Thank you for standing by. Welcome to the ASML 2021 First Quarter Financial Results Conference Call on April 21, 1, 2 at any time during the call. Your questions will be answered in the order that they are received. I would now like to turn the conference call over to Mr. Skip Miller.
Please go ahead, sir.
Thank you, operator. Welcome, everyone. This is Skip Miller, Vice President of Investor Relations at ASML. Joining me today on the call is ASML's CEO, Peter Wenig and our CFO, Roger Dawson. The subject of today's call is ASML's 2021 Q1 results.
The length of this call will be 60 minutes Any 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 Wenig for a brief introduction.
Thank you, Skip. Welcome, everyone. Thank you for joining us for our Q1 2021 results conference call. And I hope all of you and your families are healthy and safe. Before we begin the question and answer session, Roger and I would like to provide an overview on some commentary on the Q1 As well as provide our view of the coming quarters.
Roger will start with a review of our Q1 2021 financial performance With added comments on our short term outlook, and I will complete the introduction with some additional comments on the current business environment and our future business outlook. Rishi?
Thank you, Peter. Welcome, everyone. I will first review the Q1 financial accomplishments and then provide guidance on the Q2 of 20 21. Net sales came in above guidance at €4,400,000,000 primarily due to higher installed base business from upgrades. We shipped 9 EUV systems and recognized €1,100,000,000 revenue from 7 systems this quarter.
Due to the delay in one of our customers' roadmaps, we jointly decided to buy back 2 of their new systems and ship these to another customer this year. This was accounted for as the revenue reversal in Q1 of 2021. For the system shipped in Q4 2020 with a new configuration, We were able to complete site acceptance and recognize revenue this quarter. We also shipped 1 system this quarter without factory acceptance So revenue will be recognized in the subsequent quarter after a customer site acceptance. Again, the net result is 7 EUV revenue systems in Q1.
Net system sales of €3,100,000,000 was again more weighted towards Logic at 78%, with the remaining 22% from memory. The strength in logic drives both DPV and DPV revenue. The memory business is mainly driven by DRAM. Installed base management sales for the quarter came in at €1,200,000,000 above guidance due to increased upgrade businesses customers, Gross margin for the quarter was 53.9% and was above guidance due primarily to the additional software upgrade business. On operating expenses, R and D expenses came in at €623,000,000 and SG and A expenses at 168 1,000,000 which was slightly above our guidance.
Net income in Q1 was €1,300,000,000 representing 30 Turning to the balance sheet. We ended Q1 with cash, cash equivalents and short term investments at a level of €4,700,000,000 Moving to the order book. Q1 net system bookings came in at €4,700,000,000 including €2,300,000,000 for EUV systems and another strong quarter of DPV demand. Order intake was largely driven by Logic with 76% of bookings primarily due to EUV order intake with memory accounting for the remaining 24%. With that, I would like to turn to our We expect Q2 total net sales to be between €4,000,000,000 4,100,000,000 The directionally lower guidance is primarily due to shipments in the quarter, both EV and DPV that will not receive factory acceptance testing Due to customers' desire to bring systems to production as quickly as possible.
Therefore, we will recognize revenue in subsequent quarters after completion of acceptance testing at customer sites. In addition, the installed base business is expected to be lower in Q2 versus Q1 as customers pulled forward installation of productivity software upgrades to quickly increase wafer capacity. We expect our Q2 installed base management sales to be around €900,000,000 Gross margin for Q2 is expected to be around 49%. The lower gross margin quarter on quarter is mainly due to delayed revenue from Immersion Systems that we plan Expected R and D expenses for Q2 are €650,000,000 and SG and A is expected to come in at €175,000,000 reflecting a continued investment in the future growth of the company. In support of our aggressive product roadmaps and opportunity To pull in some of our high value product developments, we plan to increase our R and D investments, primarily in EUV, via increased development capacity.
Furthermore, this increase will allow us to compensate for remote work impact. We don't expect this increase to Scale at the same level as our revised revenue increase with R and D expenses for 2021 around 14% to 15% of sales. We expect SG and A to remain around 4% of sales for 2021. Our estimated 2021 annualized Effective tax rate is expected to be between 14% 15%. As mentioned last quarter, Smell intends to declare a total dividend with respect to 20.20 of €2.75 per ordinary share.
This is a 15% increase compared to the 2019 dividend. Recognizing the interim dividend of €1.20 per ordinary share paid in November 2020, This leads to a final dividend proposal to the general meeting of €1.55 per ordinary share. The 2021 Annual General Meeting of Shareholders will take place on April 29, 2021 in Veldhoven. In Q1 2021, Ismail purchased 3,500,000 shares under the 2020 2022 program for a total amount over €1,600,000,000 Our expected free cash flow generation enables the opportunity for continuation of significant share buybacks in the coming quarters, And we expect to complete the execution of our current share buyback program early. With that, I would like to turn the call back over to Peter.
Thank you, Roger. As Roger highlighted, we had a very strong quarter in both sales and profitability, driven by continued strength in both logic and memory, as There are significant demand for upgrades as customers look to bring additional capacity online as quickly as possible. The additional upgrades This is primarily of software based productivity packages. We are seeing a significant increase in demand from our customers across all market segments and all nodes, mature and advanced compared to 3 months ago, and we expect another very strong year with demand across our entire product portfolio. Steeper than expected recovery in demand for semiconductors amplified by the COVID induced lower investments of the industry in 2020 has created significant upside to demand over the past quarter.
This more cyclical demand sits on top of the secular growth From the accelerated buildup of the worldwide digital infrastructure and fueling demand not only for advanced and mature logic nodes, but also for memory. In Logic, customers continue to see strong demand across the broad application space for both advanced node as well as mature nodes. And last quarter, we expected revenue from Logic in 2021 to be up 10% year on year. However, we now expect Logic to be up around 30% this year. In memory, the applications that are driving the strong logic demand are also fueling demand for memory.
As we mentioned in earlier calls, Memory recovery started last year and continues to strengthen as customer plans to increase capacity is driving significant demand for our systems In the second half of the year, compared to last quarter where we expected revenue from memory in 2021 to be up 20% year on year, we now expect memory revenue We'll be up around 50% this year. On our installed base business, service revenue will continue to scale with a growing installed base and with increasing contribution From EV Services, as these systems run more and more wafers in volume production. We're also supporting our customers with upgrades To maximize performance of their installed base. In order to meet the high demand in the current tight chip supply environment, Customers are prioritizing software upgrades to quickly increase capacity as reflected by our high upgrade number in Q1 And some hardware upgrades require extended machine time to be installed. And in the current high demand environment, customers will be less willing to take systems down, which has a dampening impact on the 2021 growth profile of hardware upgrades.
We therefore still expect Growth for our installed base business of around 10% this year as mentioned last quarter. On EUV, we continue to see increasing customer confidence in this technology, which is translating to expanding lay accounts in logic and increasing deployment of EUV in memory at multiple customers, evidenced by a number of customer announcements around increases in their CapEx plans, which will include spending on EUV for advanced nodes. To support the strong EUV demand, we are working to increase our output capability. At the same time, we are driving our product growth map To produce higher productivity machines, which will increase the effective EUV capacity per system and the wafer output capacity of our customers. We plan to transition to the NXE 3600D system in the second half of the year, which will provide customers with a 15% to 20% Higher productivity compared to the NXE-3400C systems shipping in the first half of the year.
Limited by the available modules and parts this year, we're still planning for growth of around 30% in EUV revenue this year. With the expanding adoption of EUV at our customers, we see increased demand building in 2022 and beyond. We are improving our manufacturing cycle time and are planning our supply chain for a capacity of around 55 systems next year. And as a reminder, All of our planned shipments in 2022 will be NXE 3300D systems with the increased productivity capability. Our strengthened outlook on the year relative to last quarter is primarily driven by the demand for DPV systems.
With increased demand on leading edge nodes, as well as mature nodes running longer and ramping stronger, Demand for our Immersion and Dry systems is stronger than ever. We have put in place plans to increase our DPV capacity To help meet our customers' increased demands. In our application business, as demand for scanners continues to increase, We expect a step up in demand for our YieldStar metrology systems, particularly in Logic. The newly released YieldStar 385 It's beginning to ramp across our customer base as well. And with the recovery in memory, specifically at 3 d NAND, we expect a substantial increase in e beam inspection revenue this For the industry at a high level, we see 3 trends driving considerable growth this year and in the years to come.
The first one. In the shorter term, there's a more cyclical or you could say a catch up driven demand from decisions late in 2022 due to the global pandemic. These shortages were initially evident in the automotive market, but more recently there are also indications of Supply tightness impacting other market segments. We expect this to drive considerable demand for lithography systems this year and into next year. The second is a secular growth trend driven by the digital transformation taking place as we become a more connected world Across both people and machines.
And this transformation was further accelerated over the past year with the increased remote activity and Reliance on technology to stay connected. These secular trends are driven by expanding end market applications such as 5 gs, AI and high performance computing. These and other mobile distributed applications drive demand for both advanced logic as well as more mature technology Required for the services and applications that drive the growth of the digital infrastructure. And along with increased logic demand comes increased memory demand. This in turn drives demand across our entire product portfolio.
And the 3rd trend, which we're starting to see now And which we will likely continue to see longer term is the desire for more technology sovereignty, which includes semiconductor and silicon based technology, Leading to a geographical decoupling as different governments put initiatives in place to localize supply chains and become more self sufficient. This inevitably will create some level of inefficiency in the semiconductor supply chain and creates additional equipment demand as more fabs are strategically built across the globe. If you summarize the growth of the different segments and the trends just discussed, we now expect sales growth towards 30% this year. To achieve this growth, we are ramping up our capacity to support customer demand, resulting in a stronger second half. With the higher revenue and increased mix of DPV and upgrades, we now expect gross margins to be between 51% 52% this year.
Within this as a whole, the long term demand drivers only increase our confidence in our future growth outlook towards 2025, and we plan to provide an update
2020. All right. Thank you, Peter and Roger. The operator will instruct you momentarily on the protocol for
the Q and A
session. Beforehand, I would like to ask that you kindly limit yourself 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 And our first question comes from the line of Mehdi Hosseini of SIG. Please go ahead. Your line is open.
Yes. Thanks for taking my question. I want to follow-up on the EUV revenue target for this year. I understand that you're keeping it unchanged at 30%. But in case you're able to Improve the supply chain and availability of subcomponent.
Could there be upside to the shipment even though You may not be able to recognize the revenue. And I have a follow-up. Yes, Mehdi. You just used the 2 very important words, In case, which is the problem, because we said it last quarter, these are very long lead time items. I mean, A lens has a manufacturing cycle time or I would say a little over 12 months.
So if we have an audit, That's not going to be there. So I think when we look at capacity, because you really need to look at next year, I think It's virtually impossible to get more out of 2021 as we have planned today. So really it's going to be that's why we also mentioned that working with our supply chain and looking at the demand next year, We are now planning and we haven't received full confirmation yet of the supply chain on it, but Our focus is on the 55 systems next year, bearing in mind also that I think we said it before, Customers are buying systems where effectively they're buying wafer capacity. And with next year only 1300Ds, which already provides you With a 50% to 20 percent productivity increase, well, if you then multiply, let's take the average of 15% to 20%, 17.5% or let's say 18% Extra productivity increase per system, then the 55 systems actually translate into 65 systems with 300 C productivity. So This is the way that you need to look at it.
Great. Thanks for the detail. And a quick follow-up. As I think about beyond the 2021 and your operating margin, could there be a scenario where Your key customers would share some of the development costs associated with high NAND similar to what happened to EUV Almost a decade ago, so that that could also help drive overall operating margin to above 33%. Well, I think I don't think it's likely because it's not necessary.
I mean, when we go back almost a decade ago, our R and D expense at that time was €600,000,000 per year. And then when you looked at the size of the EUV program at that time and still you need to Consider that the entire low NA EUV program will have cost more if we all end it than the high NA program. So if you now look at it then, the relative effort to bring EUV to life was so large That would have put a significant financial strain on the P and L of ASML, which of course we could not afford, which is not the case today. I think if you think about operating margins, it is more a matter of maturity of EUV, Which will of course lead to better performing tools with higher productivity, with higher value, EV service revenue that will grow going forward. And I think those are the most important drivers for Operating margin.
Roger?
Yes, I agree. I mean, the gross margin components, I think, Peter, you just referenced them, right? It's the EUV ASP and as a result of that, the EUV systems gross margin and the EUV surface gross margin, those are the major drivers On the gross margin side. And I think also in the introduction, we've been pretty clear on what the ambition is For OpEx, all right, so 14% to 15% for R and D and 4% for SG and A. And our longer term ambition, at least on the R and D side, is To try and model that back to around 13% over time.
I think that's what we stated before. In R and D, yes. In R and D. And those are the major drivers, I would say to get the operating margin further up.
Yes. Thanks so much.
Thank you. Our next question comes from the line of Pierre Ferragu of New Street Research. Please go ahead. Your line is open.
Hey, thank you. Can you hear me well? Very well. Good afternoon, Pierre. Great.
Good afternoon, Peter. So thanks for the color on how you increase capacity for this year and next year. That's very clear. My question would be more over 2, 3 years, if If I recall correctly, like my visit in Wimbledon, you guys are set up to be able to do 60 UB2s per year than 20 high and a UB2s. And when I took a shot at looking at how much would be needed over the 3, 4 years.
I felt like this was actually a bit limited and that you might actually need more capacity. And so I would love to hear your take on that in the longer term. Do you think it would make sense to think about increasing your overall capacity? And if that's the case, what kind of lead times are we talking about for that kind of endeavor? Can I have a
quick follow-up? Yes. It's a very good question, Pierre. And I think it's
It's a long term
strategic question. Let me try to answer it this way. When I talked about The three trends that the company will have to face in terms of demand cycles, that's of course the Shorter term, which you could say it's a catch up of the lower level of investments we saw last year because of the pandemic, which is Which you're catching up this year and I think throughout next year or in any case as a part of next year. Then there's a secular growth trend, which we have underestimated. I think you can go back to The Capital Markets Day 2016 2018, I don't think we at that point in time Anticipated the strength of the DPP market that we see today.
And that's the 3rd trend, which is basically the driver of technological Sovereign by different countries and different governments. Those are all at this moment in time, Those will be the drivers, but it's also difficult to really get a very clear view on this. So what your question is, taking that into consideration, Should you guys be looking at increasing your capacity beyond the 60, the magical 60 that we've always mentioned? Good question. And I think this is actually the work that we're doing today.
We're looking at this and say, what if we need to do this? So now the lead time. Now if you have to build a complete new factory, let's take you need to build a new optics factory, And the lead time is 2 to 3 years, yes, because you need to build the factory, you need to procure the machines. And then by the way, when it comes to Optics manufacturing, you have to build those machines yourself because they're not available. So that will be longer.
But there are other ways to increase capacity and that's through cycle time reduction, That's through process optimization. And so it's this complexity of measures that we can take to see how we can drive the Total capacity up, which by the way all have lead times that are beyond the 55 units that we're planning for next year, Which doesn't mean that it couldn't be higher in 'twenty three and 'twenty four, but that's the work that we need to do today, which by the way we are doing.
That makes sense. And a quick follow-up very much related to that. You mentioned like the geopolitical situation. When I look at the overall value chain and how much it depends on what's happening in Wendover and on the single side where you assemble your tools, it's almost scary. It's a weak point for the global value chain and probably a place where your Giant and government are getting maybe a bit nervous about that.
So do you have conversations with people around you about diversifying Your side and creating supply that would not only be like that would be less dependent on the Netherlands?
Yes, I think the situation of today is not very different than the situation 5 years ago. You could also you can only argue that the realization of people is now different, yes, but it has never changed. It is what it is. But the same can be said for our customers that are basically concentrated in one particular area or Some of our peers that with some of their production facilities only make, yes, a couple of 100 tools per year, Yes, in 1 or 2 single sites. It is the concentration of the semiconductor industry In different geographical areas that actually now starts to make governments think, yes, has never been an issue, Yes.
It's only becoming an issue when this almost seamless ecosystem that has been built Across many, many borders are now being that ecosystem is Now being threatened, I would say, almost by blockages of debt seamlessness, yes? And then you get an issue. So, I think it's nothing different. It's always been this way and especially over the last 5 years, I would say, There's high concentration of leading edge technology across the value chain, but given the geopolitical situation, people are more aware of it And that's not now thinking of levels of self sufficiency that a couple of years ago nobody thought of.
Thanks, Peter.
Thank you. Our next question comes from the line of Joe Quatrochi of Wells Fargo. Please go ahead. Your line is open.
Yes. Thanks for taking the question. I was wondering if you could help us on the updated 2021 guidance. I think last quarter you had talked about there being potential upside from domestic China. We hadn't seen any Change in the geopolitical situation or export controls.
So just curious, can you help us understand is that now included, that upside included? And if so, how much is
that? Yes.
I think it's fair to say that, that upside is now included in the numbers that we've So it's clear and Peter went through that also in the presentation at the beginning of this call that we've revised upwards, if you like, The outlook for the full year. And further down into the year, we've now said this is how we look at the full year. Of course, still expecting that the regulatory situation remains a little bit the way it is today. And therefore, what previously was upside and the way we talked about it as upside has now really been included in that number. Remember last time, the expectation that we gave was that could be about $600,000,000 upside coming from China, And that number is now included in the, let's say, close to $18,000,000,000 that we've now talked about.
Yes. And if you then Really want to think about risk profile. You could say, well, when the regulatory situation changes and you could not ship to China, when you look at the market situation today, Then which is quite different than 3 months ago, then we would ship those systems somewhere else.
Great. And then just as a follow-up, I just want to make sure I understand the 2 systems that you repurchased from a customer, those were on the EUV side and then you plan to ship those This year? And I guess is that if that's correct, is that embedded in the 30% EUV revenue growth?
Yes, it is. Yes, it is. Yes.
Yes. So we think
You have a Reversal in this quarter, and you will see it come back in the subsequent quarters. For the full year, it's neutral, Right. It's minus 2 and plus 2 to wash.
Perfect. Thank you.
You're welcome.
Thank you. Our next question comes from the line of Alexander Peterk of Societe Generale. Please go ahead. Your line is open.
Yes. Hi, good afternoon and thanks for taking my question. So you gave us a pretty clear outlook on EUE for 2022. I just wondered about the longevity of this stronger cycle that you see in Immersion and Dry Because that's where all of the upgrade today is coming through for 2021. So I'm just wondering, is all of that then carrying into 22 as well?
And then just very quickly, if you could also provide a quick comment on ASPs. Again, very strong this quarter, so you're dealing with the puts and takes there. Thanks a lot.
I'll do the ASP well, Roger will do the ASPs. And your question on the On the sustainability, yes. And especially DPV and apps. I think I said it on as an answer on an earlier question. When we look at how we see the DPV market and the EPS market today as compared to 3 years ago, not 2018, I think we have a different view.
And that's driven by the fact that across our entire DPV portfolio, which is immersion and dry, we have We cannot fulfill the demand of our customers on time. And it has to do with the fact that our analysis shows that With the combination of, let's say, advanced sensing technology, 5 gs, The ability to process all the data through high performance compute And that in a distributed fashion, basically, leading edge compute also goes to the edge. I call that distributed systems. Yes. And the distributor system is, for instance, a car, but it's also one of our machines in the field.
And that increasingly requires collection of data, transport of data, processing of data, Not only through the most advanced high performance compute, but as part of a distributed system. And that system Inevitably includes mature technology, which could be image sensors, power ICs, MEMS, analogs solutions, it's the whole thing. And that means if we would have an EyeLine system available today, It would be sold yesterday. So it's everywhere. And that has to do with the proliferation of chip technology and the Distributed computing and distributed systems that we are seeing.
That is something that will not go away in our minds. This is why I said it also in my prepared remarks That we are also planning and looking into what is the level of our deep UV capacity increase that we need, Both in mature and in immersion. And it's going to be double digit increase as from where we are today. Now how much can we Stretch that to how it is needed. That's exactly what we're doing with EUV.
We need to blend it with the supply chain. We need to go Deeper into what it takes in terms of capacity lead time, do they need to build square meters, do they need to hire people, is It's going to be possible through cycle time reductions through process optimization. This is the work that we're doing today. Because remember, 5 months ago, We're looking at a completely different world, yes. So this is a ramp up, but we do believe that this has a long runway.
Yes. On the ASP for EUV, it's well noted. You're absolutely right. So this quarter in Q1, we're looking at had an ASP For EUV of about $160,000,000 Part of that is configuration. We've talked about that in the past.
If you look at the last three quarters, we've consistently been looking at an ASP of around 145, and this time it's It's a little bit up for another reason I'll come to in a moment. So in fact, what you see is that in fact, in the last year, we've been positively surprised by on the tool, the options that were ordered on the tool. And as a result of that, the configuration was richer than anticipated. And as a result of that, you Fairly consistently see now that the ASP range is above the 130 that we've talked about in the past, and you've fairly consistently seen 145 or up. The reason that it's extra of this year, there's a few accounting things.
We've talked about accounting 4 VPAs in the past. So there's a few accounting reasons why it's higher, so why it's 160 rather than 145. Reality, just looking at the configuration that we've seen on the tools in the past couple of quarters, the 145 anchor points, 40 AC for EV It's probably the right way to go. And I say that recognizing that this is about the last quarter that we're really looking at the large number of fees in the revenue.
Thank you.
Thank you. Our next question comes from the line of David Mulholland of UBS. Please go ahead. Your line is open.
Hi. Thanks for taking the question. Just coming back on the EUV capacity increase and shifting to 55 tool capacity for next year. Obviously, there were some changes made last year that ended up limiting what potentially should have been higher shipments this year and some of that probably Kicks in next year, but in your discussions with customers, Peter, just obviously there's a very, very strong cyclical tailwind To the industry today that's driving appetite for capacity increase, but EUV is on a very, very long time horizon for customers, 18 months rather than 6 Month planning, how do you feel like their assumptions have changed that's driving that upside? Is it primarily because of Their confidence and penetration of EUV in higher layers?
Or is there an element of actually just building bigger nodes now that's Driving the need for more capacity at this point?
I think, David, it's both. I think we're seeing I only what I refer to as a comment that was made by the CEO of 1 of Our watch customers that actually mentioned now we're going to double the number of EUV layers On our next note, I think that's a trend that we are seeing simply because the advantages of EUV are not only, You could say the pure economic cost per layer, because you can eliminate multiple patterning, It's also the electrical characteristics and the simplicity of the process, lower width, that's one of them. So there's many All the side effects that actually lead people to go for EUV. So yes, it's higher lay accounts, that's what we're seeing, Which is true for memory and for logic. But also when we talk to customers, We all talk about bigger notes.
It has to do with this secular trend, trend number 2 that I talked about. And trend number 3, The technological sovereignty will just be a layer on top, which will not go away, which will take time You know when it takes 2 to 3 years to build a semiconductor factory and to put it into action. So but I think this is so it is bigger nodes. It is strategic investments. It's higher lay accounts.
And this is what I I'd asked to a previous question. We only need to take this into consideration. Some of it we already saw coming, but what does it mean for our capacity needs beyond 2022, yes, Which by the way, some of that capacity, if that would be needed, that would be the result of, like I said, process optimization, cycle time improvement, Different work schedules and potentially square meters that could be. So But it's all of the above.
And just one quick follow-up. Obviously, from a financial perspective, At some point in the near future, you need to start building those tools through the supply chain given the lead times. Are you requiring customers to place deposits Make the financial commitments that you've been starting to make before any of those tools get built? Or is there an element still this year where you're Going ahead and starting production before you've had firm deposit associated orders from the customer?
Yes, David, the policy hasn't changed there. So that means that when customers put in a PO, a down payment is required. And I think we mentioned in the past that the amount of The CEO is a little bit dependent on the moment where the order is being placed. So the order is being placed nicely In line with the lead time, then the down payment is lower than when it's placed a little bit later than that. But you also know that The PO in and by itself is a bit of a nonevent for us because we work so closely with the customer that we sort of understand what they're doing, What they want and when they need it.
So the PO is a bit of a nonevent for us. But yes, the short answer is absolutely There will be down payments replaced at the moment of the year of the PO.
That's correct. Thanks.
Thank you. Our next question comes from the line of C. J. Muse at Evercore ISI. Please go ahead.
Your line is open.
Yes, good afternoon. Good morning. Thank you for taking the question. I guess first question, Peter, can you speak to the sustainability of memory? I think the headline above 50% might be a bit concerning.
However, if I think about EUV in there as well as The strong pickup in EV and voltage and contrast imaging, it certainly looks like memory ex those two things is tracking More like up 20%, 25%. So we'd love to hear your thoughts on the moving parts there and how to think about sustainability into 2022.
Yes. I think for this year, it's not a surprise. I mean, you just need to go back to our conference calls last two quarters, Where we actually saw a recovery of especially DRAM starting and I think I gave some color 3 months ago where it basically said, Yes, we had a decent shipment quarter in Q4 of last year, which basically goes into production in Q1. But if you look at a bit growth of 20% this year, then our calculations show that We're very quickly at the max output capacity of our DRAM customers in this year, and we would reach that pretty quick. So we would need more Capacity addition, that's exactly what we have seen.
So I think it's just the beginning. These things so Yes. I think, yes, it will move into next year. Now you've been around also long, so That in the memory business, yes, there is more tendency From time to time some overcapacity and some undercapacity. How long that will last, I don't know.
But still, this is some I was a PM about it telling me this secular trend when there's such a high demand in logic, All this stuff doesn't only work with only logic, it also is memory. So It's going to be quite interesting to see how quickly the memory capacity will be added throughout this year, early next year And what the underlying bit growth percentages will be. Now having said that, you notice also memory is More cyclical than logic, but nothing that indicates it to me at this moment in time that we are looking at Building on overcapacity. There's nothing I can see at this moment in time. We're just starting.
Very helpful. And then just a follow-up question on the DUV side of things. I think you guys have talked about growing your non EUV tool business by about 40 So that's roughly $7,700,000,000 this year. Is there a way to frame how much capacity you're planning to add on the non EV side Relative to that $7,700,000,000 for us to kind of gauge what you're capable of into 'twenty two and beyond?
Yes. I think we should calculate it the way that we would calculate it by the full extent, we would just be over About 8.2. And that's really stretching it in terms of our production capacity this year. If If we would have more capacity, we could probably do more. Very likely, we would be able to do more.
So your question really It's answered in a sense that I already said in my prepared remarks, we're looking at increasing our DUV capacity both Dry, mature and immersion, and that's not going to be 5%. I mean, it's going to be double digit. But that will take So further analysis of what needs to be done, is it through optimization, through things like process optimization And added workforce or cyclotron production or has it to do with square meter capacity like factories. That is something that we have under consideration today. We're looking into that together with our supply chain.
It's not so much for us. And it's really in the supply chain. So the reason why I say this is because we believe that we need extra capacity. It has to do with the underlying trends, the trends that I talked about earlier. So yes, the 40% Brings us to just over 8, yes, you have 7.7, so you're a bit more conservative, but this is directionally, it is correct, but This is the answer.
Great. Thanks so much.
Thank you. Our next question comes from the line of Andrew Gardner at Barclays. Please go ahead. Your line is open.
Good afternoon. Thanks for taking the question. Another one, Peter, on the sort of Capacity planning issues that you guys have just been talking about. I'm wondering given the changes that we've seen from A number of your lead customers or at least the public announcements from your lead customers over the last 3 or 4 months. And the fact that you are now having to Rethink the need for additional capacity expansion, whether it's your site or within the supply chain.
Are they now giving And I presume they're wanting it sooner rather than later. It always seems to be the way. And yet you've got fairly extensive lead times, particularly so for EUV, perhaps Slightly less so for DUV in terms of building out this capacity. Are you getting better visibility today in terms of what Those customers are going to need looking out over the next 3, 4, 5 years in order to give you that confidence in making such a decision?
Yes, it's a good question. I mean, also you've been around also. I mean, all these people have been around for a long time. So that Yes. When we under invest, there's also going to be a knee jerk reaction like it always happens.
So this is more the shorter term Correction of a misplanning, yes. That's happening today. That's what I call it's the trend number 1, Yes. But clearly, customers' understanding that our capacity lead times and our Manufacturing details are long, so they do share with us a longer term vision. Now not 5 years out, that's a bit too much to ask, but certainly 2 or 3 years out, yes?
So I mean, I would say for 2022, 2023, we definitely have deep discussions about what they need in terms of expansion plans, In terms of what they see, when we talk about logic, the anticipated capacity ramp in terms of the tape outs that they have on the shelves and that they see coming on N5 and N3. So that it is not just So pie in the sky thinking is real underlying discussions that they have with their customers And the design requirements that they get from an increasing customer base, which has to do with high power computer with AI and With all the applications that we talked about because of the whole digital transition. So yes, there is more visibility to the point that The planning visibility is, I would say, deeper. And this is also where we base Our request to the supply chain on, yes, it's on that discussion, which is going to be It's a costly discussion because you do not have capacity for nothing. So this is and it's also true for our customers.
It's going to be costly, but they've been very explicit to the outside world and to the media about what their plans are. And that's well thought through based on what they see, so their customers and the customers of their customers tell them. So This is why I talk about these three trends. And this basically is the base for the visibility, but how much it in the end will be or We will need there's always a risk of underestimation, but also risk of overestimation. And that's what we need to take into consideration when we say what's wise.
And like I said, this is just something of the last 3, 4 months where it starts to accelerate. It gives us a bit of time and our suppliers particularly To figure out what is wisdom.
Thank you, Peter, for that insight. Even if I think you did Call me old at the outset there. I still appreciate the color.
It's all relative. And from my perspective, you're very young.
Thank you.
Thank you.
Our next question comes from the line of Krish Sankar of Cowen and Please go ahead. Your line is open.
Yes. Hi. Thanks for taking my question, Peter. And I've also been around quite a bit. So let me ask you 2 quick questions.
Clearly a nice jump in EUV bookings in the March quarter. Can you give some color on how the EUV bookings are trending for the current quarter? And what is your EUV backlog in terms of units? And then I had a follow-up.
You want to do that? I could do that.
So in terms of order book, the current backlog is €7,400,000,000 for EUV. So that's pretty strong and obviously also driven by significant intake in the last quarter. I'm not going to comment specifically on this quarter, but in general, just listening to the commentary that we made on our expectations for next year, It's pretty clear that also for the next quarter, we do expect a healthy order intake for EUV, right? Because at this stage, $7,400,000,000 And if you do the math, what you think system business is going to be next year, if Translate that at the 55 capacity that we've been talking about, it's pretty clear that we're still looking at significant order intake expected For this quarter and for next quarter.
Got it. That's very helpful, Roger.
And then just as a follow-up, Peter, I I know you gave some color on like the memory outlook for this year. Can you just give a little more insight in terms of how to think between DRAM and NAND In the context of your memory growth of 50% for this year?
Yes. I think we also It's an extension of what we said the previous two quarters. It is primarily driven by DRAM, but we also see that 3 d NAND will follow. I mean, what we see is basically following the utilization of our tools in the field. That will follow.
But it is primarily driven this quarter, next quarter, and I think the majority of this year by DRAM.
Thanks, Bill.
Thank you. Our next question comes from the line of Alex 2. Val at Goldman Sachs. Please go ahead. Your line is open.
Yes. Hi there. Congratulations on the results. Just had a quick question on EUV's gross margins. I mean, we expected trajectory there.
And so gross margins towards the end of this year to be at good gross margin levels. I wonder if you could just talk through the drivers of improvement as we go towards the end of the year. And then you referenced related to this Then you're seeing higher ASPs related to add ons that people are buying for the C model. I'm just wondering to the extent that we see better than expected ASPs on the demold, could that also be a gross margin booster for EUV maintenance?
Yes. Alex, at the beginning, you were a little bit hard to understand. But I think your question really was how do you expect the gross margin to further develop on EUV. And And as we mentioned before, we do expect in the second half with the introduction of the T Model, we expect EUV Systems gross margin to be at the level of the corporate gross margin. So and I can confirm that that's exactly what's going on.
You are right that the that we did see a little bit of a reset On the ASP for the C model, right? So we've been talking about 130, but As I mentioned, the configuration quarter after quarter turned out to be richer than we previously anticipated. And I think it's fair to say that the 10% to 15% uptick that we've been talking about on the for the D model in comparison to the C model Still holds, right? So if you take the 1.45 ish basis for the C model, then I think Low 10% increase over that in terms of ASP, I think, is probably what you should be looking at for the ASP calculation. And of course, To the extent that, that is better, that of course is also helpful a little bit on the gross margin side as well.
Yes, although the D has also Somewhat higher costs. Sure. So it's 100% to the bottom line if we have some higher cost on the optics and also other parts. Correct. But it will help.
Great. Thanks.
Thank you. And our next question comes from the line of Amit Harshandani of Citi. Please go ahead. Your line is open.
Thank you. Hello, everyone. Amit Agendani from Citi. My first question is on the topic of deep UV. If I try to collate all the data points you've shared with us, is it fair for me to say you would expect deep UV sales to be up year on year in 2022, given that you are just getting started in memory and cyclicality strength could persist into 2022.
And a follow-up to that, if I may. You've talked about building capacity for DQV. You're stretched at €8,000,000,000 and you talked about double digitizing earlier in the call. Is it fair to say that you would expect this €8,000,000,000 to be exceeded or basically even a higher contribution from deep UV, if not in 2022, then certainly beyond 2022? Thank you.
Yes. You've listened carefully, Amit, and that is true. Everything you just said, Do we expect DPV sales to be up year on year? I don't know about the year that you are mentioning, but the fact that we Looking into increasing our DPV capacity means that we believe DPV sales will be up and in what year and in whether it's year on year. But I think Medium to long term, we have indeed reassessed the need for DPV capacity going forward.
And when you talk about capacity increase, you don't do this for 1 year. You do this because you feel medium to long term that is needed. So yes, and it also means that If we do that, then and we say we'll be around $8,000,000,000 this year on DPP, yes, then we would expect that that would increase, Otherwise, you don't need to build capacity because we could do with what we have today.
Okay. Thank you. I just wanted to clarify that. And secondly, if I may, very quickly, On geopolitics, we have heard a lot of noise. Based on what you have said today, it seems like you expect the whole geopolitical dynamic to be a net positive with maybe some downside risk to China potentially being offset by potential upside in Europe and the U.
S. Is that a fair assessment? Or more broadly, what are the latest what is the latest in your view versus what you shared with us end of January? Thank you.
Yes. I think Roger said it. He said, I think we are now where we are because we're through Q1. We're in Q2 now. We have included that $600,000,000 upside into the number that we gave you.
However, we don't control the geopolitical situation and the lawmaking. But given the market situation where we are today, If some of that €600,000,000 would not be there because of geopolitical Roadblock, then the demand is that we will ship those systems somewhere else. And if you then look at how that affects Shipment to China versus the longer term geopolitical impact, it's just a matter of timing, The other one, the first one could be short term this year. The others are definitely long term, because when you It is all about where do we build a new fab. Well, it takes 2 to 3 years.
So and you really look at Adding capacity in the timeframe 2024, 2025, yes, is where that capacity starts coming through the market. So that's all a matter of different timing, different time perspective.
Thank you, Peter.
All right. We have time for one last quick question. So if you were And if you are unable to get through on this call and still have questions, please feel free to contact ASML Investor Relations department with your question. Operator, may we have the last caller, please?
Thank you. That is the line of Didier Semama of Bank of America. Please go ahead. Your line is open.
Thank you. Thanks for squeezing me in, and good afternoon, gentlemen. I think the most important question was just asked and answered, so thank you. I wanted to ask you a question about installed base management for EUV, Peter. If you would like to maybe share with us what you think The sort of revenues could be for UB installed base this year and how you're thinking about the slope Of growth over the coming 5 years, the sort of things that we have a feel for the change in the mix towards sort of more recurring revenue
Yes. So on the more recurring side, I think what we've said in the past is that the way to model that For EUV is to take the ASP of a tool and take about 6% of that. And that's when the tool is up and running at its envisage capacity, then you would have 6% of that ASP as the recurring Revenue for service and maintenance for that tool. So that excludes upgrades, but just for the regular service and maintenance, 6% of the ASP Is what you would see there. So again, the assumption tool needs to be up and running at the envisaged capacity, and it should be out of warranty.
As long as the tour is in warranty, the number is a bit lower. So that's really the way to model it. As it comes to upgrade, That's a little bit more difficult to do, right, because upgrades is lumpy, upgrades is dependent on what the customer wants in terms of productivity gains, What they want to make available to us in terms of machine time, so that's a little bit harder to predict. But at least on the regular service and maintenance side, This is the way to model it, 6% of the ASP once the 2 is up and running and out of warranty.
All right. Thank you.
All right.
Thank you.
Before we sign off, I'd like to remind you that our Investor Day will be September 29, 2021. The event is currently planned to be held in London. We moved the date from June in hopes we can have a face to face meeting at the time, but of course this will depend on the progress against 1, 2019. More details will follow in due time, and we do hope you'll be able to join us. Now on behalf of ASML, I'd like to Thank you all for joining us today.
Operator, if you could formally conclude the call, I'd appreciate it. Thank you.
Thank you. This concludes the ASML 2021 Q1 financial results conference call. Thank you for participating. You may now disconnect.