Welcome to the ASML Q1 2022 Financial Results Call. Throughout today's introduction, all participants will be on a listen-only mode. After ASML's introduction, there will be an opportunity to ask questions. If you'd like to ask questions, please press 0 1 to register. If you'd like to withdraw a question, please press 0 2 at any time during the call. If any participants have difficulty hearing the conference, please press Star 0 for operator assistance. I would now like to turn the conference call over to Mr. Skip Miller. Please go ahead, sir.
All right. Thank you, operator. Welcome, everyone. This is Skip Miller, Vice President of Investor Relations at ASML. Joining me today on the call are ASML CEO Peter Wennink, and our CFO, Roger Dassen. The subject of today's call is ASML's 2022 Q1 R esults. 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 Q1 2022 results conference call. I hope all of you and your family 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 Q1 2022, as well as provide our view all of the coming quarters. Roger will start with the review of our Q1 2022 financial performance, with some added comments on the short-term outlook. I will complete the introduction with some additional comments on the current business environment and on our future business outlook. Roger, if you-
Thank you, Peter. Welcome, everyone. I will first review the Q1 financial accomplishments and then provide guidance on the Q2 of 2022. Net sales came in at EUR 3.5 billion, which is at the high end of guidance. We shipped nine EUV systems and recognized EUR 591 million revenue from three systems this quarter. Net system sales of EUR 2.3 billion, which was nicely balanced between logic at 50% and 50% from memory. Installed base management sales for the quarter came in at EUR 1.2 billion, as guided. Gross margin for the quarter came in at the guidance of 49.0%. On operating expenses, R&D expenses came in at EUR 739 million, and SG&A expenses at EUR 208 million.
R&D was below guidance as spend rates in the quarter was lower than planned and will move to Q2. We still expect to be around 14% of sales for the year. Net income in Q1 was EUR 695 million, representing 19.7% of net sales and resulting in an EPS of EUR 1.73. Turning to the balance sheet. We ended the Q1 with cash equivalents, and short-term investments at a level of EUR 4.7 billion. Moving to the order book. Q1 net system bookings came in at EUR 7.0 billion, including EUR 2.5 billion for 0.33 NA EUV systems and multiple EUV 0.55 NA systems, EXE:5200s.
Another very strong DUV order intake of 4 and a half billion euros this quarter, reflecting the continued strong demand for advanced and mature nodes. Total net system bookings was driven by logic with 66% of the bookings, and memory accounting for the remaining 34%. With that, I would like to turn to our expectations for the Q2 of 2022. We expect Q2 total net sales to be between EUR 5.1 billion and EUR 5.3 billion. This excludes around EUR 800 million of net delayed revenue for Q2 as a result of more fast shipments at the end of Q2 than at the end of Q1. We expect our Q2 installed base management sales to be around EUR 1.2 billion.
Gross margin for Q2 is expected to be between 49% and 50%. Relative to last quarter, we expect positive margin impact from higher volume for both EUV and DUV, offset by lower EUV ASP, DUV mix, and continued cost pressure in the quarter. The expected R&D expenses for Q2 are around EUR 790 million, and SG&A is expected to come in at around EUR 220 million. In the current environment, it is also appropriate to address how we may be impacted by rising costs this year. We're not immune to rising costs. There is pressure on labor costs as the global job market for engineers is tight, and there is a competition for talent. Costs related to components in the supply chain are also increasing due to higher material costs, including additional fees to secure parts.
Transportation costs have increased due to rising fuel costs and changing flight routes. Energy contracts and renewable energy help limit the increased energy cost impacts. We clearly see pressure on margins due to these cost increases, which we expect to translate roughly to a 1% impact on gross margin for full year 2022. We expect the second half of the year will be strong, with expected gross margins of around 54%, primarily driven by higher EUV and DUV volume, as well as improved margin from installed base business. In summary, we currently expect gross margin to be closer to 52% for the full year. Our estimated 2022 annualized effective tax rate is expected to be between 15% and 16%.
In Q1 2022, ASML acquired 3.6 million shares for a total amount of around EUR 2.1 billion as part of our current program. With that, I would like to turn the call back over to Peter.
Thank you, Roger. As Roger has highlighted, revenue and profitability for the quarter came in as guided with system revenue balance between logic and memory. We expect a step up in sales in Q2 as revenue from fast shipments in Q1 will be recognized. While supply chain challenges are still present, we will continue to utilize fast shipments as a means to get systems to customers as soon as possible. Although the current macroeconomic environment creates uncertainty, we believe the fundamental growth drivers remain intact.
We continue to see unprecedented customer demand across all market segments from both advanced and mature nodes, driving demand across our entire product portfolio. We are running at maximum capacity and expect demand to exceed supply well into next year. Our view of the full year revenue, therefore remains unchanged with year-on-year growth of around 20% over 2021.
As mentioned last quarter, this 20% sales growth does not include the full shipment value of systems output this year due to a number of fast shipments, which will result in a delayed revenue into 2023. For our EUV business, we still expect to ship around 55 systems this year, and as we plan to do fast shipments on a number of these systems, including systems in Q4, we expect some revenue to be deferred to 2023. This translates to an expected system revenue of around EUR 7.8 billion this year. In our DUV and applications business, we expect significant growth in both immersion and dry systems, as well as continued demand for metrology and inspection systems. In addition to advanced nodes, we see growing demand for DUV systems supporting mature market segments such as analog, power, and sensors.
These market segments are part of the secular growth drivers in support of digital infrastructure, which includes automotive and green energy applications. 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 continue to look at all methods to add wafer capacity, including productivity upgrades. In these times of very high fab utilization, some of these upgrades are hardware-intensive and require systems to be taken offline for installation. Therefore, available system time will dictate their ability to install these types of upgrades. As we mentioned in previous quarters, the quickest way to add wafer capacity is to install software productivity packages. These upgrades require less system downtime and have now been installed in most of our customer fabs.
We currently expect 2022 install base revenue to be up around 10% year-on-year. Looking at the market segments in 2022, our view on growth is similar to last quarter. We still expect logic system revenue to be up more than 20% year-on-year, and memory system revenue to be up around 25% year-on-year. On High NA EUV, we're making good progress, and we have currently started the integration of the first High NA system in our new cleanroom in Veldhoven. We received multiple orders for our EXE:5200 system in Q1. We also received additional EXE:5200 orders this month, April. With these bookings, we now have High NA orders for 3 Logic and 2 Memory customers.
The EXE: 5200 is ASML's next model High NA system and will provide the next step for lithography performance and productivity. The global market trends that we talked about at our Investor Day last year are broadening the application space and providing secular growth drivers for future demand. The strong demand this year and beyond is reflected in the significant bookings over the past several quarters, resulting in a backlog of around EUR 29 billion, is an all-time high.
We expect the strong order intake to continue as demand will continue to exceed supply also going well into next year. With multiple countries pursuing technological sovereignty, we are now seeing a number of announcements from customers for new fabs in the coming years in support of this global trend. These announced investments are expected to have a positive impact on the medium-term demand.
As this unprecedented demand is exceeding our capacity, ASML and its supply chain partners are planning to actively add capacity to meet future customer demand as communicated during Investor Day last year. At that time, we talked about the current capacity ramp is expected to deliver an output capability of over 70 EUV 0.33 NA systems and around 375 DUV systems by 2025. As mentioned last quarter, we see a need to further increase our output beyond this level in order to meet the stronger and longer market demand to support an industry that is expected to at least double by 2030. With the goal of adding more capacity, we're investigating the feasibility of increasing our annual capacity by 2025 to around 90 EUV 0.33 NA systems and 600 DUV systems.
For DUV, we plan to increase capacity for both immersion and dry, with a heavier weighting towards dry. We're also discussing with our supply chain partners to secure a capacity of around 20 EUV 0.55 High NA systems in the medium term. Bear in mind that this translates to what we currently feel our maximum capacity goal should be and may therefore not be a final output plan. We discussed our goal recently with our supply chain partners and asked them to come back in the coming quarters with confirmation on the feasibility of our request. Once we complete this analysis, we also expect to revisit our 2025 scenarios and growth opportunities beyond 2025. We're planning to provide an update to the capital markets in the Q4 timeframe.
This is clearly a dynamic, challenging, but also exciting period in our industry, and it only increases our confidence 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'd like to ask that you kindly limit yourself to one question with one short follow-up if necessary. This will allow us to get as many callers as possible. Now, operator, could we have the final instructions and then the first question, please?
Thank you. We'll now begin the question and answer session. Again, please press 0 1 to register for a question and 0 2 if you need to withdraw from the queue. If you're using speaker equipment today, please lift the handset before making your selections or mute your phone to avoid echoes. One moment, please, for the first question. That comes from the line of Robert Sanders at Deutsche Bank. Please go ahead. Your line is open. Robert Sanders from Deutsche Bank, your line is open from our side. If you have your phone on mute, you will need to unmute that.
Sounds like we need to move to the next caller. Operator.
Sure. The next caller is Didier Scemama of Bank of America. Please go ahead. Your line is open. Didier from Bank of America, your line is open. If you have your phone on mute, you will need to unmute that.
Might be technical.
Yeah.
Two coincidences.
Didier, can you hear us? Final test. Third one.
Didier's line is open on our side. The next question will come from the line of Joe Quatrochi of Wells Fargo. Please go ahead. Your line is open. Joe from Wells Fargo, your line is open. Please go ahead.
Mark, looks like it's more structural. Mark, I think there's a connection issue.
Yeah. Bear with us one moment. I'll just have a look into this. It does look like the line is open, but yes, for it to be three questions in a row, that looks like it's possibly a technical issue. Bear with me just a moment. Okay. Apologies for the delay there. I'm just gonna test this. Joe from Wells Fargo, are you able to hear us and speak?
Yeah. Can you hear me now?
Yes, we can hear you. Apologies.
Yeah. Great. We just have to make sure perhaps we can squeeze in the other people that were kicked out because.
Yeah. We can cycle back on. Yeah. We had both, Robert and Didier, exactly.
Yeah. Robert and Didier. We just have to make sure that they somehow get back in the queue.
Yeah.
Okay?
Go ahead, Joe.
Joe, please.
Okay. Great. Thanks. Thanks for taking the question. I wanted to ask a question on the capacity expansion plans. You know, specifically on the DUV side. You know, when I look at your prior expansion plans relative to, like, the high end of your 2025 model, it looks like you had been kind of putting in about a 30% higher manufacturing capacity. With the updated capacity plans, are you looking to maybe increase that kind of buffer range? Or how should we think about that?
Yeah. Yeah, Joe, that's a good question. Basically, the number 600 is a result of two things. One is, you have to remember when we did the September Capital Markets Day, we prepared this couple of months before. I think you're looking at market intelligence that's as compared to last year, is about a year old. We have more insights. I think that's translated into that number. On the other hand, we are currently looking at the demand for this year and next year, where it comes from. Looking at the customer base, which effectively means that every customer we've ever sold a machine to, is coming to us to ask for a DUV tool, which is particularly true for dry.
It's the current demand level, plus our, let's say, insights that have progressed over the last 12 months or so. Those insights are basically across a number of lines. I would say one is the mature market upside is higher because the visibility has increased, especially from Asia. When we look at the type of semiconductors that are in demand now and the capacity that's been installed, and especially if you look at the lower end, when you talk about power ICs, you talk about sensors, optical and non-optical sensors, analog, you talk about microcontrollers, there is a demand for those type of semiconductors almost in every industrial area which, when we look at it and we look at the growth numbers and the demand, you know, talking to our customers, it's a very wide range. Just the mature market upside is really driven by a significant increase of IoT-type opportunities.
Now that's 1 . Number 2 is we also see the need for more silicon for the PC and high power compute applications. It has to do with the fact that you actually see that in order to be more energy efficient, the device's clock speed, the clock frequency is decreased. That actually has a significant impact on the energy usage. However, it also has an impact on the performance. So how do you compensate that? By adding more transistors.
Where you add more transistors, you add more silicon, you know, square millimeters. So die sizes are growing. That's what we very clearly see. It's also been confirmed with many customers. We see also in non-semi litho applications, for instance, goggles and waveguides, we see an increase in the demand for lithography equipment. On top of that, we see the demand medium term for technological sovereignty demand, which is basically an incentive program that actually helps our leading-edge customers to build out fab capacity quicker. I think all in all, I would say the market visibility has increased. A very important issue, of course, our customers are finding out that our order lead time is one thing, but the most important lead time is the capacity lead time.
Our customers are now sharing with us much longer capacity improvement plans, which actually extend way into, let's say, the 2024, 2025 timeframe. All that together gives the confidence that the numbers that we're talking about, which are 90 EUV numbers and the 600 DUV numbers, have actually a basis. A lot of the detail we would like to share with you once we get the confirmation from our supply chain partners that the feasibility request can actually be executed on. We think that will happen the next couple quarters. In Q4 is the reason why we want to update you to a Capital Markets Day where we can give you some more details on what I just said. Which basically, I think I already gave you some details, but that then we can spend a bit more time on it.
Specifically also, Joe, to your question on the buffer, because you are right. In the Capital Markets Day, we did have a buffer because there also we indicated that we were looking at a capacity of 375 units in DUV at that stage. If you took our market share in the worldwide demand, you know, then of course, that was lower than the 375. So that's the buffer that you're referring to. There I would say, you know, that's typically something that we will discuss in the Investor Day that Peter was referring to. Because Peter is talking about, you know, what we're looking into in terms of capacity. You know, at the Investor Day, at the Capital Markets Day, we're obviously also gonna articulate our expectations around demand.
There, I think you will see, you know, how that capacity will relate to the demand that we see for 2025, and that will then give you a bit of an indication on the buffer that we foresee for 2025.
Thanks. That's some really helpful details. Just as a quick follow-up, I was wondering if you could maybe just give us the puts and takes on the EUV ASP this quarter. What drove the upside?
Yeah. It's primarily accounting, Joe, because as you know, with VPA accounting, you get, you know, these corrections based on estimates and based on revisions of estimates that you make for the VPA. Of course, then if you only have 3 EUV units in sales as we have for this quarter, then of course that has a big impact on the ASP. But it's nothing specific. It's not that all of a sudden the ASP has risen dramatically. I think in your models it's still prudent to take EUR 160 million as the ASP for 3600 going forward.
Very helpful. Thank you.
Thank you. Apologies for the issue earlier. We're now able to go back to the line of Robert Sanders at Deutsche Bank. Please go ahead. Your line is open.
Oh, no.
Yeah.
Hi, Robert. Do you hear us, Robert?
Operator, we can't hear him.
Yeah, I'm trying to unmute this line. It's definitely on mute from what I can see. Robert, are you able to hear us?
Hi, can you hear me?
Yes, we can hear you.
Yes, we can. Robert. Yeah.
Hi.
Finally.
Hi there. Hi there, guys. Yeah, thanks for taking the question. It was just around the backlogs for DUV tools. If I just do some sort of probably, you know, simple math, it looks like your backlog for DUV only is sitting at around 500 tools or so, while you're shipping around 60 tools per quarter in DUV only. Does that mean that the waiting time for a DUV tool today is more than 2 years? And related to that, as you think about how you, your increase of DUV capacity, where would you like that sort of waiting time to go back to? Would it go back to 9 months in a perfect world? Or is there a kind of new reality where backlog, you know, will be re-extended for quite a while?
Two good questions, Robert. One, yes, the DUV backlog is quite significant. You mentioned 500. Actually, it's a little bit more. And yes, we're shipping around 60 units. You have to realize that while we're doing that, we are increasing our shipment capability. I mean, although we are not at the 600 units, as we mentioned, we will be able to increase more DUV shipments throughout this year and next year for the simple reason that we're basically pulling out all the stops in cycle time reduction, in process efficiency. I think that number will go up. It will not be stable. Having said that, you are right.
If you would come in and you want a DUV tool now, you're going to be second half of next year. Because for the simple reason that, the PO, the purchase order lead time is completely, you know, irrelevant now. It's the capacity lead time. You need to build capacity in order to be able to get more, which ultimately means that, yes, by, we think 2025, which take another 2 years at least to build out that capacity. We will go back to, let's say, 9 months and less PO lead time. Yeah. This is indeed the case. This is also why the demand that we currently see in DUV, we can probably only ship at this moment in time, this year, only 60% of the DUV, you know, demand.
Anything that comes on that, because that's driven by our maximum capacity. Anything beyond that, indeed is a matter of capacity lead time, not PO lead time.
Got it. Just a quick follow-up to that. I'm assuming suppliers will want prepayments, guarantees in order to build more capacity for you guys, and they may look for higher pricing. Should we think about pricing of individual tools going up on top of the inflation that we're seeing from the various different cost drivers, just from the fact that suppliers will want some kind of guarantee from you guys that you'll take delivery?
Yeah. You know, I think this is. It's always been the case when you go to the supply base and you tell them you need to add capacity. I think, we have a pretty convincing story for them that this industry will grow. Like I said in the prepared remarks, we think there's a very good chance that the industry of our customers will more than double before the end of the decade. If that's the case, we're just going to need more capacity, which they all agree with.
Now, if we're going to help suppliers, and I'm not excluding that at all, it's just a matter of, you know, sometimes the, you know, financial means that a supplier might have or run into a certain financial ceiling that we might help and step in, like we've done in the past, that's not a major issue. That is not to take away the risk, but just to make sure that people execute faster. I think that might happen, but generally our suppliers are big enough to pay for their own CapEx. I don't think that's going to be a major issue. On pricing, I think, you know, the cost increase that we've seen are really short-term cost increases. We do value pricing, so it is not cost plus what we are doing.
Having said that, the value of the wafers coming out of our customers over time will also go up, which are going to be a function of that cost increase. It also means that going forward, value pricing will also lead to different prices that we will charge to our customers. I mean, that's all connected. Not short-term, but that'll be, you know, over the next 12-24 months when the volume purchase agreements run out, we have new volume purchase agreements that will be reflected.
Got it. Thanks a lot.
Thank you. Our next question comes from the line of Didier Scemama of Bank of America, sorry. Please go ahead. Your line is open.
Yes, good afternoon, and thanks for taking my question. I've got two quick questions. First of all, maybe a question just to understand a bit better the 2025 capacity plan. I know you don't like to talk about WFE, but I would like to understand what's baked in your numbers. Because when I just sort of reverse engineer what you've guided for, I get to a WFE roughly in the $140 billion-$150 billion range. I just wanted to understand if that's what you're thinking about. Related to that, when we make WFE intensity numbers, assumptions, et cetera, you get to a global semiconductor demand in 2025 in the range of $800 billion+ to $940 billion+.
You know, I'm a believer, but that's an aggressive growth rate, especially in the context of the current macro environment, and worries about, you know, recession, et cetera. I just wanted to understand if that's the right way to think about it, and if not, why not? I've got a quick follow-up on High NA. Thank you.
Well, I think, you know, there's a lot of what you said is the right way to think about it, but I think the only comment I would make is that you pin everything on 2025. You know, when we basically say we wanna build out that capacity by 2025, we do this also with the intent and with the focus on what we believe is going to be a very strong secular growth for our customers. Even if you look at the latest Gartner data, actually they are above 1 billion for 2030, yeah? It is capacity that is there for the second half of the decade. It doesn't mean that if we would have that capacity by 2025, that the
We're not saying that the semiconductor industry will global up all our capacity by 2025, but it will definitely do that in the second half. This is why it's important, because to add capacity, you need lead time. You need to start now, 'cause it takes a couple of years. That might be that we don't need it in 2025. We might definitely need it in 2026 or 2027 or 2028, to your point. If you then say if you would look at the latest data, which is just above, I think it's $1.1 trillion, yeah? If you look at that and you apply your historical WFE numbers, you know, you're coming pretty close to what you just said. It is needed.
This is an investment in the growth of the company and the growth of the industry of our customers. That's what it is. I'm not telling you what the 2025, you know, revenue number for the semiconductor industry is going to be, but it's going to be higher. That's absolutely certain. This is the reason why. I think your line of reasoning is correct, only don't pin yourself onto 2025 as a year.
Very clear. Perfect. My second question is on High NA. At the time of the CMD, you were sort of cautiously telling us about 5 units, give or take, 2025. Now you're saying that you're thinking about building capacity for 20 units mid-term, so I take it beyond 2025. I just wondered if you could, A, give us a sense of how many units have you booked so far, given the support you get from your five customers, in the quarter? And give or take, I mean, are you thinking about more than 5 units already for 2025? Or sort of what's the linearity of that 20? What's the trajectory? I mean, is it really taking off in 2025, or is it taking off a little bit after?
Good question, Didier. I think at the Capital Markets Day today, what we said is the 5 is just the 5 that we take into revenue. The reason you might also recall that the 5 was in there for the high market scenario, but also for the lower market scenario. The reason we did that is that we said we're a bit unclear at this stage as to how revenue recognition is gonna look like for those systems. Also taking into consideration that we don't know exactly how in 2024, how in 2025, how the installation process, how exactly that will work, because we have different models how to do that. That's why we said we're gonna be pretty conservative.
The 5 is a pretty conservative estimate of what we might ship in 2024, and then we take that revenue. Clearly, we're looking for 2025, we're looking at a number north of that, of those 5 in terms of shipments that we expect for 2025. That's the reason why we were so conservative, if you like, on the number of 5 in 2025. More shipments expected in 2025, and that's also why we set the 20 for medium term. You know, medium term is a little bit after 2025, so that could be in the 2026, 2027 timeframe. That's where we think the number of 20 will be necessary to cater to demand that we have there.
I mean, the buildup of the order book is progressing very nicely. You know, not just on the 5000 tool, which will initially be used for research purposes, but as we mentioned to you, now we also have clear orders for the 5200 coming in last quarter, and also coming in this quarter. The order book there is building up nicely and in line with our expectations.
Crystal clear. Thank you so much.
Thank you. Our next question comes from the line of Krish Sankar of Cowen and Company. Please go ahead, your line is open.
Yeah. Hi, thanks for taking my question. I have two of them. Peter, just to follow up on the macro question. You know, it seems like in the last three months, you know, your FY 2022 outlook has been pretty much stable. There's still supply constraint, but demand has actually grown. Kind of curious, you know, based on your forecast, it looks like it's through 2025, but the market seems to be worried about macro and recession. I'm kind of curious, do you think Investors are too negative or do you think the semi-cap industry or semi industry is too positive and the truth is somewhere in between?
Well, you know, I'm with the company 23 years, and I've always tried to read the minds of the Investors and always got it wrong. Don't ask me that question. It's basically I can only read the minds, well, read the minds, but talk with our customers and see where we are today. The issue is, and I tried to mention this before, is that the demand that we're currently seeing comes from so many places in the industry, technology-wise, market-wise, you know, geography-wise. It's so widespread that we have significantly underestimated the, let's say, the width of the demand. I think that it's not going to go away. It just It's an anecdote.
Got it. Super helpful, Peter. Then a quick follow-up. You also articulated how there's strong demand for trailing edge technologies. When I look at the China sales, it's been at record high for the last two quarters. From your vantage point, is there a way you can segment it and see if China is actually buying for true end demand? Or do you think they're just stockpiling deep UV tools? Any color into the thought process there would be helpful.
In fact, Krish, I don't think that China is moving at a faster pace in general than the rest of the world. Also for China this year, we're expecting about 20% growth, which is similar to what we see for the rest of the company. I think China is in line. The fact that you saw such a high percentage for China in the Q1 sales in particular is because, as you know, we only had 3 EUV systems in the total mix. As a result of that, you know, the China sales as a percentage of the total was so high. I think that's an anomaly that will, you know, rectify itself in the course of the year.
We're still expecting domestic China to grow 20% just as the rest of the customer base. You know, in answer to your question, yeah, we do believe that the what they're adding in terms of capacity is being used for manufacturing. It's not like they're piling up lithography tools. They're really using this trade-off.
Yeah, we can see that this is based on you know the utilization numbers of our you know machines across the entire install base, logic and memory. It's never been as high as it is you know now. If they're stockpiling anything, they're not stockpiling you know machines. They're stockpiling semiconductors, which when you look at their shortage and the fact that people are desperately trying to get their hands on mature type of semiconductors, I don't think they're stockpiling anything. Yeah? It's. They're being used, and that's what we see. Actually, as a matter of fact, one of our Chinese customers, big customer, told us, "Hey, I'm sold out. I've sold out all the wafers in my. The wafer capacity that I'm adding sold out till the end of next year, 2023. Not 2022, 2023.
Got it. Got it. Very helpful. Thanks, Peter and Roger.
Thank you. Our next question comes from the line of Adithya Metuku of Credit Suisse. Please go ahead. Your line is open.
Yeah. Good afternoon, gents, and thanks for taking my questions. Firstly, again, just to follow up on Krish's question there. You know, when you say you're going to ship, you see demand for 375 DUV units next year, we're all kind of on the Investor side playing these war games around, you know, what could happen next year to see demand really go down. You know, if you look at consensus next year for you, consensus modeling DUV units to decline next year, given these concerns around recession. You know, my view is, even if you saw demand decline, your customers are unlikely to cut tool orders.
In your view, can you give us some scenario as to what would need to happen for customers to really cut orders for next year, given the lead times, et cetera? You know, if you have any color around that would be super helpful for Investors. Secondly, I just wondered if you could give us the figure for High-NA EUV tools in your orders this quarter and in the backlog. That would be super helpful. Thank you.
Yeah. Well, you know what could happen. You know, if we would do next year, let's say, I think it's going to be over 375 because we're pulling out all the stops, like I said, which will basically be our absolute maximum capacity. I mean, we're doing overtime, hiring people, whatever, you know? It's not only us, it's particularly in the supply chain. That's where we want to go. Yeah? Now, what needs to happen for that demand to go down? The demand for next year is 600 units. So you need to lose 35%-40% of your demand. Then you hit our capacity, our maximum capacity.
Now, of course, we can all dream up horror scenarios whereby the world collapses and all kinds of crazy things happen. We'll deal with that when we are there, when it's such a disaster. For, let's say, a macroeconomic slowdown needs to be significant to take 35%-40% out of the demand curve. We're still shipping more than what we shipped this year. Yeah, no. On horror scenarios, I don't know. I'm not the kind of guy that you ask the question, but probably other people better suited to do that. That's the way that I look at the world.
For whatever reason, he was just looking at me, but I'm not gonna weigh in there either. I will try and give you a non-answer to your question on the High-NA orders, Adithya. We did disclose that we have 5 orders for High-NA 5,000, for the 5,000 system. That's an R&D system. We've also indicated we have multiple orders for the 5,200, and we've also said that we have these orders from 3 logic customers and 2 memory customers. That's really what we can share. Our customers, for a host of reasons, do not want us to be specific as to the order intake for High-NA for the commercial system. That's why we stick to this, to the labeling it multiple.
Understood. That's very clear. Just a quick clarification on that EUR 375 number. Is that shipment? Will that not be revenue recognized? Will you recognize revenue on all of those tools? Will there be some deferred-
Yeah, these are DUV systems generally recognized upon shipment. I think it's EUR 375-ish, which we're trying to, like I said, to push a bit higher. That's on shipments, revenue shipments. Yeah.
I mean, if you talk about next year, Adithya, in all likelihood, you know, you're gonna see a bit of a balance in terms of fast ship, right? At that stage, I think the impact of fast shipment on the delta between output and revenue should be very small.
Understood. Thank you.
Thank you. Our next question comes from the line of CJ Muse at Evercore ISI. Please go ahead. Your line is open.
Yeah, good morning, good afternoon. Thanks for taking the question. I guess first question, you know, it certainly sounds like you're pulling in High NA or have, you know, greater expectations sooner. I guess curious, you know, how are you on the supply side ramping optics in particular, particularly given the supply constraints we're seeing, you know, on DUV and low NA EUV? Then the second part of the question for High NA is how are your customer conversations evolving, and do you think we could see high volume manufacturing insertion as early as 2 nanometer?
Yeah. I think High NA sooner, generally, that's not the case because it's, like you pointed out, I mean, it's a supply chain issue. I mean, it's a different machine. It's sort of different modules that needs to be built. This is really focused on executing according to plan. Yeah. Which doesn't give us a lot of room to do more and sooner. It is really our shipment plan. Now, Roger just talked about the difference between revenue recognition and, you know, shipment. The shipment plan hasn't changed that much because it's all very much linked to the capability of the supply chain to actually follow that. I think in HVM insertion, we always said 2025, 2026. I think that's very likely what is still going to be the case.
Now, having said that, it could very well be that you see the first 2 nm chips being produced, you know, in 2025 as a kind of a, you know, first set of devices that show the capability. I think HVM is probably the 25-26 timeframe.
Very helpful. Just a quick follow-up. As you contemplate the capacity additions, can you kind of walk us through the impact to your cost structure, both COGS and OpEx?
Yeah. I think we'll do that in Q4 a bit more detail. I think yes, I mean, we need to invest. We, as ASML and our supply chain. You know, the supply chain, they need to invest in CapEx. Now CapEx for us is not the major issue in our cost of goods. Yeah. I think for our suppliers, they of course need CapEx, but I mean, it's CapEx on a higher volume. I don't think currently it's a bit early that I would expect big impact on the margins or on cost. Roger?
No, exactly, CJ. We'll come back to that in Q4, you know, when we talk a little bit more. To Peter's point, I wouldn't expect a significant impact on the gross margin expectation that we gave for 44% or 54%-56% for 2025. I think it will still be in that ballpark.
Thank you.
Thank you. Our next question comes from the line of Aleksander Peterc of Société Générale. Please go ahead. Your line is open.
Yes. Hi, good afternoon. Thanks. Thanks for the question. I'd just like to come back briefly on the numbers you gave us for 2025, the capacity expansion you're looking at, so the 90 EUV and 600 DUV. Is that your estimate of what unconstrained demand will be by 2025? Is that what the industry needs and you need to get to an equilibrium between offer and demand or something a bit more reasonable because of lead times? In other words, if suppliers come back to you and say, "Yeah, this is possible, it's gonna be a huge effort, but we can get there," is that the kind of number you then drive to and that will become your revenue guidance? Or is this too optimistic and you should caveat that in any way?
That's my first question. I have a quick follow-up.
Well, you know, we're probably going to answer that question for the third time. I think it's basically what we feel the capacity is needed to actually be available in 2025 for the rest of the decade. Yeah? Now, if for whatever reason, the demand that we could see today and for next year would still be the same demand as we see that we would see in 2025, we would need it in 2025 to actually ship. Yeah? That, we don't know that. I mean, this is really driven by how the market is by, you know, 2025. It could be it's the same as it is today. It could be higher, it could be lower. We don't know that yet.
This is definitely something which we are going to discuss in Q4 where we show you a couple of scenarios, yeah? Where we can say this could happen. If this happens, then you would see that result. If that happens, you would see a different result. It's really about the capacity buildup. So it's not that we are saying, "Well, you know, the unconstrained demand for 2025 on this is 600 DUV and 90 EUV." No, we'll have the capacity there. That if that would be the case, we could do it, but we don't know whether it's going to be the case, but we definitely need it. We definitely need it, you know, for the second half of this decade, given the growth of our customers. You know, let's keep our fingers crossed and see what 2025 brings us.
Okay, that's very clear. Just a quick follow-up on just 3D DRAM in light of the multiple orders you now get from DRAM customers, not just one but two customers now. Could you share your thoughts on the potential timing of 3D DRAM and, you know, that 2025 number we saw being bandied about? Is that now a clear indication that's actually happening or later? Thanks.
I think we've made a point a couple of times. 3D DRAM is an option. We think it's not gonna be 2025. It is an option. It could hit somewhere in the second half of this decade. We also know, and we know that because our customers are telling us this, and actually, our customers are telling this in a public way, that you know, whatever their roadmap is, what is clear is that EUV and High NA has a particularly important role to play in that roadmap.
You know, the latest very clear and public data point, and that was Samsung at their conference in November of last year, where they, you know, clearly demonstrated that, you know, that EUV was on their roadmap for, you know, for the next 10 to 15 years. That's what they indicated. They said, you know, even to go to DRAM, I think it was 8 nanometers or of 5 nanometers that it talked about, less than 5 nanometers. They need EUV and High NA in order to get there. That's what's important to us. That's what's driving our roadmap also on the memory.
Could that, you know, go in conjunction with 3D DRAM? It's possible, but it will be always a combination. That's what our customers are telling us, and that's what we stick by.
Excellent. Thank you very much.
Thank you. Our next question comes from the line of Rolf Bulk at New Street Research. Please go ahead. Your line is open.
Yes. Thank you for taking my question. I had a question on your memory business. The order intake of memory in the quarter was again very strong, close to EUR 2.4 billion. I was wondering, can you talk about what is driving this order flow? Is that NAND or DRAM, and is it primarily for capacity being added this year and next, or is a large component also EUV and High NA orders for long-term capacity additions?
Yeah, I think it's largely these capacity, you know, additions in memory are for current capacity demand. I mean, like I said earlier, the utilization of our machines in the memory space is very, very high. Some would even say it's the highest point ever.
If there's a high-teens 20% bit growth number expected for this year, you just need to add capacity. I think the bulk of what you're seeing there is just to add capacity. Yes, well some of it will be High NA, so you will know that's not translated into you know an immediate bit capacity. But with EUV it is because don't forget, you know, EUV is now HVM technology also in DRAM. Most of it, I mean, the vast majority of it is for current capacity additions, which I fully understand when I look at the utilization rates.
Thank you. As an unrelated follow-up, if I may, could you please give us an update on your EUV service business? How large is the business today on a run rate basis, and what growth do you expect this year? Where do you stand on gross margins versus the corporate averages?
Yeah. The EUV service business is around EUR 1 billion this year. The gross margin, we talked about gross margin in the past. Gross margin was around 30% last year. We think it's gonna be around 35% this year. We talked at the beginning of the conference of this call, we also talked about, you know, some pressure on labor costs. Obviously that's hitting us also a little bit on the service side, but still we believe 35% gross margin is possible this year. As we said before, we're trying to get that to approximately 55% in the 2024/2025 timeframe. That's the trajectory that we're on.
Thank you. That's very helpful.
Thank you. Our next question comes from, Stéphane Houri of ODDO BHF. Please go ahead. Your line is open.
Yes. Good afternoon. Actually, I would like to ask a question again about your supplier to really understand what you are talking about when you say you are discussing with them. Does it mean that they are all okay to increase their capacities, and if you're just talking about the way to do it? Or if there is some discussions to be held about the possibility to raise their capacities. Thank you.
No, I think we've just had our, let's say, a supplier day a couple of weeks ago, and it was very clear that all our suppliers confirmed that they said this is the target that we should go for. It's really a matter of them creating the executable plans to actually get to that capacity number by the timeframe that we asked. And that has to do with the plans that they need to make to build square meters, to build factories, to hire people, to order, you know, specialized machinery. That needs all confirmation in their supply chain. It's a supply chain of the supply chain. They need to find the builders. They need to get the square meters.
They need to get the permits. It's just very practical stuff that if you want to expand capacity, how quickly can you do that? What are the normal, let's say, business hurdles that you would have to pass in order to make sure that that happens? This is the type of discussion that we're having. That's basically all these things are gaining the confirmation. They work on this and they will get, as we go along over the next couple of months, quarters, they will get all the confirmations that, yeah, we can do it. Probably not 100%, but 90% or 85%. Yeah, we can do it.
Then they'll probably confirm that, well very likely, will confirm that to us and say, "Yeah, we're going to to be there at that point in time when you need us." That's the situation. Yeah.
Okay. On your side, can you communicate already on the cost of such an expansion?
Well, I think most of the cost will be in the supply chain. You know, I think generally our CapEx on the balance sheet is roughly 10% of the total balance sheet. I mean, it's not huge. Yeah, it's a big number, but you know, when you look at the size of the company, it is not the biggest cost item. It's in the supply chain, so I think it won't be an issue for us. I think when you look at the upside opportunity of having that extra capacity and the forecasted growth, you know, it's a relatively fast payback time.
Thank you very much.
All right. Sorry, we have time for one last question, and I apologize for technical difficulties at the start of this Q&A. 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. Now, operator, may we have the last caller, please?
Thank you. That will be François-Xavier Bouvignies from UBS. Please go ahead. Your line is open.
Thank you very much to squeeze me in. I just have maybe two quick ones. One is on basically the work you're doing with your suppliers. You mentioned, Peter, that you don't bear a lot of cost to add capacity, but these suppliers will probably have, you know, a lot of risk or more risk to you than you in terms of balance sheet and depreciation charges. You want to build this capacity well ahead of time for the second decade. My question is, do you expect to share somewhat the risk of the investment with your suppliers somehow? I mean, with maybe a payment or anything like that we should expect to help your suppliers to get to this kind of level and bear the risk of overcapacity?
The second one is you talk about suppliers, but what about the peers, your peers as well? It seems that your capacity expansion is quite you know big at least since last year. Do you expect the peers for other parts of the you know supply chain to increase as much you know? Is there a risk here that you build too much and the others don't, and therefore, you can't unlock this value? Thank you very much.
Yeah. Yeah. On the first question, yes. I mean, we've done that in the past also. I mean, if a supplier, let's take ZEISS for instance, comes to us and says, "Hey, can you do some shared risk investment?" It goes beyond what you would say the let's say average or normal financial capabilities of that supplier. We have done that in the past, and we will do it again. Having said that, over the last 10 years, our supply base has actually grown quite significantly also in terms of size and in terms of financial capability. I think it's going to be limited, but if it's needed, it's needed, and we'll do it. I don't think it's going to be a major issue.
Risk sharing is in our genes, so that's not the point. On the peers, you know, we're coming out because our capacity lead times are probably the longest in the industry. We go first. I would expect our peers, if we do that, then the market is there, and we believe the market's going to be there. They will follow. It's that simple.
Thank you very much.
All right. Now on behalf of ASML, I would like to thank you all for joining us today. Operator, if you could formally conclude the call, I would appreciate it. Thank you.
Thank you. This concludes the ASML Q1 2022 financial results conference call. Thank you for participating. You may now disconnect.