Thank you for standing by. Welcome to the ASML 2022 third quarter financial results conference call on October 19, 2022. Throughout today's introduction, all participants will be in listen-only mode. After ASML's introduction, there'll be an opportunity to ask questions. If you'd like to ask a question, please press zero one to register, and if you'd like to withdraw a question, please press zero two at any time during the call. If any participant has difficulty hearing the conference, please press star zero 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 third quarter 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 would 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 the 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. Thank you for joining us for our third quarter 2022 results conference call. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the third quarter 2022 results, and as well provide our view of the coming quarters. Roger will start with a review of our third quarter 2022 financial performance with some added comments on our short-term outlook, and I will complete the introduction, some additional comments on the current business environment and our future business outlook. Roger, if you will.
Thank you, Peter, and welcome everyone. I will first review the third quarter financial accomplishments and then provide guidance on the fourth quarter of 2022. Net sales come in at EUR 5.8 billion above our guidance due to faster completion of installations, triggering earlier revenue recognition, a release of deferred income on a factory option which has now been accepted at customer sites, as well as higher installed base business. We shipped 13 EUV systems and recognized EUR 2.2 billion revenue from 12 systems this quarter. Net system sales of EUR 4.3 billion, which was again driven by logic at 68% and the remaining 32% from memory. Installed base management sales for the quarter came in at EUR 1.5 billion above guidance due to higher upgrade revenue.
Gross margin for the quarter came in at 61.8%, which is above our guidance, primarily due to the pull-in of revenue from both the release of deferred income on a factory option as well as additional upgrade business. On operating expenses, R&D expenses came in at EUR 819 million and SG&A expenses at EUR 236 million as guided. Net income in Q3 was EUR 1.7 billion, representing 29.4% of net sales and resulting in an EPS of EUR 4.29. Turning to the balance sheet. We ended the third quarter with cash equivalents, and short-term investments at a level of EUR 3.4 billion.
Moving to the order book, Q3 net systems bookings came in at a record EUR 8.9 billion, reflecting the continued strong customer demand for both advanced and mature nodes. Strong order intake of EUR 3.8 billion for EUV systems, including high NA, as well as EUR 5.1 billion for non-EUV systems, which is DUV and metrology and inspection systems. Total net systems bookings was driven by logic with 77% of the bookings and memory accounting for the remaining 23%. With that, I would like to turn to our expectations for the fourth quarter of 2022. We expect Q4 total net sales to be between EUR 6.1 billion and EUR 6.6 billion.
This excludes around EUR 100 million of net delayed revenue for Q4 as a result of more expected fast shipments at the end of Q4 than at the end of Q3. We expect our Q4 installed base management sales to be around EUR 1.6 billion. Gross margin for Q4 is expected to be around 49%. The improved margin effect of higher volume relative to Q3 is more than offset by negative margin effects, primarily from DUV mix, pull-in of revenue recognition on higher margin factory options from Q4 into Q3, and inflation costs hitting us this quarter. This translates to an expected gross margin approaching 50% for the full year. The expected R&D expenses for Q4 are around EUR 880 million, and SG&A is expected to be around EUR 265 million.
The higher R&D guidance is primarily due to additional headcount and labor cost increases. Higher SG&A is mainly due to additional headcount and IT spending. There are also some small negative foreign exchange effects on both R&D and SG&A. Our estimated 2022 annualized effective tax rate is expected to be around 15%. In Q3, ASML paid a quarterly interim dividend of EUR 1.37 per ordinary share. The second quarterly interim dividend will be EUR 1.37 per ordinary share and will be made payable on November 14, 2022. In Q3 2022, we repurchased around 2.1 million shares for a total amount of around EUR 1 billion. We have now completed our 2021-2023 share buyback program.
On November 11, 2022, we will hold our Investor Day, where we will provide an update on our long-term business plan, including any new share buyback program. With that, I'd like to turn the call back over to Peter.
Thank you, Roger. As Roger has highlighted, the revenue and profitability for the quarter came in above guidance. We expect sales in the fourth quarter to be higher as we continue to work through supply chain issues and reduce cycle times. Relative to last quarter, we now expect stronger revenue growth for the year with a full year 2022 sales of EUR 21.1 billion that are using the midpoint of the Q4 guidance. This includes a higher EUV system revenue of around EUR 6.8 billion, as well as high install base revenue. Due to fast shipments, we also expect delayed revenue of around EUR 2.2 billion into 2023. The total business volume for 2022 is basically unchanged from the start of the year.
Looking at the current market environment, there's clearly a lot of uncertainty due to a number of global macro concerns regarding inflation, consumer confidence, and a real chance of recession. As we have shown in the past, in such an environment, we need to maintain flexibility in our supply chain, in our workforce, and in our manufacturing capability. You would also expect an impact on customer confidence around their CapEx spending. In fact, we do see some customers running at lower tool utilization levels and revising their CapEx spends for next year. Now while some customers are now adjusting the desired timing of their demand, the vast majority of our customers are still requesting shipments of their litho systems as soon as possible.
This is clearly driven by the strategic nature of these litho investments in support of technology transitions, capacity additions which require time for wafer output to materialize, as well as governments global investments in pursuit of technology sovereignty. As a matter of fact, our 2023 shipment demand is still significantly above our build and shipment capacity for next year. This is supported by the record bookings this quarter of EUR 8.9 billion and our largest backlog ever of over EUR 38 billion. Almost 85% of this backlog is for EUV and immersion, which is used for advanced nodes and related wafer capacity expansions. With regard to our supply chain, we need to continue to manage risks, but over the past quarter, we see the predictability of the move rates in the supply chain improving.
As a result, we now foresee a further improvement in our output capability in Q4. Now looking at the net sales in the quarter plus deferred revenue from fast shipments, you see an increase in shipment value over the year, starting with EUR 4.9 billion in Q1 to EUR 5.7 billion in Q2, then EUR 6 billion in Q3, and we expect around EUR 6.4 billion in Q4. Building on this progress, we feel we are well positioned to further increase our capacity next year. Now looking to next year and bearing in mind the current environment, it's too early to provide specific guidance. With demand expected to remain significantly above supply and based on discussions with our customers, we're planning to increase our system output next year.
Assuming we will have addressed the supply chain issues in the coming quarter, we're planning to ship over 60 EUV systems and over 375 DUV systems in 2023, with about 25% of the DUV systems being immersion. Regarding gross margin, as I mentioned, we expect to approach 50% this year. As discussed last quarter, we are in discussions with customers to share the extraordinary inflationary costs from freight, labor, as well as system components. These discussions are progressing, and in general, customers understand our request to share these extraordinary cost increases. As such, we expect to receive a reasonable level of inflation compensation over the course of next year.
Assuming successful progress on this item based on current macroeconomic conditions and inflation levels, and considering that next year we will likely have less gross margin impact from fast shipments than in 2022, we expect gross margin to improve next year. We will continue to make the required investments as we need to ramp our capacity in anticipation of medium to long-term growth of our industry. Clearly, these investments might put some pressure on the gross margin next year, but are inevitable if we want to maintain the longer-term growth profile of the company. That said, we do see a clear gradual progress from today towards our longer-term gross margin ambition of 54%-56% by 2025.
As I said before, longer term, the expanding application space for semiconductor and secular trends are driving structural demand, and this is why we're actively adding capacity and are planning to further increase our EUV and DUV shipments in future years to meet customer demand. As announced earlier today, the upcoming appointment of Wayne Allan to the board of management as our strategic sourcing and procurement officer underscores the significance of working with our supply chain to further drive future capacity growth.
Regarding our capacity for 2025 and beyond, we're actively working with our supply chain to achieve the earlier communicated targets of 90 units for 0.33 low-NA EUV and 600 units for DUV, along with a medium-term target of 20 units for 0.55 high-NA EUV. Next month at our Investor Day on November 11, we will provide updates on how we see the changes in the end market growth, driving increased demand for our litho systems with what this means for our capacity plans, as well as the impact on our longer-term financial scenarios for 2025 and 2030. Finally, with regards to the announcement earlier this month from the U.S. government around export control restrictions, we have performed our initial assessment and expect the direct impact on ASML's overall shipment plan for 2023 to be limited.
However, there could be an indirect impact due to the inability of other equipment suppliers to ship their systems. Our current expectation of such an indirect impact will be around 5% of our backlog. This percentage is based on the share in our backlog of purchase orders from Chinese fabs that in our current assessment, are seen as meeting the technology criteria as indicated in the updated U.S. export control restrictions. We will continue to refine our assessments as the situation evolves. While ASML is of course, fully committed to comply with all applicable regulations, the new regulations do not directly change U.S. export controls on lithography equipment. As a European-based company with limited U.S. technology in our systems, ASML can continue to ship all non-EUV lithography shipments to China out of the Netherlands.
Additionally, we can ship most U.S.-origin spare parts to most customers in China that are working on mature nodes without the U.S. export license. The new export control rules are directed at advanced nodes, while our business in China is predominantly directed at mature nodes. Lastly, if for export control related reasons, we cannot ship to more advanced fabs in China, we have more than sufficient demand for these systems elsewhere globally as demand continues to exceed supply. In summary, while in the current environment there's a lot of uncertainty due to macro concerns, our customers' demand for our products continues to exceed supply. We're working to increase our capacity next year with a plan to further increase this by 2025, as communicated earlier this year since we remain fully confident in the opportunity this provides for our future growth.
We plan to update you all on this during our Investor Day on November 11th, and we certainly hope to see you there. With that, we'll 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, would 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 if you need to withdraw a question from the queue. If you're using speaker equipment today, please lift the handset before making your selections. One moment, please, for the first question. The first question comes from the line of Francois-Xavier Bouvignies of UBS. Please go ahead. Your line is open.
Hi, can you hear me?
Yes.
Yeah.
Very well.
Okay, great. Thank you very much for taking the question. I have one on 2023 outlook, and especially for Deep UV, your 375 Deep UV tools target for next year. If we assume that more than 40, maybe 50% of Deep UV revenues is from memory, can you help us reconcile you know, your guidance and what your customers are saying, you know, for example, with maybe the wafer fab equipment memory CapEx down more than 40% into next year? Just trying to think about you know, the litho intensity excluding EUV. I mean, could it be driven by you know, inventory build or anything more fundamental that would suggest you know, Deep UV especially with such weight on memory being resilient despite what your customers are saying?
Just trying to reconcile that number would be helpful.
Yes, you know, Xavier, thank you. When you look at the backlog of EUR 38 billion, I mean, about a quarter of this is memory, and about 75% is for our logic customers. That backlog is based on what our customers are currently thinking about what they need in terms of lithography investments for their 2023 capacity additions, which you need to remember is not only mainstream capacity, it's also for advanced technology nodes. Now, having said that, some of our customers, and I would not exclude memory customers, have indeed looked at their CapEx guidance for next year and have taken it down. Those same customers in the same breath tell us, "Listen, we need those machines, and these are the machines that we need for 2023 because they're strategic, they're long-term nature.
If you ship me in 2023, it will only be 2024 output." It has to do with the long lead time, character of our systems. These are strategic tools, and we've never, and we've said it before, and I think I've said it over the last more than 20 years, must have been over 100 times, we never look at WFE as an indicator because it is a lagging indicator. Customers will do what they need to do. What we really focus on is discussion with our customers on their strategic roadmap and their strategic expansion of capacity. That drives currently the order intake. This is where we are. I fully understand that could mean that in a particular year, because of these particular reasons, we are in a quite particular environment.
That the little intensity numbers might spike up. Like, you know, if we're coming out of a downturn, that it will come down when we go into an upturn. These things are just relative percentages that, yes, in any given year might be different. Yeah. But we look at the long-term investment profile of our customers where we have very close contact. So this is what they tell us. You know, when they come with an order, we're in a business where we actually accept orders.
I think it could be for 2023 a bit off, normally, if you look at that little intensity percentage. If indeed, at the end of 2023, it you know turned out that you know, WFE came down as much as you currently think.
Alex, maybe one comment. I think your assumption that more than 40% of DUV comes from memory, I think that's not correct. If you look at our backlog.
Yeah.
It is more or less in line with the overall representation of the backlog. You know, the one-quarter, three-quarter representation of the backlog also holds for DUV.
You mean on revenues or units? Because I was talking revenues.
That's right. Yeah, that's right.
Okay. Thank you. Maybe a quick follow-up is on install base management. I mean, that has been a bit stronger. I mean, this quarter, you mentioned some upgrades. Now, if you look about a bit 2023 and imagine, you know, that the industry have lower utilization due to lower demand, should we then expect, you know, your install base management to perform better in this environment as you have more downtime machines and maybe run above your midterm target of 11% in this kind of environment?
Yeah, that could be. Also, you know, again, normally what you see in an upturn is that, to your point, there's no available time to do upgrades. In a downturn, there is available time, but then the upgrades that have to do with productivity enhancements, of course, are not that needed. Others, which basically have to do with the lithography requirements, the patterning requirements might be.
Yes, that could be, but I think it's too early to tell right now, as you have probably seen over the last quarter and the last couple of, you know, years, the installed base management business is a relatively short-term business, so customers can take those decisions on relatively short-term, and we can actually implement those upgrades also relatively short-term. We'll have to see. There's always some opportunity in a downturn-like situation, but that's clear.
Thank you very much.
Thank you. Our next question comes from the line of Joe Quatrochi at Wells Fargo. Please go ahead. Your line is open.
Yeah, thanks for taking the question. I wanted to follow up on the question around 2023 outlook. I guess I wanted to understand, you know, it sounds like obviously, you know, some of your customers are maybe changing some of their delivery schedules. Just given that you guys have the longest lead time for tools, even in the DUV space right now, do you worry about this maybe creating some sort of kind of maybe air pocket in demand when you look into 2024?
Yeah. Well, that's a reasonable question, but the answer is we have no clue, because, you know, nobody knows 2024. I mean, we are struggling to understand 2023. For us, 2023, on the demand side, we are, you know, we are more or less protected, you could say, because there's still such a big gap between the demand side and what we can make. There's still a significant gap between our demand profile, for 2023, which, as we said earlier, has come down somewhat, but it's all minor as compared to the gap that still exists between the current demand and our output capability. I don't know about the demand profile 2024. What I do know is that we're undershipping still 2023.
What that means for 2024, I have no clue.
I think, Joe, the way to also look at that, and fully agree with what Peter said, but also the way to look at that is we believe that the over 60 and the over 375 that we've indicated before would be a normal trajectory towards our objectives on 2025. I guess your question of an air pocket is only relevant to the extent that you're really, you know, trying to get a view on are we entering into recession territory and are we entering into a very long and very deep recession? I mean, that's in essence what you're asking, and this might not be the right audience to ask that question.
That was my point. My point is, you know, what do we know about 2024? I mean, yeah.
Yeah.
Longer term, you have to also realize that longer term, when there is very little doubt, I think we're fully confident in the growth of this industry. I think many of our customers with healthy balance sheets have the same confidence, which actually with our largest customer, we have those in-depth discussions. Some of them either went public with saying, you know, we're going to spend a lot of CapEx because we need that capacity. There's not going to be capacity that needs to be HVM, high volume, available by the end of 2023 going into 2024. It will be 2025, 2026. It's longer term.
This is why these investments are of a strategic nature, and we continuously get the confirmation from our customer base, which includes our largest customers that spend most of the CapEx money that they will continue.
Got it. That's a lot. I can appreciate that, you know, that 2024 is quite a long way away. Just as a quick follow-up and clarification. The comments that you made around customers looking to change delivery schedules and, you know, some declines and maybe tool utilization. Is that strictly on the memory side, or are you also seeing that on the logic side?
Yeah, we see if you look at the decrease of utilization, it is actually still at a level which we would at the end of 2021 or throughout 2021 still call very healthy. It comes off a peak that we've never seen before. It's not that you see a steep decline. You see it leveling off and here and there increasing. It's both in some logic applications and it's in memory applications. It's not significant in that sense, but we do see it. Yeah.
In terms of the change in delivery schedules, of course, we're not gonna be customer specific here. I guess if you read the newspapers about the sentiment that some of our customers are sharing, that probably gives you a pretty good indication.
Yeah.
of where you might see, you know, a little bit more softness versus the others.
Yeah. Some of our memory customers have actually been pretty vocal and pretty public about what they want to do with their CapEx. You know, the usual suspects. I mean, it's like we're not going to mention names. I mean, but you can distill it from the, you know, media reports.
Perfect. Thank you.
Thank you. Our next question comes from the line of Amit Harchandani at Citi. Please go ahead. Your line is open.
Thank you. Hello, everyone. Amit Harchandani from Citi. As a first question, if I may, go back to the topic of bookings. On our calculations over the past four quarters, you have reported about EUR 17 billion worth of DUV bookings. Well, DUV metrology and inspection bookings, which even in the context of a run rate of 600 shipments or capacity, 600 capacity by 2025, seems quite extreme. Could you help us understand who's placing these orders? What are their considerations? Is this a case of demand being pulled forward? Trying to get some confidence in what seems to be a very healthy DUV ordering pattern, even in the context of the capacity that you have talked about by 2025. I have a quick follow-up.
Yeah, that's a good question. I think you may remember that in our 2016 Capital Markets Day, and even I think in 2018, we anticipated that our DUV shipments would go down as a result of the cannibalization of EUV. Actually, the opposite happened. It didn't go down. It grew significantly across our entire customer base. It's a customer base that is focusing on consumer products, 'cause you're looking at the EUR 17 million that you just quoted. It's the historical order intake. It's consumer, it's industrial, it's automotive, it's energy transition. Just the you know sheer application space has grown so much. The problem that we have, and we actually had that discussion with our supervisor yesterday, that nobody connected all the dots.
There is not one firm on the planet that actually has the full insight into where all these chips are going and where they are being designed into. What I do know is that the number of mask sets that are being run in logic from, let's say, 20 nanometer upwards to 28, 45, 65, 90.13 micron. The number of mask sets over the last 12 years has been relatively stable running through our tools, except for the last two years. We see a significant increase in the number of mask sets, up to 30%-40% being used in that technology category, which actually means that the number of applications that are using DUV technology grow significantly double digit every year. If you ask me, Peter, tell me exactly where it is, we don't know.
The CEO of one of our large customers said when I asked the question, he said, "Because you have a very significant market share, you should know." He said, "I have no clue." This is exactly because nobody connected all, you know, the dots. When you look at the facts, the facts are that it is in the DUV space and it's the application space. If you ask me exactly where it goes, I have to also say, I'm not. We don't have that full clarity. What we do know is that the number of designs in the DUV space of above 20 nanometer is significantly increasing. Yeah. That's where it goes. This is why we do see the order intake across a broad spectrum.
You know, customers that have not asked any significant CapEx for the last 10 years are in our order book now quite significantly as a group. Those are the ones that write me very mad letters, yeah, that they still don't have their tools on time. As of two weeks ago, still get those letters. Yeah. I think that this is where you blame on us, blame us as the industry that we don't have that visibility, but we don't. What we do know there's a shortage and a significant increase in the number of designs.
To add a few numbers to it, Amit, in terms of trying to get an understanding where does it go? There is no real anomaly in the composition, right? The 25%-75% in terms of memory versus logic that we just talked about for the full backlog, as I just mentioned, that's also what you would see in the composition of the non-EUV part of the backlog. That's pretty consistent. No huge inconsistency there as it being, you know, skewed towards one or the other. It's just the typical 25%-75%. In terms of China, you know, and if you look at the last couple of years, China typically was around 16%-18% of our system sales.
That's also about the percentage that you would see in the backlog. There's no real anomaly in the backlog where you say, you know, how can that be? I think that's, you know, to support the comment that Peter makes. This goes in many, many different directions, but there is no, you know, clear anomaly in the composition.
There's no overall main direction.
Very well.
It serves an application. Yeah.
That's very helpful, gentlemen. Secondly, as a quick follow-up, if I may, and this might be probably one for Roger. The net deferred revenue run rate in Q4 is down to just EUR 0.1 billion. Wouldn't it be logical to assume that as we look towards 2023, there should be no reason why this steps up again back above EUR 0.1 billion? In other words, the EUR 2.2 billion that's getting deferred into 2023, would it be fair to assume a significantly smaller portion might go out from 2023, and potentially the EUR 6.4 billion that you're doing in Q4 is a good basis for quarterly run rate as we look towards 2023?
Yeah, I think, I mean, it's clearly the first quarters were the quarters where, you know, most of the fast shipment effect was there. That's clearly the case. Now indeed you see, you see that it starts to normalize, and you already saw it in Q3, now see it in Q4. Our expectation for Q4, you see that the normalization effect of fast shipment starts to trend down. You know, in essence, you know, if you stabilize your output at a certain stage, you would expect that what you get into the quarter is also about what you see go out of the quarter.
That's the normalization at a certain point you would see. You know that we're having discussions on is there another way to recognize revenue here. I mean, we've been having those discussions, and we told you as soon as we have that, and as soon as we see the potential to start recognizing revenue again upon shipment, of course we will let you know. We're looking into that. You know, assuming that nothing is gonna change, then, you know, in all likelihood, you know, 2023 should be more or less neutralized for the effect of fast shipment.
What gets into 2023 is sort of what you expect to also go out of 2023 in terms of fast shipment.
Thank you, Roger.
Thank you. Our next question comes from the line of Alexander Duval at Goldman Sachs. Please go ahead. Your line is open.
Yes. Many thanks for the question. You talked about your aim to help counteract inflationary pressure through discussion with customers. Given presumably the mechanism for doing that is to adjust pricing based on delivering greater value in the form of higher prices for chip, how confident are you in your ability to do that, given a potentially softer demand environment in 2023, and implicitly in some areas scope perhaps for less robust prices per device? I've got a quick follow-up.
Yeah. You're talking about the inflation correction, yeah? You're talking about the inflation correction towards customers, yeah?
Absolutely.
Okay. Yeah. I think, you know, the software environment for 2022, I think we were clear. The demand we currently have is significantly higher than our, you know, shipment capacity. The issue that we're of course having is that, when you look at the backlog, the great thing about it's a great backlog, is that it's a great backlog. Well, the bad thing about a great backlog is that you have, signed, sealed, and delivered purchase orders with prices in there.
That means that you have to go back to the customer and say, "Listen, there are extraordinary circumstances with, you know, inflation percentages in certain regions of the world that are significantly over double-digit." That's such an extraordinary circumstance where you really need to sit together and say, "Hey, you know, what's fair?" Yes, value pricing, that's a good point. But also where you see in certain areas of the semiconductor industry that labor prices are also going up, yeah? Because there's also value. It's just a matter of, you know, where can you where or how can you sit to, you know, sit together, look at the combined business and about the fact that we are mutually dependent and say, "What's fair?" This is where, this is, you know, where we are.
I think we will come up with a reasonable solution next year.
Many thanks. Just as a quick follow-up, you referenced again your Supplier Day and reiterated you aim to put in place the 90 EUV systems and 600 EUV systems capacity beyond 2025. Can you just give a bit more color on how the discussions with customers are proceeding, and your sort of confidence level that the supply chain will be able to proceed in order to deliver that kind of level of production?
Yeah. That's a good question. You know, we are seeing gradually a bit more stability, and the number of supply issues that we have where we really need to put massive management attention on is actually shrinking in number of you know suppliers with significant management attention and action from ASML side at those suppliers. We feel that we have a clear roadmap towards better performance in the year 2023. I think it's our internal target to basically have by the end of Q1 next year, we want to put all suppliers in the shadow of Carl Zeiss.
You know, Zeiss is our lens supplier, optic supplier, which some of our suppliers are not in the shadow of Carl Zeiss, and Carl Zeiss can deliver those over 60 EUV systems and over 375 DUV systems. This is basically the target that we have, and I think we're on our way. We have identified the key areas and put a lot of management attention in there, and our confidence has gone up.
Many thanks.
Thank you. Our next question comes from the line of Didier Scemama of Bank of America. Please go ahead, your line is open.
Yeah. Good afternoon, everyone. Thank you. I just wanted to ask you if you could maybe help us to understand your point on the fact that your tools have got low content from the U.S. intellectual property standpoint. There is a lot of questions from the investors on that point, and I've got a follow-up. Thank you.
Yeah, I think, you know, the export control rules, because of the relatively low percentage of U.S. content, the rules actually are such that because of that percentage, we can ship the lithography tool. That's that is, you could argue that's a predominantly European product, yeah. However, those tools need to be maintained so that there are spare parts that are U.S. origin parts, and they fall under the export control rules. For the spare parts, you need to apply the export control rules, and that's what we do, yeah. That also is true for the people. Yeah, the people, U.S. citizens that are working on technology that is mentioned in the export control rules, that's not allowed.
It's not so much the system shipments, it's the part shipment. Those systems need service. This is why with the U.S. origin spare parts, you are in the realm of the export control restrictions that are affecting the more advanced factories of our customers in China.
Understood. That's actually very interesting. That would impact more your install base management business than your litho tool shipments. Is that fair?
Indirectly, as I said in my prepared remarks, you know, we make an assessment of which fabs of customers in China are potentially affected. That's under the assumption that our peer company colleagues come to the same conclusion. If they come to the same conclusion, we said then we see about 5% of our backlog being potentially impacted by this indirect effect. Because, you know, if you cannot get the other, you know, production equipment, why would you need a litho tool, yeah? It's that is what we mean with the indirect effect. That has an effect.
Also if you cannot maintain the installed base, that of course also you know has an effect. That's for the installed base management business, but that's relatively small. It's the biggest impact on not you know shipping to our advanced customers in China because they simply don't need the machines.
Understood. Maybe one clarification. You mentioned very kindly the 5% of the backlog impacted by those restrictions, you know, indirect, if the rules apply indirectly to you effectively, relative to the 15%-16% of sales going into China. Can you give us a sense of, A, the weight of multinationals or SK hynix, Samsung, Intel or whatever's left of Intel in China, and then, B, what is mature nodes or above 14 nanometer FinFET? If you could just give us a split. Is it five and five again or is it more skewed either way?
Yeah, you know, listen, like I said, the 5% is based on our assessment that our peer colleagues, you know, of deposition and etch and metrology colleagues will come to the same conclusion as, you know, we came. That is the assumption. But they have to do their own assessment. This is basically what we currently think, yeah. I think if you just go back to what we said earlier, I mean, our China sales is about between 15% and 20%. Let's say average 17%-18% of our sales. That's the same in the backlog. Now, you know, then if the 5% of the backlog may be impacted based on our assessment of the advanced fabs, then you can.
Yeah, that's part of the ratio. Yeah. That is of course DUV, because we cannot ship EUV and we will not ship EUV into China. This is what you need to look at. Limited on installed base. Yeah, it's the five and the, let's say, 17%-18% that we mentioned earlier.
Thank you.
Thank you. Our next question comes from the line of Mehdi Hosseini of SIG. Please go ahead, your line is open.
Yes. Thank you. I actually have a 2022 question. Can you help me understand the mix of backlog? How should I think about the mix by High NA versus EUV and DUV?
Well, High NA is a bit of a. I think from a backlog point of view, yeah, you know, just over 50% is EUV related, yeah. It's just under 50% is DUV, yeah. About 55%-45%, that's how you need to look at it. Because I think you booked a couple more High NA in Q3, and I'm just trying to understand how should I think about the incremental increase driven by High NA versus the other tools that relatively have a shorter lead time to turn backlog into shipment?
Yeah. Mehdi, we typically do not disclose the High NA numbers, and I think in the last call we also explained why. It is because the number of customers taking High NA tools is so small that within that ecosystem, you know, if they very quickly understand who is ordering. You know, because that is comparatively sensitive, that's the reason why we're not disclosing it. Sorry, we're not gonna answer that question. We're not giving you numbers or the value of. You know, there is a healthy intake of Low NA machines in the number there as well. That is something that I can assure you.
When I mentioned the EUV number, it's all EUV. That's Low NA and High NA together.
Sure. Okay.
In terms of the capacity increase that you're undertaking, is there a CapEx that you can offer if you already have plans to increase capacity for DUV 375 and then eventually go to 600, is there a CapEx you can offer us so we can at least model the model that in terms of the cash flows and how it would impact your costs?
Yeah. I think what you've seen, Mehdi Hosseini, is you have seen our typical CapEx numbers, and I think what we've told you is that for every year all the way through 2025, you know, you might expect another EUR 500 million for that specific capacity expansion. That's the way to look at it. On top of your regular run rate in terms of CapEx, add about EUR 500 million for the years between today and 2025.
Got it. Thank you.
Thank you. Our next question comes from the line of Sandeep Deshpande at JP Morgan. Please go ahead. Your line is open.
Yeah. Hi. Thanks for letting me on. I have two questions, but firstly, actually this is a follow-up from Amit's question. You know, you've got this EUR 2.2 billion which is deferred into next year. From what I remember you having said before, that you will have capacity to do 60 EUV tools next year, if you take that into consideration also that you will have a higher capacity of DUV next year, I mean, the revenue that you can generate, if all that is going to be recognized next year, is quite much higher than where the consensus is looking for you for 2023. Maybe you can help us understand the puts and takes.
Did you mean that the EUR 2.2 billion that we enter 2023 will still be remaining in the so-called, you know, pre-shipments? That means it's pushed out again into 2024? How should we looking at 2023 in that sort of sense?
Yeah. Sandeep, it all very much depends on what's gonna happen in terms of revenue recognition. You know, if you operate on the assumption that nothing is gonna change in revenue recognition, i.e. also for 2023, we will continue to recognize revenue upon installation first and foremost, particularly then for EUV, then I think it's prudent to assume that the amount that you're gonna get into 2023, you're also gonna lose out of 2023 into 2024. It's only at the point in time where we're going to recognize revenue again upon shipments. That's the point in time where you're going to realize this additional value.
When we talk about the 60, over 60 and the over 375, that's really related to the output, you know, capacity that we see for next year. You know, that should then in that circumstance be translated into revenue. And then you would get, you know, 2.2 in, and you would get sort of a similar amount out. If the revenue recognition is gonna change in 2023, you know, then you're gonna get during 2023 the EUR 2.2 billion in addition to that. That's how the math would work.
Yep. Understood. A follow-up also is on your capacity. When we look at your immersion part of your DUV shipments this year, I mean, I'm just looking through, you know, 18, 22, there doesn't. I mean, despite these huge orders you've had from the beginning of the year, there doesn't seem to be any acceleration in the throughput that in terms of your shipment. Is this because of your inability to get parts, which was clearly very evident in the first half of the year? Or is this something else in terms of your capacity, what your capacity for DUV is?
No. I think it's the ASML system integration capacity in the Netherlands is higher, but there's nothing to integrate if you don't get the parts. To the point that you just mentioned, that we had a higher plan for 2022, but, you know, we were just limited by the supply chain issues, which we extensively discussed in previous quarters, which by the way I said earlier, we're kind of getting our hands around. With the intention by the end of Q1 of next year to have every supplier again in the shadow of our, of the supplier's eyes, and which his eye says, "You know, we can support you with your 60 and 375 number." Yeah.
Thank you.
Thank you. Our next question comes from the line of Alexander Peterc of Société Générale. Please go ahead. Your line is open.
Yes. Hi, I just have one question and one quick follow-up. Thanks for taking these questions. First off, on the outlook for growth for memory and logic, you previously communicated on how these two will contribute to systems growth in the year. Has this changed meaningfully, given the recent changes in CapEx intentions by some of your customer groups? You know, how would you see this developing into 2023? Then the second is just a follow-up for me to understand correctly. If all goes to plan with a better offset of the inflation pressures that you currently see on your growth margins, but also in your OpEx.
Assuming everything goes to plan and your growth margins do improve next year along the trajectory you've traced, we should then reflect that through higher average selling price across your systems. Is that how we should model it? Thank you.
I think the latter.
Yeah. It's, you know, Roger is going to take the inflation pricing question. The question on what has changed throughout the year in terms of the demand, you know, I think we said it before, there have been some announcements without being specific on customers, but in the memory space, clearly we have seen some replanning of. But like I said earlier, it's not significant, but we've seen some readjustment of the shipment planning, and that has been gobbled up very quickly by other customers, of which, by the way, those customers that are gobbling this up are in the logic space. But also here and there, we have a memory customer that says, "Fine, thank you very much. If I can get a tool a bit earlier. Thank you very much.
Yeah, thank you very much. It's been a bit of both. The trend is clearly what you also read in the paper, that the you know, memory customers or the memory shipments have given it a bit. It's not much, but a bit in favor of you know, the logic shipments.
Okay. Yeah.
Also for next year.
Particularly for next year. On the inflation side, so yeah, you're right. I mean, the way this would ultimately pan out, discussions that we're having with customers are, you know, both on systems and on the OpEx side, so the install base revenue that we're paying. I think it's fair to assume that most of the compensation we're seeking through the price of the system. The impact of that would be that indeed you would see the price of the system, the ASP, go up. That would be the way that we would find compensation for the inflation that we've been incurring this year and next.
Thank you very much.
Thank you. Our next question comes from the line of Pierre Ferragu at New Street Research. Please go ahead. Your line is open.
Hi. Thanks a lot for taking my question. Pierre, thanks a lot for saying I have no clue as a CEO on an earnings call. It's very refreshing, and I think it's good to remember that it's difficult to figure out what's going to happen next. With that in mind, I have 2, like, very, very specific classification questions on things we've discussed a lot on the call today. The first one is, in the way you've commented about 2023, where do you stand on memory? Do you take into account the fact that your main clients on that front have announced like WFE spending or like CapEx reduced significantly?
Is that already part of your plan, or is that something that you still need to see coming through because it takes time for the whole supply chain to process? Then my second question is more on your sales, impressive $38 billion of backlog. Can you explain to us, you know, in a scenario in which things slow down fairly significantly, how do conversations about this backlog go? Can your clients, like, ask you to reschedule shipments, to cancel orders? What are they tied to? What's your common, you know, business practice to manage a situation where your clients are giving you a lot of orders, and as you say, you take orders, that's what we would expect you to do. But then if the work changes a bit and slows down, then things have to be revisited.
No, it's a great question. Now, first of all, for 2023, if there has been a replanning of their CapEx spend, it's already in. Like I said, if you have a significant reduction in the demand from our customers, which by the way is not significant, but it is, you know, a reduction, but that gap between the demand and the capacity to, you know, ship is still so big, then the impact on our total shipments is basically zero. What you do see is a shift. There's a bit of a shift between memory and, you know, logic for 2023. It's in there, but it doesn't change the absolute numbers. Let's say the over 60 and over 375. It's just a different allocation.
On the EUR 38 billion, how to deal with that if we really get into a deep, you know, recession. What we've always seen in every recession that I've seen in the last 25 years or downturn, customers never cancel. They ask for a rescheduling of the shipment. Yeah. That's basically depending on their CapEx plans and on the depth of a recession, about their ability to finance it, depends whether it's a few months out or to a few quarters out. That's what normally, you know, happens. What you get, just get at the time in which we now plan to ship the backlog in a situation where you have a deep recession, then the time to ship the backlog is just going to extend. That's what's happening. Yeah. It never goes away.
Excellent. Thanks for that.
All right. We have time for one last question. If you are unable to get through on this call and still have questions, please feel free to contact the ASML Investor Relations department with your question. Now, operator, may we have the last caller, please?
Thank you. That comes from the line of Adithya Metuku at Credit Suisse. Please go ahead. Your line is open.
Yeah. Good afternoon, guys. Thank you for squeezing me in. Two questions, please. Firstly, it sounds a bit like you've been able to put together these EUV machines quicker in the field, and that's part of the reason for some of the pull-in of revenue this year. If my understanding is correct, can you give us some color on how long installation cycle times were at customer sites previously, maybe in the first and the second quarters, and what are they now? If these cycle times have come down, does this not give you more confidence in being able to push out less into 2024 than you're pushing out into 2023? That's my first question, and I've got a follow-up.
Yeah. Adithya, a good question. Indeed that's the case. The installation time is going more and more rapid, also in comparison to the beginning of the year. To give you a bit of flavor for that, I think at the beginning of the year, we were somewhere around 14-15 weeks, and I think we were able to shave off around 10-14 days of that number. That's what we've been able to do. Of course, there are differences. With some customers, you know, it works more rapidly than another. There are quite some differences there, but on average, I think that's about what you're looking at.
That does two things. One thing that it does, this is an important element also in the discussion that was earlier on. This is an important element also in demonstrating that fast shipments are not more difficult to install than normal shipments, which is an important element in the revenue recognition exercise that we talked about. There's an important fact element in ultimately trying to get to a situation where we can once again recognize revenue upon shipment. That's one thing that it does, that's helpful. Secondly, you're right. I mean, this could lead to a situation where maybe what you push out of the year is less than what you get into the year. That is in a stable situation.
If you grow, of course, then you know under normal circumstances you would push out more. When I said in an earlier response that I would expect about the same to go out of the year as what would come into the year, of course that would also assume growth. That's the reason why I think net with the growth situation, but then the benefit of you know being more economical and efficient on the install, that kind of gets you to an expectation of a stable situation.
Understood. My follow-up is on your China-based customers. Can you talk a bit about your ability and the ability of your peers to track and control which node a particular tool is used in? Is it relatively easy for you to be able to say which, you know, what node a particular customer is using the tools you've supplied in? The reason I ask is if tracking is not that easy, then is there a risk that you have to stop shipping to, you know, wider nodes than you may be thinking at the moment?
Yeah, I think it's a very relevant question. I mean, when you talk about nodes, there's wording of the technology node, which could be an 18 nanometer node or whatever node. Let's take 18 nanometer as an example, and that is a half pitch node, which basically you have many half pitches. So the definition of what is exactly meant is extremely important. I think this is exactly why the industry and the industry equipment makers are, of course, in contact with the U.S. government interpretation of this. Yeah. Because you are right. I mean, there are differences. As you have the nomenclature which is used for marketing, and you have the nomenclature that is used for the real physical size. Yeah.
You know, just to give you an indication, if you talk about a pitch, which is a line and a space, and a half pitch, basically assumes that the width of the physical structure, the line, is as big as the space. Well, trust me, there are spaces that are smaller than the physical line, and it actually means that then in marketing terms, they refer to the space and not to the physical structure. So it's that all things need to be worked out. Yeah, need to be clarified with the U.S. government, and with the agency that's actually doing this particular assessment. It's going to take some time. This is why we continuously refer to our initial assessment, and this needs further work and interpretation, you know, clarification.
Got it. Would you say that 5% is conservative, or would you say that there could be upside or downside risks?
Well, I wish I actually knew. You know? I mean, what we really need is actually clarification. Yeah. Whether it's upside or downside, I have no clue. If I would know that, I would have already more or less having a clear direction of where the interpretation of the U.S. government is, which of course we need to figure out. Yeah. Still to be seen.
Thank you.
All right. Thank you.
Thank you. On behalf of ASML, I would like to thank you all for joining us today. We hope you'll be able to join us at our Investor Day on November eleventh of this year in Veldhoven. Operator, if you could formally conclude the call, I'd appreciate it. Thank you.
Thank you. This concludes the ASML 2022 third quarter financial results conference call. Thank you for participating. You may now disconnect.