ASML Holding NV

AEX:ASML

Earnings Call Transcript 2021-Q4

[Unknown Attendee]

Mr. Wennink, can you give us a summary of the fourth quarter and the full year results in 2021?

[Peter T. F. M. Wennink]

Yes. Both were very good to start with Q4, with about EUR 5 billion of sales. That's in the midpoint of our guidance. Our deep UV shipments were a bit light. I think they were basically the result of the effects of the logistics center and supply chain issues that we announced in Q3. But that was compensated, fully compensated by EUV revenue, and by our Installed Base revenue and especially the productivity upgrades, they were able to ship to our customers. Our customer are in bad need of extra capacity. So there was a big demand, and we were able to ship. So that was good for the full year. About 35% higher than 2020, ending at EUR 18.6 billion of sales, which was good. Installed Base management was very good, like I said earlier, EUR 1.5 billion of sales, driven by productivity enhancement packages as we call them, Installed Base options to give our customers extra wafer capacity. For the total year, about EUR 5 billion. That's about a 27% increase -- or sorry, 27% of our total sales. On the gross margin, now because of the productivity enhancement packages, which is our software, very good gross margin, just over 54% in Q4. And for the total year, again, a record 52.7%. Net income as a result of that good, EUR 1.8 billion in Q4, EUR 5.9 billion for the total year. And I think if you look at the year and you want to reflect on the year, I think you also need to look at the order intake. Now order intake in Q4 was high, EUR 7.1 billion, of, you could say, only EUR 2.6 billion in EUV, but we've had very strong EUV order intake throughout the year, which includes one High-NA tool. And that means that we have EUR 4.6 billion of deep UV orders in Q4. And just a reflection of where the market is today, I mean there's a significant demand for our entire product portfolio, both DPV and EUV mature and advanced. Over EUR 26 billion of order intake throughout 2021 with just under half EUV, and the other half is deep UV. And just the reflection, again, of this very widespread demand for our products across all technologies, our entire product portfolio. So in summary, both Q4 and 2021, very good year.

[Unknown Attendee]

When we look at the beginning of this year, your revenue guidance for Q1 is quite low. What's the reason for that?

[Peter T. F. M. Wennink]

Yes, I can understand the question. And as a matter of fact, it's not at all as bad as it appears. It's got to do with revenue recognition. And basically, it's driven by the fact that we want to reduce cycle time. The shorter the cycle time is the more we can ship to our customers. Now what we used to do is to recognize revenue when we accept our systems, the sign-up of the systems in our factory. That actually -- that acceptance procedure takes a couple of weeks, sometimes 3 to 4 weeks. We actually skip that and we ship the system to the customer side, and we do the acceptance test there. Projection mean there's only 1 acceptance test, and that's at the customer side. So it means you defer or you delay the revenue. Now if you then look at the planned shipments for this quarter, just the sales value of those shipments is anywhere between EUR 5.3 billion and EUR 5.5 billion, which is a very high number. Now, and if you then take into account that we had some fast shipments as we call them in Q4 of last year, so we will recognize about EUR 300 million in Q1 of 2022, but we're also deferring or shifting about EUR 2 billion of revenue into the next quarters of 2022. So if you take the combined effect, it's all about revenue recognition. The -- I would say the booked revenue of those shipments in Q1 is then between EUR 3.3 billion and EUR 3.5 billion, with about 49% gross margin.

[Unknown Attendee]

That explains Q1. What I asked, your expectations for the full year 2022?

[Peter T. F. M. Wennink]

2022 is going to be a good year. We expect about 20% growth as compared to 2021, which is a good number because you have to take into account that we also plan for fast shipments by the end of this year. So you remember, revenue will shift into 2023. We think we currently think about 6 EUV systems will be fast shipped as we call it. And if you take that into account, if you would add those delayed revenues on to the 20%, then the growth of the shipment value will be about 25%, not 20%, but the recorded revenue, as we call it, will be about 20% growth.

[Unknown Attendee]

You're operating in a very high demand environment at the moment. It's all about supply, all about maximizing output. What are your expectations with regard to EUV to deep UV for this year?

[Peter T. F. M. Wennink]

I think on the EUV, we've said it before, we still have an expectation to ship about 55 EUV systems. But like I said before, about -- we currently also expect to fast ship about 6 systems for which the revenue will move into 2023. So we ship 55, about 6 will be revenue recognized in 2023. Well, with that, the combined effect of that will mean an EUV growth -- revenue growth of about 25%. On deep UV, we've seen -- also when you look at the order intake, deep UV is particularly strong. It's across all industries. Memory, Logic, very strong deep UV demand driven by the chip shortage that everybody knows about. We will probably see about a 20% growth of our deep UV business in 2022 as compared to 2021. And on Installed Base, despite the fact that we had a very strong year in 2021 and with many pull-ins of Installed Base options to increase more wafer capacity, we still expect 2022 to grow about 10%.

[Unknown Attendee]

How does it all translate into your different market segments for this year?

[Peter T. F. M. Wennink]

Yes. I think both Memory and Logic, given the demand situation, which exceeds our capacity, it's not a surprise that also Logic will be very strong, driven by the underlying secular trend of the increased demand for more mature products for advanced products, Logic will grow about 20%. And also on Memory, DRAM specifically, very high utilization. So there's not much space left in terms of extra wafer capacity because our system utilization is very high. The expectation is that the bit growth in DRAM will be high teens. Well, there's only one way to get those extra bits out and at least to basically ship more systems, so increased wafer capacity. So we expect memory growth as compared to 2021 this year to be about 25%.

[Unknown Attendee]

It all sounds that also 2022 will be a very good year for ASML. What challenges are you facing at present?

[Peter T. F. M. Wennink]

Yes. I think the biggest challenge that we currently see is that the demand significantly exceeds our capacity. I think it's unprecedented. I have never seen this before. And I think it has to do with a couple of things. I think it is the secular growth trend. I think it's the drive for more semiconductors to support Internet of Things. It's the disturbances as a result of COVID, all the reasons why the demand is so much higher than our capacity. And that means if you're at maximum capacity that you have to be very careful and very much monitoring any disturbances because you know if there's a disturbance, you don't have any buffer left because you're at maximum capacity. So I think there are 3 things that we are really looking at: #1 is COVID. Clearly, COVID, we cannot predict it, but it's still there. Infection rates around the globe are shooting up, and it will inevitably also lead to some absenteeism that we have. I don't think people get infected in a clean room, but the infections happen at home, but still, it will affect you; secondly, I think it's the supply chain. I think there are disturbances. You just open the papers. There are shortages and supply-demand imbalances everywhere. I think we need to manage that very closely; and third, I think it's the workforce. We are ramping our capacity significantly, which also means people. I mean, we hired close to 6,000 people in 2021. But those people need to be trained. They need to get up the learning curve, and that will take time.

[Unknown Attendee]

What are you doing to address these challenges?

[Peter T. F. M. Wennink]

Yes. I think 3 things, I think, with our customers. It's all about getting wafers out there, more wafer output. And this is why we've turned into fast shipments, turned to fast shipments to basically say, if you can reduce the cycle time, but not doing acceptance test for weeks in our factory and just basically emptying the production cabin 3, 4 weeks earlier, you can output more systems. So that's what we're doing. So together with our customers, we've taken the decision to do fast shipments. And next to that, it's Installed Base improvements, hardware, software options to get more wafers out. That's what you do together with your customers. It leads to delay of revenue, but it's not a problem because that will easily be catched up 1 or 2 quarters later. And then with our suppliers. There are supply disturbances, not only in the semiconductor industry, they're everywhere. So what do you do? You stay on top of each other, basically very closely monitoring everything that goes on so any disturbances are recognized soon. And then you take action and corrective measures to do that. So it means a very close collaboration between the supplier base and ASML. And the last one, COVID. We have all the protective measures in our factories and in the company. But still, it's a pandemic. And like I said, most infections happen in the private space and will also happen to us. So this is something which we have to monitor very closely, and see how we can basically support our output with flexible working schedules.

[Unknown Attendee]

On top of this, you started the new year with a fire at ASML Berlin. What's the current status?

[Peter T. F. M. Wennink]

Yes. It wasn't a good start of the year, clearly. The fire happened in 1 part of the factories. There are several buildings there. We were able to put the fire out within a couple of hours, but still there was a significant damage. Now I must say kudos to the ASML Berlin people and the people here in Veldhoven and in Wilton. They had a lot of creativity. We are where we are today, which is for deep UV, although there were some initial disturbances, we don't think there's going to be any impact on our output for 2022. But in the -- where the fire happened was in the area where we make the EUV wafer clamp, which is a very complex, but a very significant module that goes into our EUV systems. But because of the hard work and the creativity and we currently believe that we can manage the situation and that we will not see a significant impact on our EUV output in the year 2022.

[Unknown Attendee]

Can you give us an update on your EUV High-NA?

[Peter T. F. M. Wennink]

Yes. High-NA is the next big promise. Well, it's moved beyond a promise, I think, we're executing. We're executing the first High-NA tools in our factory. We received the fifth EXE, that's the High-NA EXE:5000 order for shipment, basically ship it up to and including 2024, if not 5 in the order book. And as a matter of fact, in Q1 of this year, so it's not last year in Q1 of 2022, we received the first order for the EXE:5200, so the 5200, which is the next-generation high-volume manufacturing tool for EUV, which will be launched in 2024, but it will have improved lithographic performance and higher productivity. So that's the promise for the second half of this decade in terms of high-volume manufacturing.

[Unknown Attendee]

Let's have a look at your capital allocation. Your dividend increase is quite large. Can you re-elaborate?

[Peter T. F. M. Wennink]

Yes. Let's be clear about the capital allocation policy. First, we will use our free cash flow to support the business. We will invest significantly in our capacity, our capacity in the supply chain. We will invest significantly in R&D, given the high growth profile that we have. But when we're done, yes, we'll pay a dividend. We pay a growing dividend. And we will propose to the general meeting of shareholders to increase the dividend to EUR 5.50. That's a total dividend for the year 2021, for which, of course, we paid an interim dividend in Q4 of 2021. So that's a significant increase in dividend. And next to that, we keep doing share buybacks. We basically ended to the previous program by buying back EUR 4 billion. This is the last part of the previous program. And then we started a new program, which we announced last year. It's a EUR 9 billion program, which we already bought back about EUR 4.6 billion.

[Unknown Attendee]

To close off, do you expect strong demand to continue beyond 2022?

[Peter T. F. M. Wennink]

Absolutely. I think I said it before, we're looking at this secular growth trend. And we talked about this extensively during our Capital Markets Day last year -- at the end of last year. The growth profile of this industry is impressive. The semiconductor industry is planned to double in size to $1 trillion by the end of this decade. And of course, this also will have an effect on our business. So what do we do? And I have to admit, I think we, as an industry, us and our customers and their customers, we've underestimated the long-term growth profile of the company. So we need to catch up.And how we do that? We build capacity. And that's where we're very much focusing on building capacity at ASML, but also in the supply chain to make sure that we can significantly increase our output, both for deep UV and for EUV and for our metrology and measurement systems, basically across our entire product line. So bearing that in mind, we're even more optimistic about the long-term growth profile of this company.