacity? There are 3 ways to extend capacity. First is, of course, do things faster, cycle time reduction. That's generally something you can do within 6 [ and ] 12 months. Secondly, you can add to the same square meters. You can add more people and more machines, which basically has an output time of about 12 to 18 months. And when that's not enough, you need to build. You need to build square meters, which is 2 to 3 years. So I think this is what we are discussing together now with our supply chain.So on deep UV, we will significantly increase our capacity, will be significantly double digit. How much in the end it will be still depends on the final confirmation we get out of the supply chain on those 3 things: cycle time reduction, adding more people and machines and building square meters. We -- I think, in the third quarter or the end -- towards the end of the third quarter, we'll have a pretty good view of what that means.On EUV, we said the capacity for next year, 2022, is 55 units, but for '23, we are now looking in to bring that capacity over 60 units. When we look at the longer-term demand, we'll be over 60 units. And then you have to also realize, when you think about EUV, that customers buy machines, but in fact they buy wafer capacity. So if -- the new machines, like the 3600D that has a 15% to 20% higher productivity, yes. Also the newer generations add more capacity in terms of wafers out because the machines are so much more productive.

[Unknown Attendee]

Moving forward, what can you say about your capital allocation?

[Peter T. F. M. Wennink]

Well, capital allocation. Looking at the forecast, our growth profile, the profitability profile of the company, we'll be generating a sufficient amount of cash. And we will distribute that according to our financial policy. First of all, we will use the cash to grow the business, yes, to support R&D growth; to support the fixed assets, building parts of the factory, building the -- building out factories, buying machines, which is also true for our supply chain. We will fund some of that in the supply chain like we've always done. And when we've done that, we'll give it back to the shareholders. I mean we'll pay an increasing dividend and we will do share buybacks. And on those share buybacks, as you know, we have a program which is EUR 6 billion, which by the way, we bought back EUR 5.2 billion of that EUR 6 billion. So there's a remainder of EUR 800 million. We will basically bring it into a new program. So the EUR 800 million will be brought into a new program of EUR 9 billion, which the term of that program will be focused on executing it by or potentially even before December 31, 2023.

[Unknown Attendee]

So all in all, to summarize, the future for ASML looks bright.

[Peter T. F. M. Wennink]

I think the future for the industry looks bright. And I think it's clear that, industry analysts, our customers and us, we believe that our customers -- I'm talking about the semiconductor industry, so the semiconductor makers. They currently have a combined sales number of about $500 billion. That could be $1 trillion by the end of this decade. So we talk about doubling the sales, which actually means that we need to [ add ] that capacity. We need to help our customers in their expansion plans. When they build fabs, we will ship the equipment. And it's all driven by basically what we're seeing today, which is the digital revolution, yes. It's the further rollout of 5G and 6G. It's the progress we're making on artificial intelligence, self-driving cars. It's the intelligence edge that will actually drive a significant part of that growth. So all in all, we're very positive about the future. And we'd love to tell you a little bit more when we have our Capital Markets Day September 29 of this year, and I'm looking forward to that.