Thank you for standing by. Welcome to the ASML 2021 Second Quarter Financial Results Conference Call on July 21, 2021. Throughout today's introduction, all participants will be in listen only mode. After ASML's introduction, there will be an opportunity to ask questions. I'd now like to open the question I'll now hand the floor to our speakers.
I'd like to now turn the conference call over to Mr. Skip Miller. Please begin your meeting.
All right. 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 Second 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 the 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 atasml.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 Winnick for a brief introduction.
Thank you, Skip. Welcome, everyone, and thank you for joining us for our Q2 2021 results conference call. I hope all of you and your families are healthy and safe. But before we begin the Q and A session, Roger and I would like to provide an overview and some commentary on the Q2 as well as provide our view of the coming quarters. And Roger will start with a review of our Q2 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.
Roger, if you want.
Thank you, Peter, and welcome, everyone. I will first review the Q2 financial accomplishments and then provide guidance on the Q3 of 2021. Net sales came in within guidance at €4,000,000,000 The guided lower revenue was due to a number of systems in the quarter that did not receive factory acceptance testing due to customers' desire to bring systems into production as quickly as possible. Therefore, revenue will be recognized in subsequent quarters after completion of acceptance testing at customer sites. We shipped 10 EUV systems and recognized €1,300,000,000 revenue from 9 systems this quarter.
2 EUV systems shipped this quarter without factory acceptance testing, so revenue will be recognized in the subsequent quarter after customer site acceptance. For the system we shipped in Q1 without factory acceptance testing, we were able to complete site acceptance test and recognize revenue in Q2. Again, the net result is 9 EV revenue systems in Q2. Net system Sales of €2,900,000,000 was again more weighted towards Logic at 72%, with the remaining 28% from memory. The strength in logic drives both DUV and EUV revenue.
The memory business is mainly driven by DRAM. Install base management sales for the quarter came in at €1,100,000,000 above guidance due to increased upgrade business as customers continue to pull forward software upgrades that can quickly increase productivity of systems in this high semiconductor demand environment. Gross margin for the quarter was 50.9% and was above guidance primarily due to the additional software upgrade business and 1 off revenue accounting releases. On operating expenses, R and D expenses came in at €634,000,000 and SG and A expenses at €172,000,000 which was slightly lower than our guidance. Net income in Q2 was €1,000,000,000 representing 25.8 percent of net sales and resulting in an EPS of €2.52 Turning to the balance sheet.
We ended the 2nd quarter with Cash, cash equivalents and short term investments at a level of €5,400,000,000 Moving to the order book. Q2 net system bookings came in at a record €8,300,000,000 including €4,900,000,000 for EUV Systems. The very strong order intake for both EUV and DPUV is a reflection of the global demand environment across all markets. Order intake was largely driven by Logic with 71% of the bookings and memory accounted for the remaining 29%. The majority of EUV orders continue to come from larger customers, but we also had our largest EUV order intake for DRAM this quarter coming from multiple customers.
With that, I would like to turn to our expectations for the Q3 of 2021. We expect Q3 total net sales to be between €5,200,000,000 5,400,000,000 We expect our Q3 installed base management sales to be around €1,000,000,000 Gross margin for Q3 is expected to be between 51% 52%. The expected R and D expenses for Q3 are around 6.45 €1,000,000 and SG and A is expected to come in at around €180,000,000 R and D expenses for 2021 are expected to be around 14% 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 around 15%.
In Q2, ASML paid a final dividend of €1.55 per ordinary share or €639,000,000 Together with the interim dividend paid in 2020, This results in a total dividend for 2020 of €2.75 per ordinary share. This is a 15% increase compared to the 2019 dividend. In Q2, 2021, ASML purchased 3,600,000 shares on the 2020, 2022 program for a total amount of around €2,000,000,000 As part of ASML's financial policy to return excess cash to its shareholders with growing dividends and share buybacks. ASML announced a new share buyback program, which will start on July 22, 2021, and is to be executed by the 31st December 2023. As part of this program, ASML intends to repurchase shares to an amount of €9,000,000,000 of which we expect a total of up to 0.45 ASML intends to cancel the remainder of the shares repurchased.
The new program will replace the previous EUR 6,000,000,000 share buyback program 2020 through 2022, under which ASML has repurchased Approximately 11,700,000 shares for an approximate amount of €5,200,000,000 and which will not be completed for the full amount in light of the new share buyback program. With that, I'd like to turn the call back over to Peter.
Thank you, Roger. As Roger highlighted, we had a good quarter in both sales and profitability. We're seeing continued strong demand from our customers across all market Compared to last quarter, where we expected an annual sales growth rate towards 30%, we now expect revenue to be up around 35% this year. The higher sales growth comes from our ability to increase output in our factories and in the supply chain as we work to meet the strong customer demand. Looking at the different market segments and changes from last quarter, we now expect stronger growth rates across all markets.
In Logic, global demand continues to be strong across the broad application space in both advanced and mature nodes. And compared to last quarter, we were expected 2021 Logic revenue to be up 30% year on year. We now expect Logic to be up around 35% this year. In memory, customers see tight supply demand dynamics continuing into next year. And compared to last quarter, where we expected 2021 memory revenue to to be up 50% year on year.
We now expect memory revenue to be up around 60% this year. In our installed base business for the Q2 in a row, Our upgrade business has been stronger than guided. Customers are looking to upgrades to provide the fastest path to increase their wafer output capability. Compared to last quarter, where we expect the 2021 installed base revenue to be up 10% year on year, we now expect Initial base revenue to be up around 15% this year. As we continue to strengthen our outlook on the year, The majority of the increase is coming from our DPV business.
We have increased our planned factory output to meet customer growing demand and Now expect higher growth in DPV in 2021. While keeping in mind the minimum stocking levels, the increased output was partly due to the usage of service inventory at ASML and its suppliers. On AUV, we continue to push our manufacturing capability and have been able to realize a limited increase in output. We now expect EV revenue growth of around 35% year on year, An increase from the 30% as we communicated last quarter. And we also shipped our first 3600D system in Q2, which will deliver a 15% to 20% higher productivity capability than our 3400C systems.
The vast majority of the EV systems in the second half will be 3,600 D systems, contributing to increased wafer capacity in our customers' fabs. To summarize this year, taking into account the planned system output improvements in the second half, we now expect sales growth of about 35% And a gross margin between 51% 52% for the full year. Looking beyond 2021, if you read the papers, you can see The three trends we highlighted last quarter continue to drive semiconductor and equipment demand. Chip shortages are partly due to decisions made during the global pandemic, 1st reported in the automotive industry have since moved to other industries. This is causing a more cyclical or catch up driven demand that we expect will likely continue into next year.
But more importantly, secular growth from the digital transformation that's underway as the world becomes more connected, Not only machine to people, people to machine, but also machine to machine. The expanding application space with secular drivers such as 5 gs, AI, High performance and distributed computing is growing rapidly growing demand for semiconductors, and this demand It's not only for leading edge devices required to power these high performance applications, but it also requires a wide array of applications Using other technology to support the build out of the digital infrastructure. Computing is also rapidly moving to the edge, Where sensing technologies require connected compute technologies that are often mature in nature. Lastly, The push for technological sovereignty as countries and regions are planning to establish or expand regional semiconductor manufacturing capabilities in an attempt to manage geographical semiconductor manufacturing risks. This will likely create some level of inefficiency in the semiconductor supply chain And thus additional equipment demand, although we believe that this potential inefficiency will be managed rationally by a few very large manufacturers, which are crucial in building this additional infrastructure.
We expect these trends to continue for next several years, which fuels long term demand for both logic and memory and drives demand for our entire product portfolio. For EUV, future demand growth is primarily driven by logic, with increasing EUV lay accounts And stronger wafer demand on advanced nodes. We're also seeing growing demand for EUV in memory, As customers are ramping EUV in volume production with plans to implement EUV on future nodes across 3 DRAM customers. With the strong order intake this quarter, this brings our backlog our total backlog to $17,500,000,000 which includes EUV of 10,900,000,000 which is a reflection of the very healthy market environment we're in today, and it covers approximately 80% of the planned EUV output for 2022. For future, DUV demand is driven by the growing wafer demand in both memory and logic.
We see both advanced and mature nodes increasing over time. Immersion is required for the more advanced nodes in memory and logic, With dry technology required for both advanced and mature technology, we see the DPV demand certainly for dry products being stronger for longer. In order to meet our customers' increasing long term demand, we're working hard with our supply chain to increase our capacity. We continue to drive down manufacturing cycle times, both in our factory and in our supply chain. And jointly with our suppliers, we are looking across the supply chain to determine whether we need to add people, equipment or buildings to increase our output capability for EUV as well as DUV.
Each of these activities have different time horizons to materialize. For DPV, in response to the market demand, We will need to increase our capacity in 2022 and beyond and have therefore started to execute plans to significantly increase our capacity, primarily with dry systems. This is needed since we will not be able next year to again use the surplus inventories of DPV modules and parts to fuel our sales as we will do in 2021. It's a bit too early to provide specific details On our capacity plans for the coming years as we have not yet confirmed the targeted capacity increases with our key suppliers, but we will provide an update as soon as we have finalized these plans. For EUV, we are planning our supply chain for a capacity of around 55 systems in 2022 and are looking to further increase the capacity to over 60 EUV systems in 2023.
In addition To increasing our system capacity, we're also driving our product roadmap to deliver higher productivity systems to increase effective wafer capacity. All of our planned shipments in 2022 will be the higher productivity 3600D systems. In summary, The chip demand is very strong, and we're working to maximize output to meet customer demand. The secular growth trends as part of the Digital transformation to a more connected world is fueling future demand across all market segments at both the Advanced and the Mature nodes, which only increases our confidence in our long term growth outlook. We plan to provide you an update on our future scenarios at our Investor Day on September 29, So please book the dates.
With that, we would be happy to take your questions.
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 to one question with one short follow-up if necessary. This will allow us to get to as many callers as possible.
Operator, could we have your final instructions and then the first question, please?
Thank you.
Our first question comes from the line of Francois Bouvignon of UBS. Please go ahead. Your line is open.
Hi, thank you very much for taking my questions. Maybe the first one, if I may, it's on the if we look at your upside for dry GUV, How would you slice this between what ties up to your new leading edge logic and memory capacity and what relates to new Trading, Edge Logic and Analog, would be interesting to have the color of the 2. And The second question I had, maybe Peter, when we look at the market dynamic, I mean, there is obviously a strong demand and as a consequence, A significant shortage. And on top of that, you have some local capacity concern that you talked about in your video. So what I'm trying to understand is with these two factors that probably one concern is kind of inflation of orders Creating some disconnect between the supply and the demand, I.
E. The shortage and local domestic capacity. So how do you assess this risk? How do you manage this risk of overcapacity when you think about adding capacity in deep UV and EUV? Thank you very much.
Yes. Very good questions. Let me first answer The upside on the dry DUV, whether it's driven by leading edge or let's say trailing Sure. I think on the leading edge, we have a reasonably good view as to what our customers need in terms of new fabs build, ramp up plans. And of course, We know the layer stacks.
We know the layer composition in terms of dry, immersion, EUV. So Yes. That's growing, but that's more planable, I would say. That's we have more insights. I think what's really surprised us is the Very strong demand from, let's say, the non leading edge customers, which is across the globe.
It's in Europe, it's in the U. S, it's in Asia, And it has to do with microcontrollers, power, analog, image sensors. It's all over the place. And I think it's also explainable and it's a bit of a lead in into your next question That if you see where this is going and where the shortages are in automotive and other industrial areas, even From time to time, we get questions out of our own supply chain, whether we can help sourcing Some of these components, which basically normally we can, because we have some good context with some semiconductor manufacturers. So we actually see this happening everywhere.
You see lead times in household appliances going up simply because Analog, power, sensors, microcontrollers in household appliances are in shortage. Yes. So it's basically it's the rollout of the finally what we are seeing is the Internet of Things and 5 gs. We have the big pipe. So you can actually Use the big part to actually transfer that data and transport the data.
And that's what we're seeing now. So it's Basically, the big surprise was really in what we would call the mature or the specialty semiconductors, Which is just a reflection of the digital transition that we're right in the middle. So Leading into the an answer to your second question. So how do we then assess the risk of this capacity increase that we're planning for? It's basically how do we assess the risk that this rollout of this digitization, the digital infrastructure is a hoax.
Yes. It's not happening. It's not there. Always happening at a speed that we completely misjudge. I think given where the shortages are and the time it will take to get rid of those shortages, I think the underlying growth trend, there is a high level of reality in there in our mind.
So We will build that capacity. And I have to add, I think structurally, Over the last 15 years, I think we've underestimated the growth of the industry. And I can only it might be anecdotal, but In 2007, we started to give you for the first time a scenario target based on a certain market assumption 5 years out. We got there 1 year early. The second time we did that, we got there 2 years early.
And the third time we did it, that was the one that we're in today. And we are guiding about 18.9 $19,000,000,000 which is as effectively was our mid market scenario that we gave you for 2025. We again are years early. So we structurally underestimate the growth in this industry. I'm not concerned in building that capacity.
We will use it.
Thanks, Peter.
Thank you. Our next question comes from the line of Joe Quatrochi for Chief of Wells Fargo. Please go ahead. Your line is open.
Yes. Thanks for taking the question. So you talked about the catch up effect that's stretching into for 2022. I was curious on the DUV side, your orders remain really strong. So just curious with the capacity increases you're putting in place, Is that catch up with your order book?
Is that more of a first half twenty twenty two dynamic? Or do you see that as continuing into the second half of twenty twenty two?
Yes, that's a good question. It depends on the speed with which we can get the it depends on the confirmation we can get from our supply chain because we Did ask them and especially for the mature products and dry products to get a significant increase, which is double digit increase in our capacity or their capacity, I should say. And that could then easily extend into the second half of next year. Like I said earlier, I think this disruption of the supply chain that happened during the global pandemic, I think it's like a traffic jam. You have a traffic jam in 15 minutes, takes an hour to get it resolved.
It's basically what's happening also in the industry. It's a global supply chain with many, many key players there. When you start to put locks into this global efficient supply chain effectively and you take out those locks not at all at the same time And inventories are depleted before everything starts going again. It takes time and that's what we see. Yes, we actually see that in the supply chain and customers of our customers and customers of the customers' customers, they're basically now reassessing their planning.
Yes. And they're finding out there are shortages all over the place, whereby the key players in that ecosystem are not fully aligned yet on making this seamless again. And that will take time. So this will lead into 2022 easily, yes? And I think the first half, if our supply chain and not only our supply chain, also the Pricing of our peers can follow then.
Yes, maybe mid next year, we will see some relief and then you see a tapering off of the order intake. But otherwise, I think we will continue into the second half of next year.
Got it. That's helpful. And then On the increased EU revenue outlook for this year, from a revenue perspective, it sounds like you're doing some things to maybe improve the manufacturing or your capabilities and maybe get another tool out the door. But just curious, in addition
to that, is that reflective
of maybe any Sort of expectations around mix being a little bit stronger to the 3600D or configurations being a little bit richer than expected When we entered this year?
Yes, I think you got it, Joe. It's a combination of those things. I think what you saw over the quarters during the quarter is that indeed the ASP turned out to be stronger than what you saw last year. And I think that was the result, as you say, of the options that So there were richer configurations than originally envisaged. So there you saw on the 3400C, you saw an ASP of 145.
You see this quarter even a bit higher, but there's some 3,600 in there albeit very, very small. So that's One element. And the second element indeed is that we're doing our utmost to further decrease cycle time as Resulted that cranked out 1 or 2 more tools. So that's the reason behind the increase to 35% in comparison to last year rather than the 30%.
Perfect. Thank you.
Thank you. Our next question comes from the line of Sandeep Deshpande of JPMorgan. Please go ahead. Your line is open.
Yes. Hi. Thanks for letting me on. Peter, I'm just trying to understand, clearly, I mean, there is need for capacity both In DUV as well as EUV, I mean, are you I mean, you have laid out how much capacity you intend to outlay in EUV. Do you intend to outlay this DUV capacity additions over the next few years at the Capital Markets Day or at this point?
And my second question is on the margin. Clearly, I mean, the more DUV you ship, It helps your overall gross margin as such, really, and that has helped this year as well. I mean, do you see That trend, that shift because of this higher DUV and the sensors and All these other older tools are likely to change your midterm view on the gross margin because of the higher DUV shipments?
Well, I think this is the second question Roger will answer. On the DPV Capacity, yes. I think it is our intention. If we have if we feel we're comfortable giving you that number because we get all the confirmations in from the I think we would definitely give you more insight into our DPV capacity on specifically dry, Perhaps somewhat on Immersion and on I think more specific on AUV. We will definitely do that by the end of this quarter.
But we need some, let's say, of our key suppliers, we want to have that firm commitment and we're going to not only get the firm commitment From an e mail from the CEO, but I think we want to get that confirmed by the people who are actually building that capacity in the customer. So it's going to be quite an in-depth Orders that you could say because we will based on that capacity if the demand is there we'll accept orders and we don't want to disappoint our customers. So It's a process that's been ongoing for the last couple of months, but I think it's definitely our intention to give you all the information that we have at that time. And I hope and I expect to be honest that we will be able to do that to give you that number.
Yes. Sanjeev, on the margin side, as you know, particularly with the introduction of the D model, you do see that the deltas between the different products In terms of gross margin becomes smaller and therefore the effect that you were talking about becomes smaller. You also know that within DPV there are differences between the different Product in terms of gross margin, as we've said on calls before, what is particularly relevant To look at is Immersion, because Immersion is still from a gross margin perspective a good product for us. And that's the one to watch. And if you, for instance, look at the last quarter, last quarter you saw that 47% of our system sales was Immersion.
This year you or this quarter you see that that's gone down to 34%, which is more realistic base I would say also for the quarters to And of course, that had an impact to why the gross margin in Q1 was so very, very strong and why the gross Margin in Q2 expectedly was a little bit lower. But I think that's a reset that is important. Immersion percentage for the quarters to come more or less mirrors What we had in Q2. And as a result of that, you build up towards the 51% to 62% that we've indicated for Q3.
And on the dry margins, because we were going to ship more dry. Yes. Dry margins have generally been Somewhat lower than the emerging markets. Than the Americas. Because there's also more competition there.
And That's a cost drive in the mature market, which is also different in the advanced market. So yes, these are lower priced tools As you know, as a KREF tool, that's a single digit to a very low double digit number. It depends on the configuration With a different margin profile, which is lower than our emerging margins.
Thank you very much.
Thank you. Our next question comes from the line of Dominic Olszewski of for Morgan Stanley. Please go ahead to your line.
Yes. Thank you for taking the questions. The first one I wanted to Discuss was on the topic of silicon sovereignty, as you mentioned. I'm curious, in your conversations with policymakers, Do you consider there to be any prospects for the U. S.
To allow shipments of EUV to China at the point when you're Successfully rolling out high NA tools for research purposes in 2024. Is that the technological and time buffer that you Domestic China gets access to those EUV calls. And then the second question is specifically just on Immersion. Are you seeing momentum or anticipating Momentum to get market share gains further in Immersion tools, specifically maybe to your Logic customer base? Thanks.
Yes. I think on Immersion market share gains, I think our market share is already pretty high. Let's leave it at that. In EUV, I think, yes, EUV to I mean, That's a subject that we've discussed many, many times during these calls. I mean, EUV is under export control according to the Wassonauer agreement.
There's a multilateral agreement between 42 countries and that requires an export control license from the government of the the exporting country, which in this case is the Netherlands. I think that's still under review. So and I think this is not the And the time to speculate on what that would mean going forward if we introduce Hyena. I think that's what we of course do know there are in-depth discussions between governments of different countries to see What they want to do, and I think it's not our role. I think we're in contact, but of course, it's up to the government, And we'll just wait and see what happens.
Now I've said it before, the end demand of leading edge semiconductor devices It's probably not impacted, but it will not be impacted by where we ship EUV tools. The end market will be determined by the value that's been created by those products and the ability and the willingness of the world to buy these products, which will drive the demand for high end semiconductors and that will drive the demand for EUV. And then we will ship EUV where EUV will where EUV machines will be made to make advanced semiconductors, whether In Korea or in the U. S. Or in Europe or wherever, we're going to ship those tools too.
Thank
you.
Thank you. Our next question comes from the line of Alexander Petryk of SocGen. Please go ahead. Your line is open.
Yes, hi. Thank you for taking my question. The first one will be just on the On your speed of increase of capacity, are your comments really pertaining pretty much to 2022 or can you put anything in place further than that?
I'd just like
to understand if we're basically maxed out on what you can do in 2021. And the second follow-up would be just on the phasing of service and production revenue. It seems that you implied with your guidance that Q4 will be down year on year, quarter on quarter. I just want to understand if that's due to be a pull in in that area that you saw in the first and second quarter. Thanks a lot.
Yes, the increase of capacity when? I think there are 3 ways in which you can increase capacity. And The first is basically it's 6 to 9 months. It's just being more efficient, squeezing everything out of your production process is basically what we call the reduction of cycle time. That's what you can do short term.
That's what we do today. I think the second one is you Just use the same square meters, but you hire people, you buy machines, which is especially true for our supply chain, which generally has a lead time of 12 to 18 months If you can get the machines, which by the way I made a comment earlier, we also see that in the machine industry also there's going to be shortage because of also chip shortages. But that's 12 to 18 months. That brings us into 2022. And it could even be towards the second half of twenty twenty two.
And that's what we're seeing now in the supply chain. I think everybody works on their socket time reduction, so we're maxed out. And then if you want to add capacity, people and machines. And then the third one is, well, you cannot fit it in this square Inches or the square meters or the square footage, then you need to build, which has a little bit of 2 to 3 years, which will bring into 2023, 2024. Yes.
And I think so the capacity increase that we're focusing on is within the same square meters, Machines, people, cycle time reduction, and that I think we're maxed out for this year because it's only going to be cycle time reduction. It has to be More people, more machines, same square meters next year. That's 2022.
Alexander, on your second question and Your line broke up a little bit, but I understood your question to be the distribution of the installed base revenue over the first half and the second half of the year, and that is a correct observation. So in the first half, we had SEK 2,300,000,000 revenue for installed base. And with the Indication of 50% growth over last year, you would get to SEK1.9 billion for the second half of the year. And you're quite right, And as we also indicated, there has been quite some pull in of particularly the software related upgrades by customers who want A relatively easy way to increase capacity without having to give us too much machine time. So both in Q1 And Q2, we actually got more of the software related upgrades than we anticipated.
And yes, there is a bit of pull in there from the second half. So that's the correct observation.
Excellent. Thanks very much.
Our next question comes from the line of Stefan Heuri of Deutsche BHF. Please go ahead. Your line is open.
Yes. Good afternoon, everyone. I have a question back on margins. And Maybe if you could update us on the evolution of the gross margin at EUV Services. And the question linked to that, so the follow-up would be what is in your view your potential for Gross margin improvement, if you put together the improvement of EUV Services margins, but also the fact that now you're selling The 3600 D, which carries, if I'm correct, the same kind of margins that the rest of the tools.
Yes,
that's busy to make question. Thank you.
Okay. So in terms of EUV service gross margin, As you know, we broke even last year on that. This quarter, we got a 2 to 25% Gross margin on EUV service. And I think we said that within about 4 years' time, we believe that we get that gross margin level to approximate The gross margin level, that's what the intent is and that is primarily by driving down costs and by helping customers run the machines more efficiently and such that more wafers gets produced. And as a result of that, we get More wafers compensated therefore.
So that's the model there. And 25 from 0 in a couple of quarters time, of course, is a big uptick. But I think that is a digressive curve. So the first 25 is, of course, a big development, but then you will see That improvement gradually slowed down. In terms of systems gross margin, on the D, The Detool gets us to the corporate gross margin.
That's the way to look at it. So still below the DPV gross margin, but at the corporate gross margin. With the e tool, we hope to get the gross margin to the DPV level. And at that stage, we Have EUV and DPV be at the same level. That's the intent.
That's what we're looking at. And of course, the EU will be introduced in a little under 2 years from or 2 years from now. And that's the one that should get us to a TPV type gross margin levels.
Okay. Thank you very much.
Welcome.
Thank you. Our next question comes from the line of Rolf Bork at from New Street Research. Please go ahead. Your line is open.
Thank you for taking my question. You mentioned that around EUR 1,000,000,000 of EUV tools So being purchased by DRAM Manufacturers this year. And that is primarily for bid capacity for next year and beyond because your lead times for EUV tools are still very long today. My question is how should we think about the DRAM EUV business in the context of 2022, 23. Do you see a risk of a pullback in DRAM lithography spending as cycle times for EUV tools come down And manufacturers maybe do not need to buy that capacity 1.5 to 2 years in advance anymore.
Thank you.
Yes. I think the EUR 1,000,000,000 I think the exact number this year is probably EUR 1,200,000,000 to EUR 1.2 $1,000,000,000 is just a bit higher. So of the and you are right. I mean, of the $1,200,000,000 of EUV in our 2021 memory guidance or DRAM guidance, I mean, you need to really look at At bid capacity addition from those machines, not in 2021, it's going to be later. I think on 2022, 2023, When we look at the roadmaps, the customer roadmaps, yes, we will see as a higher number of EUV shipments for DRAM, and it's driven basically by the capacity build outs that they're planning.
And yes, when cycle times go down and also order lead times go down, But it will have more as a more significant effect on when they place the orders, but not so much when they need the tools, because the tools are based On the fat planning and as you know these fat plans are sometimes years out, yes. So we have 2, 3 years of planning visibility. So that will drive the let's say the build capacity, our build capacity and the potential sales. It will have an impact on the orders on the POCs, which will be probably coming in a bit later. As you've actually seen last quarter, I mean, a significant number of EUV tools That came in as PO because we have long lead times and actually stretches our order coverage in terms of our Capacity that we have for next year to the point where 80% of our capacity is now ordered.
Yes. I mean that will change going forward with lead times going down, but not so much the sales. Sales will be driven by The ramp plans and the capacity plans of our customers and those are pretty well known because they're big projects and they take years.
And those ramp plans are also based on layer count, right? And that's very clear from the customers that indicate that they Plan to increase the layer count of EUV in DRAM Manufacturing. And just to give you one more data point. So this year you're looking at approximately 20 And of the EUV revenue, so 20% of, let's say, the EUR 6,000,000,000, 1,200,000,000, that's the number. I think it's fair to assume that the same percentage will apply to next year.
So that gives you and as you know, we're at least Expanding capacity for EUV for next year. So that gives you an indication that we do see continued growth in the EUV insertion into DRAM and commensurate Growth in revenue from that?
So absolute numbers will grow because like you said, next year we'll have 55 units capacity, which Yes. We'll probably very likely we'll sell that, but it also means that from an absolute shipment number point of view, it will keep growing For both Logic and for DRAM.
Great. Thank you.
Thank you. Our next question comes from the line of Robert Sanders at Deutsche Bank. Please go ahead. Your line is open.
Yes, hi. Thanks for taking my question. I just had one, which is about EUV layer count from 3 nanometer to 2 nanometer. That's when TSMC will be introducing GATE all around. Most observers seem to think there will be close to 0 pitch scaling from that transition as TSMC did from 20 nanometer to 14 when the FinFET was introduced.
So I was just wondering if that's something you were anticipating in your plans? Thanks.
No, I don't we don't have that view. I think there is on the 3 nanometer node and the 2 nanometer node that we look at, The tools that we'll be using are different machines on those nodes. And also there will be an introduction of double patterning UV, Which is basically helping the pitch scaling. So we have a great we have A
different view. In our view, the transition from FinFAT to gate all around will be layer count agnostic. So that technology will
be Yes. On the pitch scaling, there will be introduction of double patterning at that moment. But Roger is correct. I mean, in terms of layers, It doesn't matter.
Thanks a lot.
Thank you. The next question comes from the line of Andrew Gardiner at Barclays.
I wanted to come back to the point you were around DUV capacity. In particular, for this year, just to try and establish a baseline, can you give us a sense as to how much of the This year's revenue is being driven by the butter stocks, sort of the drawdown of that inventory that you've got. Yes, if I'm doing my math right, based on your guidance, we're now talking about a low €8,000,000,000 level for DUV revenue this year. So yes, how much of that's coming from the inventory?
Yes. I Let me put it let me ask that in a different way. I think this is You really have to go deep into the supply chain because it's in our service inventory. It's in the suppliers' inventory. So I would have to really go deeper to give you an exact percentage.
But if we look at the 2022 DPUV plans and especially For Immersion, not so much for KURF because that's where we can see some improvement in terms of shipment numbers. I think in terms of Immersion 2022, I would currently think that our Immersion sales number will be about Same as this year, whereby this year, we, of course, were helped by this, you could say, one time depletion of the stocks, It was creating them from everywhere that we could. So I wouldn't at this moment in time because Don't forget, I mean, the Immersion numbers this year are quite high. I think from an Immersion point, we have to go back a long time To look at similar shipment numbers, I think it will probably be the same next year, but next year we will not have the advantage of being able to defeat the stock. So this is the way that I would look at it.
And on KREF, some dry season there, you could see higher numbers next year because that's where we actually need the capacity. That was Also the answer to one of the earlier questions, where do we see it? I think we basically see this dry demand coming out of, I would say, the The specialty markets or the mature markets, which are basically everywhere. So hopefully, that answers your question, Andrew.
Yes, it does. And if
I could just follow-up with that quickly.
I mean, you've talking about a significant double digit increase in capacity for BUV. Clearly, not
all of that is going
to come online in 2022. That presumably is just the starting point. But if we look out over the next couple of years, I mean, significant, perhaps the fact the obvious is not 10%. I know you want to save something for September, but I mean, it feels like you're talking 20% plus or minus, that kind of a ballpark. Would that be reasonable?
I mean, you know us for a long time, so you can assess what significant means In our terms and that's not 10% as you pointed out. But what it is, we'll probably be more specific in September, the end of September. But Yes. Also when capacity comes online, there's also a lead time between When it comes online, when we get the models, the parts, we can make the tools and we can ship it to the customers. And so part of that capacity that will come online, that Significant capacity increase, which will be indeed double digit.
That will have an effect in 2023, not in 2022. When it's available January 1, 2022, yes, then you are right. But as I pointed out, I mean, People and machines and potentially use extra square meters takes 12 to 18 months before it's there and then they need to produce and then we need to produce And that it needs to be installed. So I think we will see that capacity increase definitely occurring next year. And how much of that we can use For output, that still remains to be seen, and we're figuring that out together with our suppliers.
Thanks very much, Peter.
Thank you. Our next question comes from the line of Piraeus Gama of Bank of America. Please go ahead. Your line is open.
Thank you. Good afternoon, gentlemen. Thanks for taking my question. I have a first question and a quick follow-up. And maybe Peter, if you could share your thoughts with us on a sort of a debate in the market that you also touched on your one of the 3 long term drivers.
So in the U. S, they've identified effectively a gap between what's being produced in the U. S. And what's being I could assume I think the numbers are 12% 40%, if I remember correctly. So my question to you is, if we were to narrow that gap Substantially, how much spending on litho equipment would need to happen, number 1?
And number 2, how long will it take To actually get there realistically. And then I've got a quick follow-up.
Yes. I think You might be surprised, but yes, but I think it doesn't matter that much because we assume I think that's a right assumption. If you look at the expansion plans, which are more, let's say, more concrete in the U. S, but as you know that this Discussion is also happening in Europe. These expansions will not be made by just a new company coming online.
It's just It will be the, I would say, established players, the leaders that have the capability and the competence to build those fabs To manage them, yes, and have the process knowledge to copy exact, if I may use that word, those processes from All parts of the world into the U. S. And into Europe. And those companies, they are going to build those fabs to make sure that they can supply the market with the needs for those products. And it's It's going to be just a few companies which are going to be rational.
I don't think that any administration can go to the CEOs of one of those companies and say, because we want that Capacity, you have to build it and it's going to be idle. It's going to be completely inefficient. They're not going to do that. So it's going to be rational. And All the information that we have points to those few companies that have the capability to build those fabs, yes?
So I think from a little point of view, Yes, there will be some inefficiency, yes, because you're building a new fab, new operations In a place where you cannot piggyback on your local ecosystem, if you do it in this different part of the world. So yes, there will be There's a ramp up time for dose pads, it would be somewhat inefficient, but it's not going to be double digit percentages. I don't believe that at all. The rationale, the nature of our key customers is we'll simply prevent that. Now how long will it take?
I don't think we will see anything coming out of those fabs before 2024, 2025. So I'd say it's a couple of years out. I mean, building those fabs will take 2 to 3 years, Yes. And then they need to ramp. As you know, these will be big fabs.
And they don't ramp all at once. They ramp in phases. So it's going to be 2024 onwards, 2025, 2020 6, yes? And so it's not going to be short term. But again, yes, I think the drive for this technological sovereignty is really Based on the assumption that also this industry will or the industry of our customers, the semiconductor industry, might very well double in terms of sales over the next 10 years, which means that just from a geographical Risk point of view.
From a manufacturing risk point of view, the desire to just spread The manufacturing capability across the globe driven by a few manufacturers, a few large manufacturers that have the competence to do that, That seems very logical. And I think so. I think it will happen. It will not create massive inefficiency, So made efficiency, which of course will help us a bit, but it will be driven by, I think, rationality and it will be driven by Government subsidies, that's true. So that's when you're a taxpayer in those jurisdictions, it's your walk.
Nathan, thank you for your answer.
As a quick follow-up, I just wanted to come back to DUV. My question to you, Peter, is very simple. Over the years, the semiconductor industry has never managed to effectively exert pricing power with their customer base for the reasons that we can imagine. But now that I'm not saying you should abuse that pricing power, but now that you're in a slightly different position, you're talking about the doubling of market demand over the next 10 years, And given the investments that you have to make and particularly shareholders are also worried that, hey, is it the right time to add that much capacity? Would it be Seizable for ASML to ask your customers to effectively pay in advance for those DUV tools so that you completely derisk your model and completely eliminate the risk for double ordering or triple ordering?
Well, it's always a good question to ask as an entrepreneur to derisk Completely their business model, but to be very honest, I mean, that never happens. And I don't think it's the way also we need to Deal with our customers, which is only a handful, and there's a handful of equipment players. And on deep UV, Yes, I think we will charge our customers the value of those machines. And to give you an example, We will put deep UV KRF on the NXT platform, which will significantly increase the productivity for our customers, which also I think we are entitled to part of that value and which I think they will pay us. So I think the way that we look at Increasing prices in is really to provide our customers more value, not to say, well, we're in a Squeeze situation, which could be last for a couple of years, but then we're back to normal again and Customers will push back as in this traditional customer supply relationship.
That's not the way this industry works. I don't think this is it should work this way. We have to provide value and we have many opportunities to create value for our customers Thereby asking a higher price, but the customer will look at the value. That's how we work. I think on the risk of the capacity increases, I said it before.
I think where we've structurally underestimated the growth of this industry and with everything that we're seeing today, I think there are good reasons to We believe that the underlying demand of what we see and especially in dry DUV and the application space That DPV is servicing. There is a very good reason to add extra capacity because we need that capacity. And we will sell those 2. We'll make more money. And I think we'll satisfy our shareholders.
And I think the risk is limited. Short term, we always have small cycles. But longer term, I don't see the risk.
In terms of paying in advance, just to remind everyone that, of course, paying in advance does happen on the EUV front. So on the EUV front, given the long lead times, We do have prepayment schedules with our customers, which are significant and also Clear, I think, from the free cash flow generation of ASML in the past 12 months. I think in that way, the comment that you made, I think we're doing that, but not We don't do it in this specific circumstance. We just do it as a matter of principle because of the very long lead times that we have
That's a very good point, Georges, because I mean the lead times on DPV are a lot shorter, which also means that you can manage The supply and demand better. But we will increase the capacity also not at ASO not only at ASO, but also in the supply chain. But again, based On our strong conviction that we need that capacity going forward because of the market developments that we are seeing. And I think that risk we believe is limited,
Got it. Thank you so much.
All right.
Thank you. We have time for one last question. If you were unable to get through on this call and still have questions, Please feel free to contact the ASML Investor Relations department with your question. Now operator, may we have the last caller, please?
Thank you. That's the line of C. J. Muse at Evercore ISI. Please go ahead.
Your line is open. J.
Muse:] Yes. Good morning. Good afternoon. Thanks for squeezing me in. I guess first question Peter, wanted to clarify a comment you made to Andrew.
Were you guiding Immersion units next year flat? Or was that a commentary around supply availability before adding new capacity?
Yes. It might have been a bit convoluted answer, but what I was trying to do because Basically giving you 2, I would say, messages. We have in 2021, which is this year, We have, you could say, a spurt sales because of the fact that we're depleting everything we can find in terms of inventory. And some would argue that some of our Minimum stocking levels for service might be at the real minimum because we're using everything to make our machines. So that is this one time step up, yes, Which gives you an immersion number that is high.
I think that will be probably the number that we're also looking for next year where we don't have that Ability to have this one time step up. So we're effectively increasing capacity and getting to that same level. But that's Basically, how I think we should look at next year, because that is what I think from a capacity point of view With what we are seeing we can do in terms of cycle time reduction, in terms of putting some extra people to work, we can do. So effectively Indeed, increasing capacity, but ending up at about the same number.
Okay, helpful. And then just
a quick follow-up, Roger. At your last Analyst Day, you targeted 55 plus percent gross margin. As you think about calendar 2022 and exiting this year with EUV margins of 50 plus, EUV service moving higher as they come off warranty and a pretty robust mix from DUV. Why wouldn't we be approaching that kind of number In calendar 2022.
So first of all, I don't think it accounted on market day we mentioned 55. If I recall correctly, we had 50 there, but we did have 2 arrows in front of it, leaving it entirely to your imagination how far you wanted to stretch that. I think 2022 based on the number of the dynamics that I mentioned, certainly from a gross margin perspective has prominent in there For sure. But it's way too early to give any definitive guidance on that. But you would have seen if you look at the Actually, over the year, you would see that we're now guiding 50 the 50 152 percentage for next quarter.
That's a good basis. That has already quite a bit of D in there. Of course, next year, Everything would be the next year you would benefit from the 2,050 a bit more than you would this year. So there's a bit of potential there, That's still a bit too early to give any guidance on what it's going to look like next year.
Very helpful. Thank you.
All right. Before we sign off, I'd like to remind you that our Investor Day is currently planned to be held in London on September 29, 2021, COVID conditions permitting, we will keep you posted on details and 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 would appreciate it. Thank you.
Thank you. This now concludes the meeting. Thank you all very much for attending. You may now disconnect your lines.