ASML Holding NV

AEX:ASML

Earnings Call Transcript 2021-Q3

[Unknown Attendee]

Mr. Dassen, can you give us a summary of the Q3 results?

[Roger J. M. Dassen]

Absolutely. Sales for the quarter of EUR 5.2 billion, included in that number EUR 1.1 billion of installed base revenue. Gross margin, 51.7%. Net income for the quarter, EUR 1.7 billion. Net order intake for the quarter EUR 6.2 billion, included in there EUR 2.9 billion for EUV. So all in all, I would say a very strong quarter. As a matter of fact, I would say, a record quarter on many fronts.

[Unknown Attendee]

Looking forward, what's your guidance for the fourth quarter and what does this all mean for the full year 2021?

[Roger J. M. Dassen]

So for the fourth quarter our guidance for revenue is €4.9 to €5.2 billion with a gross margin of 51% to 52%. Included in the sales number €1.1 billion of Installed Base revenue. That number was impacted by a number of issues that we experienced. And they are issues that are related to the continued growth of ASML and the fact that we're really continuing to build capacity for us. On the one hand, we did see in the supply chain that there was some materials shortage. It’s not unique to ASML obviously. We read it in the newspapers in many industries every single day. But obviously particularly when we're pushing the supply chain to gear up capacity, you know this phenomenon could obviously pop up.Second issue is the fact that we're also building capacity in Veldhoven. One important element in there is our new logistics center. And we took that into commission a couple of months ago. We did have some start-up issues there. I think it's fair to say that those two issues have been largely addressed for the output for this year. But they did have the impact that some assembly of machines actually started with a few weeks’ delay. So that means the starts are delayed and, of course, that the shipment is deferred a bit.In addition to that, in the current environment where customers are really pushing for tools as quickly as they can get them, some customers really push for early shipments. We've seen that phenomenon before, you might remember that, and that means that customers actually get the tool without the tool first being tested for factory acceptance test. And that means that we can only recognize the revenue upon the installation of the tool at the customer.So those two phenomenons combined, so the late starts and then the early shipments that customers asked for, meant that we're actually going to see some revenue deferred into 2022. That said, I think, all in all, we're still looking at growth for ASML for the year approaching 35%. And we're looking at a gross margin for the total year of about 52%.

[Unknown Attendee]

There's clearly a strong demand in the market. Do you expect that to continue next year? And what's your initial view for 2022?

[Roger J. M. Dassen]

Yes, we're not going to give quantitative guidance on 2022 yet, it's a bit too early to do that. But I think it is fair to say that many of the drivers that we've talked about in the past are very clearly still there, right? So at a macro level, I would say the chips shortage phenomenon is still there. And of course, that requires continued addition of capacity. So that's one driver. And then, of course, there is the secular trend of growth, which is really driven by the digital transformation. If you then peel the onion a little bit and look at the different categories, the different components of revenue for ASML. Starting with the Logic business. This whole notion of the digital transformation, of course, has a big impact on the most advanced nodes as we've seen in the past year, but also expect that to continue in the years to come.But then also, I think that this whole notion of distributed computing means that it's not just on the advanced node, but it's also on the mature nodes, where there is an increased demand for capacity. And that combination really means that on both fronts, the demand both for mature and for advanced continues to be very, very strong for us.On the Memory side, just looking at the end markets, again, very, very strong demand there, particularly, I would say, on the smartphones and the server end markets, I think the demand is very strong. Maybe a few question marks on PCs. But all in all, strong demand there. And that translates into hybrid growth.I would say, for DRAM, most of our customers seem to be looking at mid- to high teens in terms of bit growth. While on NAND, typically, they're looking at about 30% of bit growth. So strong bit growth there driven by the dynamics in the end markets. And then if you look at the very, very high utilization of the little tools, of course, inevitably, that means that additional capacity will have to be built. So that's Logic and Memory.Then if we look at the installed base business, of course, the installed base business with the increased number numbers that we have in the installed base, of course, the service business continues to grow, particularly driven by the EUV business. We've talked about those dynamics before. So clearly, a growth dynamic there on the installed base side as it relates to service business.I would say on the upgrade business. Also for next year, we are offering significant upgrade packages to customers that would help them further increase the output of the installed base. Clearly, they need to give us time, right? So some of these upgrades, as you know, require some downtime of the system.So that will be the determining factor, I think, for how fast the installed base business next year is going to grow how much machine time do we actually get from customers to do this. But all in all, I think also there, the dynamics are positive. So if you add it all up, I think we should be looking at another healthy growth year for ASML next year.

[Unknown Attendee]

At your Investor Day recently, you talked about plans to increase your capacity. Can you give us an update on your capacity plans for next year?

[Roger J. M. Dassen]

Yes. So first off, reminding what did we say on capacity, that was really towards 2025. So that's the number that we gave at the Investor Day. And there, we said that we're looking at about 1.5x capacity for DPV (sic) [ DUV ] and more than 2 actually for EUV. And that's based on units.If you were to translate that into wafer capacity, just recognizing the fact that the tools that we're shipping in the years to come and also the tools that we're shipping in 2025, of course, of higher productivity, higher throughput than the tools that we would ship, let's say, last year.So taking that into consideration, then for DPV, we're actually looking at doubling the capacity of wafer output. For EUV, I would even say it's more than 3x that we're looking at in terms of capacity. So very strong there. If you translate that 2025 expectation into next year, I would say on EUV, I think we've been pretty clear, right? So on EUV, we're looking at a capacity of 55 units. And again, bear in mind, that's 55 units of the 3600D, which, as you know, has a 15% higher productivity approximately in comparison to its predecessor.On the DPV side, it's -- there's a number of elements that need to be taken into consideration when we look at '22. On the one hand, we do get some tailwind from the phenomenon that I described earlier on when I gave the guidance for Q4, which is that we see a few systems slipping into 2022 as a result of the late start and the fact that the customers were pushing for early shipments. So that's one dynamic.On the flip side, we've also said that in 2021, we really used all the buffers in terms of parts and materials that we had. And of course, they need to be replenished. So the replenishment of the buffers of the safety stock, if you like, that needs to happen in 2020 and 2022.But yes, we are very much working with the supply chain and determining what the overall growth and the overall mix of the growth will be for next year. And then that combination, the combination of those 3 phenomenons will ultimately determine what the capacity for next year on DPV is going to be.

[Unknown Attendee]

With regard to cash flow, can you give us an update on your free cash flow and your capital allocation plans?

[Roger J. M. Dassen]

Definitely. So free cash flow, very strong once again. So I think that's really -- we've really seen a significant improvement there in comparison to, let's say, a year ago because of all the phenomenons that we went through in the past couple of quarters. So very strong free cash flow.The way we use that free cash flow, as you know, first off, we use whatever we need in the business, right? So whatever we need to further grow the business in terms of R&D, in terms of CapEx, et cetera, of course, that will be used. What we don't need to advance the business and to make the business grow, that will be paid back to shareholders in a combination of growing dividends and share buyback.On the dividend side, we will pay in November an interim dividend for 2021 of EUR 1.80 per ordinary share. And in terms of share buyback, I think it's important to note that last quarter, we executed share buybacks under the -- still under the old program and the new program combined for about EUR 2.4 billion.

[Unknown Attendee]

We just talked about your Investor Day recently held. And there, you talked about the scenarios for ASML for 2025 and beyond. Can you give us a short summary of the key messages that you provided over there?

[Roger J. M. Dassen]

Yes. I think important what we did in the Investor Day is to really give a holistic perspective over what we can expect from a technology perspective, from a market perspective, et cetera. And I think it's fair to say that we believe we have a very strong road map there. That really allows us to continue to grow. We presented a potential -- growth potential towards EUR 24 billion to EUR 30 billion by 2025. That was the -- those were the scenarios that we presented there, with a gross margin for that for the year, somewhere between 54% and 56%.But also beyond 2025, we continue to see strong growth potential for ASML. And we present it based on external sources and some of our own analysis, we presented a CAGR, both for the system sales and for the installed based sales. We presented a CAGR for the 2020 through 2030, a period of around 11%. So I would say, on the financial side, very good growth potential for ASML.We also talked extensively about ESG. And we talked about the role that ASML can play in significantly bringing down the emissions by -- and carbon emissions by 2030 by 15% for the entire industry. And in terms of the ESG ambitions that we held out there, I think there is a number that we presented there.First, we very much talked about what we can do to contribute and to support our customers in driving down energy consumption and waste in their manufacturing of microchips. We also talked about our role in allowing our customers to produce microchips that every 2 years become 3x more energy efficient. We also talked about our ambition to -- by 2030 get to 0 waste. And also by 2040 to get to net 0 value chain emissions by 2040. So those are the ambitions that we have on the ESG front.So if you look at all of that, I would say it's fair to say that we're looking at a very strong road map, a road map that allows us to grow significantly throughout this decade and also a road map that -- and the contribution that on the ESG front, I think, is really going to contribute to the goals of all of our stakeholders.