Thank you for standing by. Welcome to the ASML Q4 and Full Year 2021 Financial Results. Throughout today's introduction, all participants will be in listen-only mode, and after ASML's introduction, there will be an opportunity to ask questions. If you would like to ask a question, please press zero one to register. If you'd like to withdraw a question, please press zero two at any time during the call. If any participants have difficulty hearing the conference, please press star one for operator assistance. I would now like you to turn over the conference call to Mr. Skip Miller. Please go ahead, sir.
Thank you, operator. Welcome, everyone. This is Skip Miller, Vice President of Investor Relations at ASML. Joining me today on the call are ASML's CEO, Peter Wennink, and our CFO, Roger Dassen. The subject of today's call is ASML's 2021 Q4 and full year 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.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'd 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 presentation found on our website at asml.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 Wennink for a brief introduction.
Thank you, Skip. Welcome everyone, and thank you for joining us for our Q4 and full year 2021 results conference call. I of course hope all of you and your families are still healthy and safe. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the Q4 and the full year 2021, as well as provide our view of the coming quarters. Roger will start with a review of our Q4 and full year 2021 financial performance with some added comments on our short-term outlook, and I will complete the introduction with some additional comments on the current business environment and on our future business outlook. Roger, if you will.
Thank you, Peter, and welcome everyone. I will first review the Q4 and full year financial accomplishments and then provide guidance on the Q1 of 2022. Net sales came in within guidance at EUR 5 billion. The effects of the logistics center startup and supply chain issues communicated during our Q3 results took a bit longer than expected to resolve, affecting some DUV shipments in Q4. In order to address our customers needs for additional capacity, we completed an increased number of productivity upgrades in Q4 as a way to provide them with incremental productivity enhancements. We shipped 12 EUV systems and recognized EUR 1.6 billion revenue from 11 EUV systems this quarter. Net system sales of EUR 3.5 billion was again more weighted towards logic at 73%, with the remaining 27% from memory.
Installed base management sales for the quarter came in at EUR 1.5 billion, significantly above guidance, primarily due to software upgrades. As just mentioned, in the strong demand environment, customers continue to use productivity upgrades to increase output of their installed base. Gross margin for the quarter was 54.2% and was above guidance, primarily driven by higher software productivity upgrades. On operating expenses, R&D expenses came in at EUR 681 million, and SG&A expenses at EUR 203 million, which was slightly above guidance. In Q4, we had other income of EUR 214 million related to the sale of the non-semiconductor businesses of Berliner Glas. Net income in Q4 was EUR 1.8 billion, representing 35.6% of net sales and resulting in an EPS of EUR 4.39.
Turning to the balance sheet. We ended the Q4 with cash equivalents, and short-term investments at a level of EUR 7.6 billion. Moving to the order book, Q4 net system bookings came in at EUR 7.1 billion, including EUR 2.6 billion for 0.33 NA EUV systems and 0.55 NA EUV systems and EXE:5000 systems. Order intake was strong from both DUV and EUV, largely driven by logic, with 77% of the bookings and memory accounting for the remaining 23%. For the full year, net sales grew 33% to EUR 18.6 billion. EUV system sales in 2021 was EUR 6.3 billion, which is a 41% increase from last year.
We achieved 50% EUV growth on the systems in 2021 and continued to improve EUV service margin. Non-EUV system sales in 2021 was EUR 7.4 billion, which is a 26% increase from last year. On the market segments for 2021, logic system revenue was EUR 9.6 billion, which is a 30% increase from last year. Memory system revenue was EUR 4.1 billion, which is a 39% increase from last year. The installed base management sales was EUR 5 billion, which is a 35% increase compared to previous year. In 2021, we had total bookings of EUR 26.2 billion, more than 2x increase year-on-year, reflecting customers' strong demand for EUV and DUV technology.
Our R&D spending increased to EUR 2.5 billion in 2021 as we continue to invest in innovation across our product portfolio. Overall, R&D investments as a percentage of 2021 sales was about 14%. SG&A was about 4% of sales. Net income for the full year was EUR 5.9 billion, 31.6% of net sales, resulting in an EPS of EUR 14.36. Improvements in working capital contributed to a free cash flow generation of EUR 9.9 billion for 2021, mainly driven by customer down payments following the very significant order intake this year. We continue to invest in support of our roadmap and planned capacity ramp. Excess cash will be returned as per our policy. With that, I would like to turn to our expectations for the Q1 of 2022.
We expect Q1 total net sales to be between EUR 3.3 billion and EUR 3.5 billion. Lower guidance relative to Q4 is primarily due to a number of so-called fast shipments. These are shipments in the quarter for both EUV and DUV that will not complete factory acceptance testing. As we've discussed in prior quarters, fast shipments are in support of customers' desire to bring systems into production as quickly as possible. By skipping some of these testing in our factory, we can shorten the cycle time. Final testing and formal acceptance then takes place at the customer site, at which time we will recognize revenue. The value of the Q1 shipment is expected to be between EUR 5.3 billion and EUR 5.5 billion, which means approximately EUR 2 billion of revenue is expected to be deferred to subsequent quarters.
We expect our Q1 installed base management sales to be around EUR 1.2 billion. Gross margin for Q1 is expected to be around 49%. The lower gross margin quarter-over-quarter is primarily due to the last shipment impact of delayed revenue and lower upgrade business compared to last quarter. The expected R&D expenses for Q1 are around EUR 760 million, and SG&A is expected to come in at around EUR 210 million. Our estimated 2022 annualized effective tax rate is expected to be between 15%-16%. Regarding our capital return, ASML paid total dividends of EUR 1.4 billion in 2021, made up of the 2020 final dividend and the 2021 interim dividend.
ASML intends to declare a total dividend with respect to 2021 of EUR 5.50 per ordinary share. Recognizing the interim dividend of EUR 1.80 per ordinary share paid in November 2021, this leads to a final dividend proposal to the general meeting of EUR 3.70 per ordinary share. Total 2021 dividend is a 100% increase compared to the 2020 dividend. The 2022 annual general meeting of shareholders will take place on April 29, 2022 in Veldhoven. 2021 was a rather exceptional year in terms of share buyback. ASML acquired 14.4 million shares for a total amount of EUR 8.6 billion as part of our current and previous program. With that, I would like to turn the call back over to Peter.
Thank you, Roger. As Roger has highlighted, we have another record year of both sales and profit. We're seeing unprecedented customer demand across all market segments, from both advanced and mature nodes, driving demand across our entire product portfolio. Looking to 2022, after a lower Q1 revenue due to Q1 past shipments, as highlighted by Roger, we expect a significant increase in revenue for the remaining quarters. For the full year, we expect a net sales increase of around 20% compared to 2021. Bear in mind that this, 20% sales growth does not include revenue from 6 EUV past shipments in Q4 2022. If you would take the full shipment value of these 6 EUV past shipments into account, the growth percentage would have been 25%.
For our EUV business, we still expect to ship around 65 systems, of which we expect revenue from 6 systems to be deferred to 2023 due to fast shipments. This translates to an expected EUV system revenue of around EUR 7.8 billion in 2022. In our DUV and applications business, we expect growth in both immersion and dry systems, as well as continued demand for metrology and inspection systems. We're also planning fast shipments for some DUV systems, but we do not expect this to impact our 2022 revenue due to inherently shorter installation times for DUV. We expect revenue growth of over 20% for non-EUV system revenue. For the installed base management business, service revenue will continue to scale with the growing installed base of systems. Customers will continue to look at all methods to add wafer capacity.
Although we saw upgrades pulled into 2021 to improve wafer output capability at the customers, we expect those type of installed base options to also stay very much in demand this year. We currently expect 2022 installed base revenue to be up around 10% year-on-year. Looking at the market segments, given the very strong demand situation and our continued push to increase capacity, we see growth in both logic and memory in 2022. In Logic, we've talked for some time now about the digital transformation that is underway as we move to a more connected world. The growing application space and secular growth drivers translate a very strong demand for both advanced and mature nodes. With this continued strong demand, we expect the Logic system revenue to be up more than 20% year-on-year.
In memory, we also expect to see continued growth of our business this year. With customer expectations of DRAM bit growth in the high teens% this year and lithography tool utilization running at very high levels, customers need to add capacity in addition to planned technology transitions to meet demand. As DRAM customers migrate to more advanced nodes, we also expect to see an increase in EUV demand for memory. We expect the 2022 memory system revenue to be up around 25% year-on-year. With this unprecedented demand exceeding our capacity, we are ramping our output capability to meet the strong demand. Of course, this comes with challenges, and you're even more vulnerable when running at maximum capacity, as there's little room for recovery when things don't turn out as planned.
COVID, unfortunately, is not behind us, and it impacts everyone, including the workforce in our industry and in the supply chain. We also have to work through supply chain challenges of material and component shortages and COVID-related supply chain disruptions. In our workforce, we have hired a significant number of people throughout last year, and although we are currently at our planned workforce FTE numbers, they still need to be trained and brought up to a learning curve. All what I just mentioned needs maximum management attention and monitoring, creativity, and flexibility of all our partners and stakeholders. We are working closely with our customers to address these challenges. We're doing fast shipments, skipping some of the testing in our factory and completing the final acceptance testing at the customer site, which provides more capacity as quickly as possible.
This reduces cycle time in our factory and frees up cabinet space in our cleanroom, so we can ramp up capacity more quickly. In addition, we continue to provide software bridge, which will give our customers more capacity. As I said before, we're doing our utmost to respond as best as we can to external challenges, including COVID-related absenteeism and material shortages in our supply chain. Also, as we reported earlier in January, we had a fire just after the new year inside a part of our factory in Berlin. The fire was extinguished during the night, and fortunately no persons were injured during this incident. The fire occurred in a part of one production building on the site in Berlin, and the smoke partly impacted an adjacent building.
We've been able to resume production in parts of this building already, and the other buildings on the site have not been affected and are fully operational. The manufacturing of DUV components has been restarted, and although there was some disruption regarding components for DUV, we expect to remediate this in such a way that it will not affect our output and revenue plan for DUV. As to EUV, the fire affected part of the production area of the wafer plant, which is a module in our EUV systems. Based on our current insights, we believe we can manage the consequences of this fire without significant impact on our EUV system output in 2022. Overall, while this was a very unfortunate event, we're optimistic about the current situation and are very grateful for the enormous efforts and creativity of our Berlin staff.
On High-NA EUV, we're currently building the first High-NA system in our new cleanroom in Veldhoven. We received an order for an EXE:5000 in Q4, the fifth order in total for the EXE:5000 model, which provides order coverage for planned High-NA shipments in 2024. In addition, at the beginning of this year, we received the first order for the EXE:5200. The EXE:5200 is ASML's next model High-NA system, which we intend to launch in 2024 after the introduction of our first High-NA system. The EXE:5200 will provide the next step for lithography performance and productivity. Demand continues to be extremely strong, even to the point where we believe we are also this year falling significantly short of the customer demand.
Looking beyond 2022, the global mega trends we talked about at Investor Day are broadening in the application space and are fueling demand for advanced and mature nodes. Growth in semiconductor end markets and increasingly higher lithography intensity are driving demand for our products and services. We, along with our supply chain partners, are actively adding and improving significant system build capacity to meet future customer demand. In short, we're even more confident in our long-term growth opportunity. With that, we'd be happy to take your questions.
Thank you, Roger and Peter. The operator will instruct you momentarily on the protocol for the Q&A session. Beforehand, I would like to ask 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, operator, could we have your final instructions and then the first question, please?
Thank you. At this time, we will begin the question and answer session. Again, please press zero one to register a question and zero two to withdraw a question from the queue. If you are using speaker equipment today, please lift up the handset before making your selection. One moment, please, for the first question. Our first question comes from Joe Quatrochi with Wells Fargo. Please go ahead.
Yeah, thanks for taking the question. Curious on the DUV side, you know, demand that you're forecasting for 2022 is m aybe quite a bit stronger than we had initially anticipated. How do we think about the 20% growth in the context of the capacity that you and your supply chain are adding relative to, you know, I think in the past you were talking about hopefully trying to build some inventory, buffer inventory as well this year.
Yeah, Joe, it's a good question. I think it's important to look at the full picture here, including what happened in the last quarter. Because you might recall that in the last quarter, we were expecting, you know, for the full year of DUV or the non-EUV business, if you wanna call it that way, approximately EUR 8.2 billion. That was the expectation we had going into the quarter. Of course, we landed substantially below that. We landed at EUR 7.4 billion. There was about an EUR 800 million shortfall that we then made up in Q4 with higher EUV sales and higher install base sales.
What we're saying now is that, you know, that EUR 800 million, we're now trying to get that into the plan for this year. We can do that because, of course, that's the material for that production was in fact already produced by the supply chain. We have the material, so now it's a matter for us, you know, within our manufacturing plant here in Veldhoven to get that done. If you then do the math, right? We told you last year that we believe we were going to be, you know, kind of flat year-on-year for DUV. That was under the expectation that last year was gonna be EUR 8.2 billion.
It's EUR 8.2 billion this year + the EUR 800 million that you kind of transition from last year. That gets you to about the EUR 9 billion that you get to when you add the 20% to last year. That's the math. In fact it's the transition from the shortfall of EUR 800 million that we had in Q4. We have the supply chain for that, and now it's a matter of us trying to squeeze that into the manufacturing capability here in Veldhoven.
Got it. That's helpful color. And then just as a quick follow-up, on your memory revenue growth expectations, you know, I think the other expectations for just total memory WFE is more around flat. Can you help us maybe understand just how much of that is being driven by EUV adoption?
Yeah, I mean, well, at least what we can say on EUV adoption is that, about 20%, a little north of that even, of the EUV sales that we're gonna see this year, system sales, will be memory. You know, if you take about, you know, about EUR 8 billion, a little under EUR 8 billion, if you look at the revenue number for EUV, 20% of that is related to memory. That's already a substantial part, I would say, of that number.
Very helpful. Thank you.
You're welcome.
Our next question comes from Krish Sankar with Cowen and Company. Please go ahead.
Yeah. Hi. Thanks for taking my question. I have two of them. First one, Roger, for FY 2022, I got the revenue guidance and the tax rate. Did you give a gross margin and OpEx guidance for the full year?
We didn't, but I'm happy to talk about it and give you a little bit of flavor as to where we see this land. Frankly, I think we're gonna see a gross margin for this year a little over the gross margin that we had for last year. I would say it's around 53%. That would be my expectation for the year. I guess your next implied question is gonna be, so help me understand that. Of course, we start with, it's 52.7% for last year, which we have to recognize is already helped by the very significant software upgrades packages revenue that is in there.
That, as we've said before, is very helpful to the gross margin. If you neutralize, you know, the very high impact that that had on the gross margin for last year, I would say for the year, you probably take out about 0.7%. That gets you to a normalized base of 52%. Then there's a few things. First off, the NXE pricing, which is primarily driven by the fact that we only have these in this year in comparison to the mix of last year. That will give you about 1.5%. And then we talked a little bit about the high-NA impact on the gross margin. That's a little bit higher this year than it was last year.
I would expect about 0.5% there. If you add it all up, then you get a 53%. Then there's a little bit of a swing factor as to the composition of DUV in terms of dry versus immersion. At this stage, we expect both of them to grow about 20%. I would say it's about neutral for the gross margin, but that's the build up to the 53%. In terms of OpEx, we've only guided the numbers for Q1 as we typically do, only for the quarter.
I think it's safe to say that the 4% on SG&A and 14% on R&D, I think those assumptions are safe assumptions for the full year. Then obviously on the basis of the EUR 22.3 billion that is sort of implied in the 20% year-on-year growth for revenue.
We actually gave you the complete P&L. Thank you, Roger. You already helped me do my model. I just had a quick follow-up for Peter or Roger. The 20% growth in DUV this year, can you give some color into how much of that you expect DUV memory to grow? How much should DUV for foundry grow this year? I think, Roger, you mentioned dry and immersion is roughly split half and half this year. Is that correct?
That is correct. That is what I said. I expect both to go up with the same percentage, about 20%. Yeah. Then we gave you the numbers for the increase in memory and logic. I gave you the EUV number for memory. Frankly, I think I've given you all the building blocks you need to come up with the right number there.
Just to remind you, logic will be up more than 20% year-on-year, and memory around 20% year-on-year. With the EUV numbers, you can probably figure it out.
Yeah.
All right.
Very helpful. Thank you, folks. Thank you very much.
Our next question comes from Alexander Duval with Société Générale. Please go ahead.
Yes. Hi. Hi, good afternoon, and thanks for taking my question. Just very briefly on fast shipments, do I understand correctly that this will now become systematic for EUV going forward? This would then imply that you take the biggest hit from this kind of new practice in 2022, and from 2023, the impact should then be negligible, as you have only a little more revenue deferred than what you recognized from the previous year, but it then cancels out. Is that a correct way of looking at things?
Yeah, Alexander, I think you see it right. It's not just for NXE, right? We also do this for immersion. It's the combination of those two. At least for this year, this will be the standard practice. Then if you look at this year, as we mentioned to you, there's about EUR 2 billion that falls into subsequent quarters as a result of this fall as it relates to Q1.
What we're gonna do is try and at least limit the installation time both for NXEs and for immersion tools, as a result of which the impact by the end of the year should be a lot, you know, a lot lower because we try to make the delta between the shipment moment and the acceptance by the customer make that smaller. We think we can squeeze out two, maybe even three weeks in the install time in order to get there. That's what we're driving.
As a result of that, it is our expectation that, the amount at the end of this year, I mean, we referenced the six EUV tools, so that would be about EUR 1 billion. That's what we're trying to work towards, that the spillover, if you like, from the last quarter into the next quarter is gonna be only, you know, about EUR 1 billion. That's what we're driving towards. Now we're gonna. So that means that, say, during the year, we're gonna gain, if you like, about EUR 1 billion in the subsequent quarters, and are only gonna lose for the full year EUR 1 billion into next year.
Whether this will be the standard practice for years to come, you know, we'll just see how this works. If this works well, as we anticipate for ourselves and also for the customers, you know, if we can really prove as we've done in last year that we can do this without a quality impact, if you like, on in the field, and we are pretty comfortable that we can do that, then I think this will be appreciated, you know, by the customer and also leads to efficiency on our end. So then indeed also for subsequent years, this would be the practice. Then indeed, you won't have any impact anymore in the years to come, Ernesto.
One small addition to that, this would apply to systems that we have where there is a significant enough level of confidence that we don't run into acceptance problems in the field. Let's say, the first type of a new tool of the first four or five systems, you will probably do the traditional factory acceptance test in Veldhoven just to make sure that if you run into any issue, there's a big R&D group that can actually help you solve the problem instead of moving that problem to the field. I would completely concur with what Roger said, with the exception that on what we call new product introduction, the first couple of tools, we'll probably do it the traditional way.
Very clear. Thank you very much.
Our next question comes from C.J. Muse with Evercore. Please go ahead.
Yeah. Good morning. Good afternoon. Thank you for taking the question. I guess first question on gross margins. If I take that 53% and what you guided Q1, it looks like you're gonna exit the year at roughly 54%. Is that the right number to use? As part of that, you know, that is the low end of your 2025 target model. I guess, you know, love to hear your thoughts on what you're gonna do here exiting calendar 2022 and the confidence that provides to you in terms of, you know, your future outlook.
Yeah. C.J. Somewhere in the year, indeed, you know, if we want to get to 53% for the full year, and we start with 49%, somewhere in the year we'll have higher percentages. Also as I mentioned, somewhere in the year we will gain on the revenue side, right? On the sales side. Because, you know, we lose EUR 2 billion in the Q1 , only EUR 1 billion for the year, so we're somewhere gonna gain EUR 1 billion. Of course, those two are related. Whether all of that is gonna be in Q4, I cannot tell you. Somewhere in the course of this year, you're gonna see an improvement of the gross margin beyond the 53%.
bear with me, it's a little bit too early to already start making predictions on the gross margin for 2023.
That's helpful. Thank you. I guess maybe a bigger picture question for you, regarding visibility. You know, I think this is the highest kind of backlog coverage you've ever had as a company. I guess, you know, obviously part of that's EUV-related and obviously part of it's the supply constraints out there. Just curious, you know, how do you think about that? You know, I guess, you know, how are you thinking about, you know, the capacity you need to add into, you know, I think you talked about, you know, a trillion-dollar kind of semiconductor market and, you know, the confidence you have today, on 2023, you know, revenue growth.
Yeah, I think it's a very good number. It's a very good question, but I'll give you. I cannot give you the exact number, but one thing is for sure that we will ship more systems, DUV and EUV, in 2022 as compared to 2021. It's my expectation the same thing will happen in 2023. As a matter of fact, I also expect that in 2023, our EUV shipments will go over 60 systems. Part of it has to do with the cycle time reduction we talked about, could be through fast shipments and through shortening the installation times. Yes, that will happen.
Also for DUV, I think we can still start squeezing and reducing cycle time in the supply chain, so we can do potentially more systems next year than we do this year. Having said that, I think we're still in a situation where I said it on the video, but also on several occasions today, that the demand for all our technology, but also specifically DUV, is so significantly higher than what we can currently make. When we look at our maximum capacity today, I think the demand, which is not orders, but the demand which customers would like to give us an order, but they don't because we don't have the capacity, could be around 40% higher than what we can currently make. Everything moves out. What we cannot ship today will move to 2023.
Now what we cannot ship in 2023 will move to 2024. That actually means that we need to add capacity beyond what we're currently planning. That is exactly what we're doing today. I think we have a capacity plan beyond 2023 that we are currently have decided on, but we haven't confirmed that fully yet at least internally in the supply chain with our critical suppliers, which we will do this quarter. I think we want to be in a situation that starting 2024 we will be able to meet whatever demand the customers have.
You know, I think we are in a situation where on leading-edge immersion and EUV, the customers have nowhere to go, and we don't want to keep pushing excess demand being described as the demand over our maximum capacity to constantly move into the next year. This is what we're doing. I already gave you an indication on EUV for 2023. That will be above 60 because of all the measures that we have taken. I think we also have taken internally the decision that we indeed need to increase our capacity beyond that. That will be something which we will be discussing with you all, probably, hopefully, when we get all the confirmation from our critical suppliers next quarter.
Very helpful. Thank you.
Our next question comes from Sandeep Deshpande with JP Morgan. Please go ahead.
Hi. Thanks for having me on. I mean, my question is actually sort of follow-up, but when I look at your 2025 guidance, Peter, you've guided to EUR 25 billion-EUR 30 billion in sales. But when you look at your orders over the last four quarters and add to that your install base management, you're already running at a four-quarter run rate of over EUR 31 billion essentially. Does the 2025 guidance need to be updated, or do you think that this was a different sort of period we've been in? Or, how should we be looking at that 2025 guidance of ASML?
Well, let's do everything in the right order. That's, you know, first look at the customer demand and the demand curves and have very in-depth discussion, as you know, with our customers on their CapEx plans. Their CapEx plans are driven by what they currently see as being short in customer demand, not only for this year and for next year, but longer term. I can only remind you of the very, let's say, confident messages that our customers have given over the last few days on how they feel about the strength of the demand. We can also go into the details why we think the longer-term demand will be higher.
Having said that, on top of that, there's going to be a push by, you know, the drive for technological sovereignty. There will be incentives around the globe to actually build that capacity. That comes on top, which I don't think will translate into significant fab capacity anywhere before 2024. It will be 2024 at the earliest, probably more like 2025, 2026. Now, having said that, going back to the previous question, I think this is why we are looking at our maximum capacity for us and in the supply chain. Yeah. I gave the answer. I think this is the work that we're doing today.
When we have that confirmed that we can actually do that, then that would be the time also to relook at the guidance and to see whether we should indeed adjust some of the numbers that we gave you as a quarter ago. That in that order, you know? We have to get ourselves comfortable with the demand situation vis-a-vis our customers. We are translating that into a capacity number, which we need to get confirmed with our key suppliers, you know, the ZEISS and TRUMPF and the VDL of this world. That needs to be confirmed, and that will lead to construction activities. You know, very likely to re-add sq m.
That means if we have that confirmation, we can say, "Okay, when we have that, looking at the demand situation, you know, what should we do with the 2025 range that we gave you?" When we have concluded that, we will come back to you with that information.
Thanks, Peter. Just one quick follow-up on, I mean, you've indicated in your recent release that, you know, you've got a new e-beam tool shipping. Is this e-beam business now gonna become much more significant in the next few years as these new tools ship? Because, I mean, clearly your lithography business has flourished massively, but your e-beam business has been slower to take off. Can you make any comments on that?
Yeah, I think the 505 team going to the 1100, I mean, this is definitely a tool. Actually, I think it's being packed today. That will ship. We have high expectations of it. It looks good, it will be shipped to our first customer. Yes, when we get the qualification of that tool, I believe that's going to be a driver for higher sales numbers for our, you know, e-beam business. Next to the fact that our single beam business, our sales are strong.
Thank you very much.
Our next question comes from François-Xavier Bouvignies with UBS. Please go ahead. Francis, if your phone is on mute, please unmute so you may ask your question.
Hi. Can you hear me now?
Yes, I can hear you. Yeah.
Yeah, sorry about that. My question actually was on the High-NA, and you know, the release you did on with Intel, and you know, you disclosed four orders back in 2018. Now, you had an order last quarter. You are disclosing another one with Intel today. In addition, you changed your disclosure of the net bookings, including High-NA now. My question is, what should we expect going forward in terms of High-NA, in terms of activity? Should we see more and more High-NA going forward in the following quarters? Coming back to your 2025 guidance, which with five sales of High-NA, you have six, if I count correctly, in your backlog now.
How should we think about this moving path and your forecast out to 2025?
Yeah, I think on the 2025 number, I also said in my introductory comments that the EXE:5000, which is the R&D tool, which is the development tool, so there's 5 of it that will be shipped, starting in 2023 through 2024. In 2025, it's the high-NA tool. That's the EXE:5200, yeah? It's the one that received the first order for this quarter, the Q1 of 2022. I think, yes. You'll expect or you may expect that given the long lead times of these tools, there's going to be more order activity for the high-NA EXE:5200 going forward. I would expect that. That's driven by indeed the shipping plan 2025.
Now, I think it was Sandeep that asked the question on the 2025 model. I think this is not the time to piecemeal give you the 2025 model, but we'll come back to that. I think High-NA is not so much connected in 2025 to, let's say, the size of the industry and the demand in the industry. It's really technology transition. The way it looks now, I think we're still pretty solid on the plan. I think we said it in the material last quarter. The big evolutionary step from low-NA to High-NA was the optics.
Basically a bigger optics, very significant challenges in measuring the mirrors. We succeeded. It was a success. It is a success, so we can execute. This is what we are doing now. I mean, if you go to the Veldhoven factory now, you would see this massive tool. I mean, we showed you in the press conference that kind of a picture of some of our engineers, the production engineers in front of the frame. You know, you could just see the size of the thing. We're executing, yeah? I think receiving the first order for 5200, which is going to have, let's say, a new standard, setting new standards for lithographic performance in terms of imaging and overlay. It also sets new standards for productivity.
Like Roger said at the press conference, this is a tool that will go for a price very significantly over EUR 300 million.
François, one additional comment on the five. As we also said at the Investor Day, the reason we have five there is not because of shipments, because I expect more shipments in 2025 than five. The reason we said in all scenarios five is because of revenue recognition.
Yeah.
because this is an entirely new product.
Yeah.
Therefore, it's hard to predict at this point in time, you know, how the installation is gonna happen, how the testing is gonna pan out, et cetera. That's why we said very conservatively just put five into any model.
That's right.
It's not related to volume or shipments. It's just a pretty conservative estimate, and it might take a bit longer before these are actually recognized as revenue. That's why we put in five.
Yeah.
That's very clear. Thank you, both. Maybe just quick follow-up on the supply constraint, which was a highlight last quarter, I believe. You don't talk too much about supply constraint anymore. Should we read that it's improving and you see the risk less important now? I mean, how should we think about the supply constraint?
Yeah.
that you had the last quarter, and how is it now?
Well, I think it hasn't eased. The fact is, you know, if life is tough, you just adjust to it. I mean, that's what we're doing. Basically it's a fact of life, and it's a daily battle of our sourcing people to make sure that we get guarantees on supply in the supply chain, because we don't buy those components. You know, those components are being bought by our suppliers. What we do, we actually consolidate the shortages, which is especially components, you know, microchips, yeah, from different layers in the supply chain. We actually consolidate it, then we bring it into what we call a scarcity center.
Then we classify those components by semiconductor manufacturer. Then we get on the phone with them and then say, "You know, can you help us? You really can help us by, you know, what's in stock, giving it to us, or helping us to manage that through the broker system or the distributor system, or, you know, making sure that those particular chips get, you know, somewhere." It's not, you know, many. I mean, it's a few hundred to a few thousand of a certain type, 'cause we don't make that many systems. You know, and that's how we manage this. We're able to do this, you know, day by day by day. I don't think the situation has gotten any better. It's just that we've got better at managing it. Yeah.
Okay. Makes sense. Thank you very much.
Our next question comes from Didier Scemama with Bank of America. Please go ahead.
Good afternoon, gentlemen. Thank you. Just wanted to check or double-check a couple of things on EUV for next year. Can you talk a little bit about what your capacity will be for low-NA and High-NA? And then, you know, what do you think would be the shipment number for 2023 versus the revenue, at least the units? Because obviously you've got six units shifting from 2022- 2023. If you could help me understand that. Then a quick follow-up for Roger on the cash flow. Thank you.
Yeah. Didier, on the you know what we expect for 2023, as Peter pointed out, we are working on a capacity over 60 for next year, so that's on low-NA. You know, we would get a benefit of the six going from 2022 into 2023, but frankly, we would also if we continue to do fast ship have a few systems go from 2023 into 2024. You know, if we're able to continue to drive down installation time, we might gain you know one, maybe two systems. Net, I think for next year, you should expect output and revenue to more and more be at the same level.
I think the over 60 in terms of capacity that Peter referenced, I think is probably the number to look at. In terms of High-NA, you know, it's gonna be very, very small, right? In 2023, because we expect to have the first shipment of the key modules at the end of 2023. I wouldn't hold my breath whether that leads to revenue recognition in 2023.
Understood. Very clear, Roger. On the cash flow, you had a sort of an exceptional working cap in Q4 and amazing free cash for the full year. I just wondered if you could help us understand effectively what's your free cash flow expectation for fiscal year 2022, and when do you think the working cap normalizes in your cash flow statement or, you know, roughly is it first half, second half? Et cetera. That would be helpful. Thank you.
Yeah. You're right. I think last year was a pretty spectacular year from a cash flow perspective. You know, we had net income of EUR 5.9 billion and free cash flow of EUR 9.9 billion. That's a pretty good conversion rate. That was exceptional, I think. It was exceptional, primarily driven by the huge order intake that we had this year and the huge content of EUV, and that's a primary source of down payments in there. I would expect for this year to more and more neutralize that.
You know, we're never guiding free cash flow, but I would say, you know, to have an expectation that in a steady state, we're gonna look at somewhere around 100% or a little bit below that because we're still growing. I think it's probably a safe assumption for the free cash flow development in the years to come.
Yeah. You mean 100% cash conversion rate?
Cash conversion rate. Exactly. Yeah, yeah.
Excellent. Thank you.
Our next question comes from Amit Harchandani with Citi. Please go ahead.
Thank you. Hello, everyone. Amit Harchandani from Citi. Two questions, if I may. My first question, Peter, goes back to the comments you made about assessing your capacity and supply. As ASML continues to get bigger, obviously there's this whole talk about geopolitics in the background. How are you strategically thinking about bringing this capacity online? Are you going to pursue the way you have? Are you looking at doing more vertical integration? Is it more regional diversification? Just trying to get a sense of how you're looking at it in terms of strategically adding capacity as you look to build for the next five-10 years. I have a follow-up.
I think this. If you have been at our supervisory board meeting, I mean, this is of course the questions that we are addressing. Not only asking ourselves, because we already did that, but we're addressing these questions. I think vertical integration, to answer that question, I don't think that is something which we try to avoid it. You know? Sometimes we're forced to it. I mean, for instance on the Berliner Glas, you know, vertical integration, we actually acquired a supplier. But that had some very clear reasons. I mean, that had to do with succession planning at the supplier, but also that the technology at that particular supplier became more and more critical for the performance of the system. So it's not an active.
It is more, you could say, that is more a reactive way of looking at growth. Geographical and especially against the background of the geopolitical discussions that are ongoing, of course, is something which is highly sensitive. Yeah, we actually look at if we need to build capacity, what's the best place to build capacity? What are the best conditions to add capacity? Which is, there's a number of issues that we will look at. You know, it has to do with the availability of suppliers that can help us, workforce talent. You know, are we going somewhere where we know we will be heavily competing for workforce talent with some other major players or you could say giants?
That would, of course, put you into a more difficult situation. It is, you know, incentives that can be provided by governments. I mean, that includes where we currently have our manufacturing locations, but also where we are looking at, you know, areas where we might not have significant manufacturing, but we could. I think these are all things that we are looking at. It's too early to give you a finite answer, and I think when we've come to the conclusion that we need to go public, we will go public. These are all the things that we are discussing right now, in the company, in the management board and with the supervisory board. Because you are right, we need to add significant capacity.
I mean, this is not 5% or 10% extra.
Thank you, Peter. As an unrelated follow-up, you've talked about demand being unprecedented and significantly higher than capacity. Of course, you put forth your simulation scenario at the CMD last year. In terms of trying to manage against the risk of over-ordering, double ordering, what are you doing in terms of the checks, discussions with your customers? We know the secular trends are positive and the industry will remain cyclical, but what are you doing from your side to minimize, if I may call it, the potential risk of oversupply once this capacity all comes online? Thank you.
One major thing is that our build capacity, I mean, still, you know, when you look at our cost of sales, and Roger can comment on that, the vast majority of our cost of sales is what we buy. I think for ASML to add build capacity is the minority of our cost of sales. Because we're basically outsourcing, which is one of the reasons why we are not actively pursuing vertical integration. We actually love the fact that we have suppliers that are better at what they do than what you know we do.
Having said that, we are not afraid of investing in capacity, nor is our supply chain, which is most of our critical suppliers are either like, you know, ZEISS are exactly the same position as we have. And some other suppliers are more diversified, so they're able to, you know, grow. But you know, it's. You are right. There is always this risk of looking at where we are today, listening to the CapEx expansion plans of our major customers in Asia and in the U.S., looking at the geopolitical situation and striving for more technological sovereignty, not complete, but you know, more with incentive programs, means that yes, we will add capacity.
Now we can have, you know, look at our simulation model and looking at industry analysts, we have been blatantly wrong, you know. We can do this again, or we can say, "Let's look forward. Let's have a longer term view." You know, I do believe, and I think we're not the only one, also our customers, that the compound annual growth numbers for the semiconductor industry will lead to a $1 trillion business by the end of the decade. We're over $500 billion now, which means that that $500 billion was created in 40 years' time, so we have less than 10 years to just double it again. I think we will need that capacity. Yeah? Now your question is, will this create temporary overcapacity? It could very well be. You know, these fabs are big. They're humongous.
It's all about scale. Yeah? Yes, when everything is timed in the same couple of years, yeah, you'll probably see overcapacity. Structurally and longer term, we need that capacity. I'm not that concerned. Yeah? We should do it. My last reason why I think we should do it is on some of these technologies, we are, unfortunately for the industry, the sole source of supply. I don't want to be in the situation, I said it before, that we have to keep pushing the overdemand, yeah, from one year to the other. We have to create a situation where we carry the responsibility together with our customers, that we can supply what the market needs. Yeah. That could indeed mean that there is potential, a bit of overcapacity.
You know, given the fact that we're very bad at predicting the growth rate of this industry, I'm okay with that. That's perhaps, you know, was an answer of an old man.
Thank you, Pieter.
Our next question comes from Stéphane Houri with ODDO BHF. Please go ahead.
Yes. Thank you very much. Thanks. Good afternoon, everyone. I just want to have more color maybe on your Chinese business. What's the size of your Chinese business? What was growth for the last quarter? What's the outcome?
When you talk about the China business, I guess I'm thinking China domestic business. I think that's where you're focused on it. If you look at the China domestic business last year, 2021, it was about EUR 1.8 billion. Our expectation is that, you know, this will grow at the same pace as company growth. It will grow about 20% for this year, which, you know, in a supply-constrained environment, is exactly what you would expect. That China would grow exactly at the same pace as the other EUV business would be growing. 1.8 billion last year, expect to grow to approximately, you know, 2.1 billion this year.
Thank you very much. The follow-up would be about the selling margin of EUV. I think you said that it was improving. Where do you think it will get to corporate level? Are we still talking about three years?
Last year was about 30%. We expect it to get to about 40% this year, and then I think it will take until 25-ish timeframe, I think, until you really get it to corporate level. I think we've made major steps in that becoming more efficient. Obviously also demand per machine hour very much improving simply because of the scale of EUV, but ultimately that's the trajectory that we're on. From this point onwards, the steps are gonna be a lot smaller, but in 2025, I think we'll get it to approximately corporate level.
Thank you very much.
You're welcome.
All right. We have time for one last question. 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 question. Operator, may we have the last caller, please?
For our last question, we have Jerome Ramel with Exane BNP Paribas. Please go ahead.
Yeah, good afternoon. Maybe a last question for Roger to come back to the free cash flow in Q4. Just on the short-term liabilities, it increased by EUR 3 billion in Q4 versus Q3 and double over Q4 last year. Is it purely the accounts payable? If so, can you give us a number for Q4 compared to Q4 last year? Thank you.
No, it's not the accounts payable. That would be a bit rough to our supply chain, right? That's not what it is. It is primarily. It really is the down payment. It's down payments on new orders for 2021 and even beyond that point. That's what it consists of. Again, you know, we were looking at an order intake this year of EUR 26 billion. And that's really what it is. I mean, you're looking at the end of this year, at the end of 2021, you're looking at EUR 8.5 billion of down payments. And a significant part of that came in Q4.
For which we're going to spend that money on building the machines.
Exactly.
investing in the dip in this year.
Yeah.
I mean, we don't get that money for nothing, yeah?
Yeah.
Okay. Would it be fair to assume that most of the down payment has been done and that will gradually, as you say, normalize in the course of 2022?
Yeah, exactly. That's why I say this is a very special year, right? Because we get all these down payments. Next year, you will still get down payments, but you would also do shipments where you only get a percentage because you already received the down payments in the year before. That's why I said, you know, that you will see cash conversion get to, you know, 100%, frankly below 100% because of the fact that this is still a growing company. That's why I think in the longer term, you would see a cash conversion, you know, drop below the 100% at that point.
Thank you very much.
All right. 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 would appreciate it. Thank you.
This now concludes the ASML 2021 Q4 and full year financial results conference call. Thank you all for participating. You may now disconnect your-