ASML Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 24, 2024

There are 8 speakers on the call.

Operator

Welcome, everybody, to the press conference of ASML. We are going to talk you through the results of Q4 2023 and the full year 2023. As usual, I'm not doing this all by myself. I've got I will have the company of Roger Dassa, our CFO and Peter Wenning, our CEO. Let me talk you quickly through the program.

Operator

You've seen our press release. By the way, my name is Monique Mols. I'm Head of Media Relations. Peter will start by explaining industry developments and our progress, And then Roger will take over and talk you through our financial results of this year. And then we have plenty of opportunity for Q and A.

Operator

We also have people online. Thank you for joining. And they will have the opportunity also to ask questions. There's a little Screen, where you can submit your question, please also state very clearly your name and the publication you work for. The Q and A session is only for media.

Operator

And of course, we've got people in the room who, of course, are allowed to ask questions. Thank you for coming all the way to Veldhoven. For some, there was a little bit of a more of a journey than for others. But let's start with our presentation, And we'll come back to you later with the Q and A. Peter, if I can invite you on stage.

Speaker 1

Absolutely. Good morning and good afternoon or good evening or wherever you are. First of all, I'd like to start off with some key messages, but it's not going to be a big surprise. I think this industry and ASML specifically It's driven by megatrends. And I said it on several occasions.

Speaker 1

The major societal transitions that we're Witnessing these days, whether it's the climate change, energy transition, the digital transition, The world population that's getting older and needs more care, these are major transitions that don't happen once in a lifetime. They Once in several lifetimes. And I think we need to realize that. And those mega trends, they need solutions. And I think no matter how you look at it, every part of those solutions will be at the core, there's this semiconductor.

Speaker 1

There's this either compute power or data or the artificial intelligence that we need to actually solve those problems. I mean, It will happen, and we need it. And lithography has been always and everything is by the way, semiconductors Driven by Moore's Law, it's a law of scaling. It's an empirical of economics. And the scaling engines, one of the biggest and probably the most important scaling engine has been lithography, basically making the structure smaller.

Speaker 1

So lithography intensity will go up When we need to innovate to actually address the challenges that come out of these big societal changes, and we have the product portfolio to do it. I mean, I will show you later on, we have always had a product portfolio to do it, But the complexity of our challenges and thereby the complexity of the machines, the lithography machines is also increasing. But we have that complete portfolio. It's not only lithography, it's also metrology and inspection systems. It's software.

Speaker 1

It's the integration of our capabilities, our holistic portfolio that will enable our customers to deal with those challenges. And based on that, we do believe strongly believe that what we've said a few years ago that we believe that by next year, Our sales will be anywhere between SEK 30,000,000,000 and SEK 40,000,000,000 with a gross margin of anywhere between 54% and 56%. But by the end of the decade, it's going to be anywhere depending on, I would say, macroeconomic growth profiles, anywhere between SEK 44,000,000,000 and SEK 60,000,000,000 With margins between 56% 60%. And it's not only us. It's our task We're a system integrator, we're a system architect that our supply chain and our partners will follow and they will do that.

Speaker 1

But everything in the context of our responsibility towards society, our ESG targets have been very clearly explained last year, And we'll publish our annual report and you can see our progress going forward. So of course, in the end, we're a business, we'll make money, we'll return cash To our shareholders and with all of them, and Roger will talk about it a bit later. Now I won't dwell on this. Market expectations remain unchanged. Market research firms, all about the end of the decade, about $1,000,000,000,000 Which is just under a doubling of the business for our customers as we see it today.

Speaker 1

Now and It's these trends that are really driving this. It's the connected world that is A significant driver for our business and the business of our customers. And of course, it's the infrastructure, it's the cloud infrastructure, but increasingly, it's AI. And you're only seeing that this is not just a promise for the future, it's happening today. We've seen this in 2023, And Didier was very clear on what the capabilities are and showing those capabilities.

Speaker 1

We've all seen the rise of Generative AI, it's going to happen, but what it needs is more compute power. What it needs is more data storage and the link between the data storage and the compute power. And we're already seeing that in our order book. Our order book for Q4 is evidence of this. I mean, significant EUV order book It was also driven by the fact that memory customers came back.

Speaker 1

Why? Because there's a bottleneck now. We cannot access the full power Of the compute power in the logic chip for the simple reason that the bottleneck Of performance memory, performance DRAM is there. So how do you solve it? You basically create high bandwidth memory.

Speaker 1

How do you do that EUV? It's that simple. So all these and what you will see is that AI, it's currently we see it in the data centers, will move to the edge. You will see AI coming back into your phone. Now the applications might not be there, but that's always how it goes.

Speaker 1

You first create the technology. And if the technology is there, the applications will follow. Now and then when we look at the other blocks, climate change and resource scarcity, I mean, The energy transition is not going to happen without a further electrification of society, which needs semiconductors. And smarter use of those limited resources, the smart grid, is all semiconductors. And also in the social and economic domain, when you think about life sciences as an elderly population, I mean, we are the demographics are against us in that sense.

Speaker 1

So we need more technology. It's all semiconductors. Now if you then look at those three blocks, you could roughly say that The advanced stuff, advanced semiconductor is more on the side of the connected world. But the climate change, the resource scarcity and And the social and economic shift that need to be supported with semiconductors is more mature semiconductors. So when you look at this, Everybody talks about AI and about advanced semiconductors, about sub-two nanometer driven by high NAEV.

Speaker 1

Yes, that will happen. But the vast majority, the square centimeters, the square inches of silicon will be driven by the other part, Yes, which is where the massive application just in unit terms is. So this is it's an important slide not only Just to explain to you the trends, which we intuitively all know, but also has a translation directly into the semiconductor world. It's our world of advanced semiconductor manufacturing and mature semiconductor manufacturing, which I think is going to be a significant driver of our business, Both of them, advanced and mature. Now clearly, we're experiencing a cycle.

Speaker 1

We used to deal with cycles. I mean, that's what the semiconductor industry is all about. I mean, and if you look at these big Cycles driven by these macroeconomic shocks. We can go back More than 20 years ago, where we came out of the Y2K era and we had the dotcom implosion, it created a macroeconomic shock. And these downturns last 2, 2.5, perhaps 3 years, 20 years ago.

Speaker 1

Now we had another shock, which was the financial crisis less than 2 years. Now we have coming out of COVID, After a decade of quantitative easing where money was free, but of course, driving inflation, interest rates going up and creating a macroeconomic situation Of today, which is also macroeconomic shock, 2 to 3 years, max. Well, The downturn started mid-twenty 22. 'twenty three was clearly a downturn year. First half of 'twenty four, we're probably in that same Coming out of that 2 years, two and a half years.

Speaker 1

So what about then 2025? 2025, in my opinion, just look at the cycles. It's going to be a full upswing year. It's going to be a good year. So we need to prepare 2025 by doing the right things in 2024, and Roger will also talk about that.

Speaker 1

Now on top of that, 2025 being an upcycle year, we'll have this. Our customers are investing Across the globe, more than 20 new fabs, factories, fab projects, starting in 2024, Taking tools in 2024 towards in the course of this year, but definitely in 2025 where fabs will be opened, but the fabs will open in 2024, We'll take machines in 2025. That's all driven by geopolitical movements. The world started to realize that Dependence on semiconductors is, to a certain extent, good, but not too much dependent. So you see Chips Act popping up around the world in ranging from the U.

Speaker 1

S, Europe, India, China, Korea, everywhere. And that creates a situation whereby New fabs will be built and will be opened, and those fabs need machines. That's the second player of why we believe 2025 is going to be a very strong year, And we need to prepare 2024 to be able to meet that demand in 2025. And can some of that be pulled into 2024? Potentially, It depends on the slope of the recovery, but we'll see.

Speaker 1

Currently, it's too early to say that, so that's why we stay relatively conservative. But this is how we look at the world. We look at 2024, 2025 as a transition period into new areas of growth. And for growth, we need people. Now we hired people, 3,000 people last year, 144 nationalities.

Speaker 1

And for the first time, we can say that We're in the 20% range for our female population for the first time. Now we have actually hired of all the people that we hired, 27% women in 2023, which Good. We're getting more and more we're becoming more and more attractive for the female part of the world population to work at a high-tech company And bring that knowledge and that experience in science, technology, engineering and math studies, bring it to ASML. Also in the Netherlands, we have of the 42,000 people, 22,000 are in the Netherlands and 123 nationalities. Now we have a discussion in the Netherlands on the international student population where we need all those international students.

Speaker 1

Trust me, We need them. Now there's more than that. It's also ESG. ESG, I talked about it, is what Every year, we are reducing our CO2 footprint in absolute terms. Actually, the energy efficiency of EUV as compared to 2019 improved with close to 40% in 2023.

Speaker 1

On the social part, We're investing in the community. We can talk about the need for science, technology, Engineering and math educated students, but you have to do something about it, and that's what we do. We put more money than ever now, but also going forward into the social domain and into our communities. And do our people appreciate that? Yes, our engagement score keep going up every year Well, we're adding thousands of people.

Speaker 1

That's not easy because all those people need to land, they need to feel at home, But engagement scores going up is a very good sign that we're doing the right thing. Our attrition rate drops worldwide to 4% in 2023, which is low by any standard. And of course, I was already proud to say that now we're hiring 27% of our intake is female. And on governance, transparency It has been recognized by many institutions. Now Hain A, that's the tool that we shipped At the end of the year, very proud, shipped it to one of our major customers, Intel.

Speaker 1

It arrived in the United States and it's going to be a workhorse. It's going to be a workhorse the second half of the decade into the well into the next decade, Yes. And to make sure that we can actually execute on that promise of artificial intelligence, But also the promise of solving some of these big societal problems with the help of semiconductors. And something I would like to just To share with you, I mean, April 1 this year, we celebrate our 4th year anniversary, And we started in 1984 with a system, a PIS system, as you can see, just look at the size Of the human next to the machine and then you look at the size of the humans or size of the machine next to the humans today. I mean, it's a bit strange.

Speaker 1

Over 40 years' time, we've increased the size of the machines, while we reduced the size of the semiconductors. So the smaller the feature size, the bigger the machine. That's what you see as clear evidence. But also, we've always been able to provide the market with what they need. Yes.

Speaker 1

And we will keep doing that also going forward. And the Hainet tool is just the next step in that evolution. We're very proud to do that. Now very quickly, is that a new machine? And this is for people who love technology.

Speaker 1

We enable 1.7x smaller features, yes, so which means almost a 3x increase in transistor density On the chips and how do we do that? We have a new lens. We have new stages that work so much faster, 3 to 2 to 4 times faster. We have repositioned the EUV source so that we have better imaging, we have more transmission, we have more light On the wafer, new frames, improved metrology, it's a continuous battle for the next level of innovation, And we need for next level of innovation the help of our customers with the help of our people, the help of our suppliers, the help of our shareholders And help of the community, that should enable us to create an environment where we can be super successful. And with that, I have 10 seconds left.

Speaker 1

So it's up to you, Roger. Thank you.

Speaker 2

Thank you, Peter.

Speaker 3

I have a clicker. Thank you, Peter. Good morning, everyone. We'll use those 10 seconds wisely, obviously, right? So let me take you through the financial accomplishments and also the outlook that we have on the Against the backdrop of all the developments that Peter just described.

Speaker 3

So this is the quarter. The quarter, well, there's a lot we can say about the quarter. We ended a little bit better than we guided. So we always give a guidance with a certain bandwidth, And we were able to arrive a little bit better than the higher level of the bandwidth. So that's always good, Primarily driven by the fact that actually the installed base business was better than we anticipated.

Speaker 3

You see it here at 1.6 Back to around 1.3, so that was a major driver why the quarter came in better than we anticipated. Also, it boosted the gross margin. Gross margin also a little bit better than we guided. So all good. But I have to say, The one number that everyone was talking about this morning when we had our initial conversations with the analysts, what nothing was nothing of the first ones, it was the one at the bottom, Which is the net bookings.

Speaker 3

So the fact that we were able to report net bookings, so new orders coming in for the quarter at SEK 9,200,000,000, which really is a record number. That was the one that really attracted the attention. And that's in combination with some of the more positive Color on context that also came, for instance, from the earnings release from TSMC last week. I think it does make people realize that indeed we are the whole industry is working its way through the cycle. And these are positive first signs.

Speaker 3

And that's really, I think, also the way this was appreciated also earlier today by the analysts. If we look at the full year, in fact, what you see is that the company grew 30%. And Just reflect a little bit on that. As we just said, the industry is actually was actually going through a down cycle. 2023 was not a great year for the industry.

Speaker 3

If you look at most of our customers, they would actually report significant year on year declines in 2023. So the fact that we were able to grow 30% is actually a pretty good achievement. And I think it also tells you a significant story about The significance of what we do in the entire ecosystem. So good achievement, and I think kudos to the entire organization and all the 42,000 People have been working extremely hard to actually be able to make this happen. So we grew to a net sales level of SEK 27,600,000,000 As you see here, a good gross margin, which improved from 2020, 22 And also a very solid net income of nearly SEK 8,000,000,000.

Speaker 3

Growth primarily on the lithography systems, as See here, so EUV grew 30%. And you just saw the first modules of the high NA leaving our factory and going at Intel. So I think that is a major, major achievement and a major landmark, I think, for ASML to see that happening. On DPV, Growth even more, 60%, very significant part of that also. Immersion, as you see here, 32% The unit numbers were Immersion, so that is a pretty significant growth just there.

Speaker 3

And also there are some good product innovation With the 1980F Immersion system being shipped to customers and also a brand new EyeLine system that found its way into customers. So a lot of innovation, Not just on EUV, but also a lot of innovation going on, on DPV. On the application business, actually a decline. And you might wonder, how is that at all possible? If you grow so strong on the lithography business, how can it be That metrology and inspection is lower.

Speaker 3

And the answer is very simple. The lead time, so the order lead time on metrology and inspection is very short. So if customers are going through a downturn, are going through a down cycle and they have to somehow save money because they have to manage their CapEx well, They're going to look at the stuff. What is the stuff that I can wait and wait and wait a couple of months because I know if I order it, I get it quite rapidly. If you wait and wait and wait with ordering an EUV machine, you're in trouble, right?

Speaker 3

Because their order lead times could be like 1.5 years. But for metrology inspection, You're talking about weeks or a few months. So there, actually, customers can afford to wait ordering and receiving the stuff. So that's the reason Why application business is down. In spite of that, we continue to innovate there and you also see there the introduction of our new YieldStar 500 500 system.

Speaker 3

Installed base business, a little bit the same, right? So if you're running at fairly low utilization levels, as many of our customers Last year, then you don't really need a lot of upgrades. You don't really need a lot of productivity upgrades. And as a result of that, there are 2, You see customers take the foot of the accelerator a little bit and being a bit more frugal and economical with ordering upgrades. So that's the reason why Installed base business this year, a little bit down in comparison to last year off what I would still call a fairly healthy base.

Speaker 3

Capital return, we returned back to shareholders SEK 3,300,000,000. That is actually quite a bit lower than we did in previous years, Particularly share buyback at around SEK 1,000,000,000 cash this year was quite a bit lower than in subsequent years. Main reason, the same. I mean, in a climate that we have right now with or that at least we had in 2023, with Customers going through declines in their sales and their margin levels, we're actually helping customers. So we were helping customers by giving them Extended payment terms, etcetera, such that they could pay us later and could push the payments out of 2023 into 2024.

Speaker 3

So as a result of that, we used our cash position, we used our liquidity to really help the ecosystem, 1st and foremost, our customers, but also the supply chain to make sure that everyone could continue in spite of the fact that the industry as a whole was going down a bit. That's the way we do it. We first use the money in the business where the key stakeholders needed and then whatever is left, That is being distributed to our shareholders. Breakdown of systems In a different ways, you see that technology on the technology side, you see the immersion technology being really very popular this year at 40 So a big increase in there, but you also see EUV still strong. So you see the leading technology really being the technology that was a very high demand.

Speaker 3

And that, again, is in line with The way I just commented it, these are the leading tools are the tools where you have the longest lead time, the longest order time. So that's the stuff that customers will continue to order Even if the industry is going through a bit of a down cycle. So very strong on the leading technology. In terms of end use, you see that logic was extremely strong this year. But as Peter said, we do see memory coming back right now.

Speaker 3

But memory was really going through a very Significant down cycle in 2023. And then finally, on a regional basis, you see the spread there. And obviously, you also See that China was quite big in comparison to last year. And we've talked about this before. The orders that we The shipments that we had into China were primarily executing on orders that, to a very large extent, were already there by the end of 2022.

Speaker 3

So China had already put in quite some orders in previous years, but the order fill rate for China was low because we had such demand Also outside of China that we could only allocate less than 50%, around 40% to China. So of the orders that they put in, we could Deliver somewhere between 40% 50% of those orders for a couple of years. This year, with the slow in demand, the slowdown in demand We had for a few other customers as a result of that, we were able to ship more to China than in previous years. And I think that is clearly represented in these numbers. I think here you see the same picture.

Speaker 3

You see that in spite of the memory down cycle, you see that memory is still quite a bit higher Than it was in previous years, but you see the formidable strength of the Logic business. Interesting. I will not get you through every single number here, but I just want to highlight a few of them. So it's interesting to know that actually in 3 years' time, we doubled our sales, right? So if you look at 2020, it took us 3 years to double the sales from 2020.

Speaker 3

I think that is a pretty big achievement and a pretty big testament, I think, to the strength that we enjoy within the industry. Also take a look at R and D. R and D, it took us 4 years to double the R and D amount, €4,000,000,000 That's an interesting data point. €4,000,000,000 is the R and D expense that ASML has. And as a matter of fact, if you want to look at spend, You can actually you should actually add, I would say, at least SEK 1,000,000,000 of CapEx that we also do on the R and D front.

Speaker 3

So our total spend On R and D, I think that's close to $5,000,000,000 And that is just our spend. In addition to that, of course, there is a lot of spend that happens in our ecosystem. There is a lot of R and D spend that our suppliers do on our behalf. That's the research institutes that we work with that they do. And then if you look at the total R and D spend for the Netherlands, according to the central agency for statistics in the Netherlands, that's around SEK 20,000,000,000.

Speaker 3

So you can see that the total contribution of the ecosystem that we operate in to The total share that they have in the R and D spend in Netherlands is quite significant. And of course, not all of the spend is in the Netherlands, but the lion lion share of the spend really is. And I think that really tells you about how strong this ecosystem is and how much it Contributes, I think, to our Dutch economy. And then you see that the growth that we experienced also works Its way into net income, a very strong net income, as I mentioned, nearly SEK 8,000,000,000 and obviously also into earnings per share and what have you. In terms of return to shareholders, as I mentioned, in the aggregate, the return to shareholders In 'twenty three, it was a bit lower than it was in 2022.

Speaker 3

On the dividend side, we continue to grow dividends, and that is our policy. We try to have a Dividend then grows over the years. So the dividend that pertains to 2023, we propose to the AGM dividend of 6.10 percent, and that is a 5.2% increase over the dividend over 2022. So I think that's healthy growth. Thus, you can also see and as I mentioned to you, share buyback was quite a bit lower than it was in previous years because we decided to help our customers and the rest of the ecosystem And put our money there rather than distributing it back to shareholders in 2023.

Speaker 3

In terms of outlook, outlook for the quarter, It's a soft start to the year, but quite frankly, that was a bit anticipated because based on all the demand timing with the fab openings, etcetera, We clearly see that 2024 will be much more skewed towards the second half than it is towards the first half. So a relatively slow For gross margin, R and D, etcetera. Gross margin is quite a bit lower than what you saw. This is primarily because of product mix. We expect the Q1 to be fairly light on Immersion, fairly light on the installed base business, and those are typically the big contributors to gross margin.

Speaker 3

So that's the reason why gross margin in the Q1 is expected to be a bit lower than in the rest of the year. In terms of 2024, I think Peter said it. We really look at 2024 as a transition year. We articulated the expectation That we think 2024 from a revenue perspective will be similar to 2023, but still going to be a big year for us in terms of preparing for 2025. For all the good reasons that Peter mentioned, we think 2025 is going to be a big year of growth.

Speaker 3

Why is that? Well, first off, because the secular trends are very clearly intact, right, with Without high end logic, there's no AI. Without high end memory, there's no AI. Without ASML, there is no high end logic or high end memory. So it's very, very clear that the AI development We'll have a very significant contribution to our business in 2025.

Speaker 3

So that's a big one. The secular trends are very much intact. Secondly, you saw the fab openings that Peter was sharing with you, so that's a big driver. And we do believe in 2025 that we're Nicely underway in the up cycle within the industry. So that's the way we look at 2025.

Speaker 3

We have to prepare for that. We have to be ready for that. So we're expanding capacity. We're very much investing into the high innate technology, both here in the factory And also in the field to make sure that the entire organization is ready to deliver on that. And that is a big commitment that we're making towards expansion Of capacity within the industry.

Speaker 3

That said, how do we look at 2024 then? So as I mentioned, at the top line, similar. If you look at the moving parts, If you look at the end markets, we believe it will be we will see growth on the memory side. Peter said it, with DDR5 And with high bandwidth memory, we clearly see that technology investments of the memory players are significant. You also saw in the order intake that about 50% of the order intake was related to memory.

Speaker 3

That is very, very high. And that just tells you that Indeed, these investments in the technology transitions are being made by our customers, and we think that should be visible in our business this year. Logic, we think, will decline a little bit in comparison to last year because already so much CapEx has been added to and capacity has been added to Logic. So we think our customers will probably absorb that addition in 2023 before they're really going to So that's why we think memory will be up this year and we think logic will be a little bit down. In terms of the way it is being distributed over the year, as I mentioned, we think the second half will be Stronger and there we think momentum will continue to be built second half and then really going into what we think will be a very, very strong 2025.

Speaker 3

Dear friends, that is it from my end. So with that, I think we're going to Q and A.

Operator

Yes. Thank you, Richard. I think your place is in the middle. I got instructions. Thank you.

Speaker 3

Politely follow instructions. Yes.

Operator

You all think this is a spontaneous and easy, but hey, I'm getting instructions here. This is my place. So I'm sure there are questions in the room. Let's start there because you're here. I have my colleague Mark here with a microphone.

Operator

For those online, I've got a colleague, Kelsey. She is taking your questions, and she'll send them through to my Oh, Ting Fang is already there. Yes, hang on there, Ting Fang. We'll get to you. So she's sending on further questions to my iPad.

Operator

So Marc?

Speaker 4

Sandra Allstorm, Vina Schaller Dachblad. I have two questions. The one is on the gap between the orders and your outlook. I'm wondering how much has to do with the market and how much is ASML, as you're saying, preparing for The big upturn, but maybe you're taking it easy on the execution or taking You're full of the gas to prepare yourself, if you know what I mean. The second question is about the China orders.

Speaker 4

It says in the press release that the export controls do you think are going to cost 10% to 15% of the Chinese revenue. I was wondering in the past ASML always communicated that Revenue that is being made in not made in China will always go somewhere else. I'm wondering if that's still the dynamic? Or is this really revenue that you're missing? How should I interpret?

Speaker 3

Christian, I'll take the first one, the second.

Speaker 1

Yes. That's right.

Speaker 3

So on the first one, By default, we never take the foot off the accelerator, right? So that's not what we're doing. If you look at the orders that came in, a lot of those orders Some of that was for 2024, a lot is also for 2025, right? So it is a very good start into the growth year of 2025. For 2024, we're essentially covered with orders.

Speaker 3

So for the amount that we're guiding, we have the orders in. Of course, it could be if Peter talked about the slope of the ramp. If the slope of the ramp is going to be more aggressive, if indeed customers see that demand is going To come back stronger in the course of 2024, then I'm pretty sure customers will start knocking on the door and say, hey, could we accelerate some of the demand? And as Peter said, we look at 2024 and 2025 combined, and we know 2024 and 2025 combined will be 2 big years. It's just a matter of is it going to fall into 1 bucket or is it going to fall into the other bucket?

Speaker 3

So you're absolutely right. I mean, there is a there are a few Strong indications of recovery. The utilization of our tools is improving. Inventories at customers and end customers are actually going down, which is always a healthy sign. And indeed, the order intake is strong.

Speaker 3

So there are some very positive developments, but we said it's a bit early days. 3 months ago, we said we expected that the year is going to be flat. It's a bit too early to now say that we're going to adjust Our guidance. So we stick to our what we call conservative guidance for the year. Could it be that some demand is going to be accelerated from 2025 into 2024?

Speaker 3

Absolutely, That's not what we're guiding today. If that happens, then from a capacity perspective, we would be able to do more.

Speaker 2

To ship earlier?

Speaker 3

Yes. Yes. To ship earlier, yes.

Speaker 1

And I think also you need to realize that the order lead time For instance, EUV system is between 12 18 months and for an high and high and high and high and high and high and high system even longer. So as all of those orders are also with the eye on, for instance, the end of the year or 2025, yes. So that's also the case. Now on our China business, strong, yes. But as I said it before, the 2023 is really a reflection of our undershipment in 'twenty 2 and 2021, where we basically had the orders.

Speaker 1

So we shipped the orders in 2023 for that we got in 2022. And the rest of the industry went through a downturn, but we undershipped China significantly. That was they got what we call the Order fill rate was less than 50%. So that's clearly greater situation where you can ship in 2023. Now the 10% to 15% you referred to, we just gave this as an indication of the size of the impact of the export control, it's about 10% to 15% Of the 2023 China sales, yes.

Speaker 1

So that's kind of give you an indication that yes, it has an impact. Clearly, it has an impact. But What's our China business? Our China business is significantly in the area of the mature chips and the less than the mid critical chips. And Why is that?

Speaker 1

It goes back to our slides that I showed. When you talk about connectivity, you talk about AI, it's all about advanced. That's not in China. But it's when you think about the rest of these trends, whether it's energy transition, EV transition, industrial IoT, The rollout of smart grids, these life sciences, that's where the Chinese industrial capability is pretty high, And they need a lot of chips. So this is why they are buying that stuff, and they will keep buying that stuff.

Speaker 1

But you're also right, let's say, what we don't Sell to China, we'll sell somewhere else because our Chinese customers or the end customers in China still buy chips. They buy chips from Korea. They buy chips from Taiwan. They buy chips from the United States. So the advanced chips, they still buy.

Speaker 1

They don't make them. They make the mature chips. So that will actually reposition itself. So you are right, but we don't Sell in terms of advanced chips, still the capacity is needed. We'll sell somewhere else.

Operator

Okay. Next question?

Speaker 2

Hi, Peter Heck from Politico. I had a question on Taiwan. There were recent elections there that gave the victory to a more China skeptic candidate. There were also some strong remarks from the Chinese President on reunification with Taiwan. You have a sizable presence and a sizable revenue also in Taiwan.

Speaker 2

Are you increasingly cautious or concerned about the business side in Taiwan?

Speaker 1

No. No, I can give you a very short answer. But it is no, I think these are political elections, and You can read the political analysis of the people who really understand this, which you shouldn't ask me. But what I read is that, as always, Yes. There is this new president that is from this particular party and but they don't have the majority in parliament.

Speaker 1

So Big law changes need to go through parliament, which basically creates this balanced situation where there's always going to be political Gives and takes across the globe. That's true for Taiwan. I think it's true for many, many other countries. So we'll just follow what's happening, and we don't feel that what happened in Taiwan is the reason why We should lower our activity in Taiwan, no.

Operator

Okay. Thank you. So let's move to a question From Asia, Ting Fang from Nikkei Asia. About Japan, please could you share how you think of Japan's plan to bring back their Chip Industry and Supply Chain, do you think they will be successful? And what are the challenges and opportunities?

Operator

I guess she's talking about Raupidus. 1 of your major customers' Expansion went quite well in Japan. What are ASML's expansion plans and status in Japan? And how do you observe Japan's opportunities?

Speaker 1

Well, I think Japan has a very strong history in semiconductor manufacturing. And for all kinds of reasons, the market share of the Japanese Manufacturers went down. I think there's a very clear focus of the Japanese government to reinstate that. And it's not only Historically, very good in memory, but we now have a new initiative, Rapidus, which is basically focusing on advanced In our semiconductor manufacturing, which, of course, we are going to supply very advanced machines. So I think it's going to be a challenge.

Speaker 1

No, I'm not going to but and where is the challenge? The challenge is you have to rebuild some of that some of what Was actually slowing down or has slowed down over the last couple of years or last couple of decades. So that means people, so you need to invest in people, you need to invest in the ecosystem. This is also why your industry partners like ASML will also invest Where this new enterprise, Rapidis, is going, we will go. But with us, others will go.

Speaker 1

So it's going to take some time, But with the right focus, with the right incentive programs, it means that you can reinstate that. I think that's the goal. And I think we all should be I'm an optimist. That, of course, worries a lot from time to time. But my optimism clearly tells me that if you have the right focus And also you made reference to one of the initiatives that is building out that's a Taiwanese company, Building out excess capacity of extra capacity in Taiwan sorry, in Japan, that's going according to schedule.

Speaker 1

There's also very much a Japanese Characteristic. When they do it, they plan it, they execute. So everything is there. We're just it's going to be not going to be easy. These things aren't easy, but We're there to help.

Operator

Okay. Thank you. Questions in the room? Yes. Good

Speaker 5

morning. I'm Sarah Jacob from Bloomberg News. Can we expect the contribution from the Chinese market to ASML sales to go back to single digits in 2024?

Speaker 1

Go back to it's single digit.

Speaker 5

Single digit.

Speaker 1

Yes. For the last couple of

Speaker 5

years, it

Speaker 1

hasn't been single digit, and I don't Expected to come to go to single digit either. Like I said, if you look at 2023 and you take the impact of the Export control rules, it's 10% to 15% of our 2023 business, whereas the rest of the business is mature technology That are needed for all the transitions that we are currently having to deal with. So I don't expect that. Like I said, for the last couple of years, it hasn't been Single digit, and I don't think it's going to be.

Operator

Yes, not for anyone in the industry, right?

Speaker 1

No, that's not only for us. I mean, yes, Without just taking a lithography tool, you can't make a chip. There's our U. S. Peers and our Korean peers.

Speaker 1

There just look at their financial statements. They're just going very strong, especially in this domain of the more mature or the mid critical part of the semiconductor manufacturing. Okay.

Operator

Anyone else in the room? Yes, Marlene.

Speaker 6

Marlijn van Dijk, Eindhoven Stockblad. During 2023, you slowed down the hiring of new People, significantly also here in Veldhoven. Could you elaborate on your plans for 2024? And maybe also give a number as to how many people you are planning to hire this year?

Speaker 1

Yes. I think we're not going to give a number of people going to hire. And the slowdown is indeed that we slowed down from hiring 10,000 people year to 3,000 people per year. So that's a slowdown. But we're still hiring people, and we need to hire people because we will grow.

Speaker 1

And that's going to be a reflection of our forecasted growth. And our forecasted growth, as you just follow The indication we have given during our Capital Markets Day is going to be double digit, yes? Now that's going to be Not a straight linear line. It's going to be somewhat bumpy. You could say that we're going to hire people.

Speaker 1

And in a period where Our industry, like we said, 2024 is going to be around a flat year, yes? It also means that, yes, while we're hiring people, we're also going to use that time to actually make those people that we hired to make them more efficient, to make them more effective And to work on processes and to improve things that you can improve in the company. But longer term, it's going to be growth and significant in terms of Yes, FTEs, people.

Operator

Yes. So speaking of growth, I also got a question in from and I'm hoping I'm pronouncing this correctly, Rita Lokel from Luzign, Nouvelle, French. Your CapEx plan in 2024 compared to 2023, where does it

Speaker 3

go? The CapEx plan, I think that will be sort of in line with what we had in 2023. That would be my Vacation, so as we mentioned before, we are really building capacity against the targets that we've communicated before. By 20 2025, 2026, we want to be able to do 90 EUV and 600 DPV. And midterm, we're looking at 20 high NA.

Speaker 3

So that's a big jump. And Of course, that requires quite a bit of CapEx. And these are last year and also this year are the key years in which we're building that. I think it's prudent to expect that, that will be more or less

Speaker 1

at the

Speaker 3

same level.

Operator

I'm guessing the question is also in what regions are you investing in Cape Verde?

Speaker 3

Oh, it's everywhere. So of course, the lion's share of investments is here because this is where most of the manufacturing happens. But we're also investing in the United States. We're investing in Korea. We're investing in Taiwan.

Speaker 3

I mean, those are the places where we have the highest investments in China. So we are investing across the globe.

Operator

Yes. Thank you. Anyone here? Yes.

Speaker 7

Pavel Gehr from Bits and Chips. Can you comment on the high NA order intake, please?

Speaker 3

Yes. On Hy and A, we've never quantified that because our customers don't want us to do that because they believe Hy and A is so critical and strategic To them, they don't want to give away to the very small world in which they operate what the order profile is. But we did say That we had multiple high NA orders in the order intake for the last quarter. So it's a healthy journey. We're happy with what's going on there.

Speaker 3

We communicated a couple of quarters ago that we were in double digit territory in terms of orders that we had there. And of course, we added a couple thereafter. So that gives you a bit of a perspective. So healthy, in line with our expectations, but we cannot put a definitive number on it.

Speaker 1

But it is nicely supporting our 2025 and 2026 build plans. So yes, we're happy.

Speaker 7

Okay. And Peter, do you think Europe should follow Japan's example in establishing leading edge manufacturing Capacity of its own.

Speaker 1

Absolutely. Now I think you have 2 initiatives. We have Initiatives that in particularly in Germany, 2 major semiconductor makers are there, Being very clear about their plans to establish semiconductor manufacturing, I think it's needed. There's a concern By a lot of people, it's basically all these incentive programs, they will create this big overcapacity because Capacity will be built in all places in Europe, in Japan, as we just discussed, in China, in Korea, in the United States. But you have to realize that while one of those charts, our industry, our customers industry is going to grow over 1,000,000,000,000 by 2,030.

Speaker 1

It took us 40 years to build the capacity to do SEK550,000,000,000. Then we only have less than 10 years to do Another step up and doubling it again. Trust me, we need that capacity. And if that capacity is only concentrated then In only 1 or 2 places on the planet, you get a level of dependency that people after COVID realize it's not healthy. So I think we need to do that, And but we also need to do it going back to one of my other slides, it's not only on the connectivity part on the high end stuff, but we have to do it also on the mature side, yes, They mature in the mid quarter because that's where the volume goes.

Speaker 1

If you take an electrical vehicle, a handful of very advanced chips, 100, 100 of chips that are more of the mature nature. That's more silicon. So I think This is where and I would we've always said this. We've as you might have known, we issued a white paper just before The presentation of the draft EU Chips Act, where we made that point is that you cannot only focus on leading edge, you have to also focus on mature chip because Those are the engines, the workhorses of these major transitions. And of course, it all ends In high power compute and access to data, very fast access to data, high bandwidth memory, yes, yes, yes, yes, all true, yes, but it's combined.

Speaker 1

It's an ecosystem. You cannot do one without the other. And this is where I think that's what governments need to realize. And Europe is not alone in that. I think There are more governments around the globe that are focusing solely on advanced chip manufacturing, while I think real issues are going to pop up in the major space.

Speaker 1

And that's where Europe should also invest.

Operator

Okay. Let's go to a question online. The landscape undergoing significant changes and given the company's strong cash position, are there any regions or technologies where ASML sees strategic opportunities for M and As or joint ventures to support its technology portfolio and or to expand capacity? And would you be looking at other partnerships like the one you announced with Samsung in December?

Speaker 3

That's a very broad question. But in general

Speaker 1

Why don't you explain our M and A strategy?

Speaker 3

Exactly. Why don't I do that In detail. So bottom line, and I think that's consistent with also what we said at the Capital Markets Day. If you look at the opportunities that ASML has ahead of it, it's phenomenal, Right. If you're looking at the SEK 44,000,000,000 to SEK 60,000,000,000 that we've that we said we believe is possible in the 2,030 time frame, it tells you that we have a lot of That we see for ourselves in our current market.

Speaker 3

And we also believe there's still a lot to be done because in order for that to be Successful, we have to build capacity. In order for that to be successful, we have to make sure that high and A is up and running. And we think that the company is best off, and we Our stakeholders are best off if we really focus on that. So that's the emphasis, I would say, for the foreseeable future. Never say never, Right.

Speaker 3

I mean, obviously, there could be a point in time where you're going to say now we have more capacity to look at other product market combinations. But for now, we believe the opportunity that we have ahead of us is still so phenomenal that there is no action required on that front. That said, we are very active in partnerships. We are very active in partnerships with our customers. And indeed, Samsung is a great example of that.

Speaker 3

And We have a very specific one there. But I can tell you with all of our customers, we have very intense collaboration, and we doubled down on those efforts to make them successful because that's, I think, what it It boils down to we have very significant initiatives within our ecosystem with universities, etcetera, to develop stuff. So we do a lot on that front. And finally, on the supply chain, and there I think, again, very consistent with what we've done in the past. We're very happy With a supply chain that is so dedicated to our ecosystem, that works really well for us.

Speaker 3

The last thing we want to do is buy up all of those suppliers, Make them part of ASML. I think the model we have today works extremely well. We have a level of focus and dedication in our supply chain and professionalism in our supply chain That I think is unique. We would only do an acquisition in the supply chain if we really feel that there is a supplier out there that cannot keep pace with what we do. And if that's the case, if we see a supplier that is critical to what we do, but for whatever reason, they cannot make the commitments that we require, then we make an investment there.

Operator

Thank you. Questions in the room? Because I have some more on my iPad. Yes, okay.

Speaker 5

ASML has been pushing at The boundaries of the Moore's Law for decades, when do you see Moore's Law sort of expiring?

Speaker 1

Yes. I think, yes, Morris was said earlier, I think it's an empirical law of economics. So it will slow down when It doesn't make sense to create this next transistor or function whereby the value of the transistor of the function is The same or lower as the cost. May you stop. And the value of the transistor or the function is not only Driven by lithography.

Speaker 1

It's one of the scaling engines. But very important scaling engines are system integration, System architecture, material choices, that altogether creates this ability to keep scaling. And that together is what you do with the customer. So I think and with our peers. So if we and our peers and the customer Come to the conclusion that the added value that the incremental value of the next generation of transistor or function And Chip is not going to cover the cost.

Speaker 1

It stops. We're very far from this. So it's the combination of all of it that at least we think for the next decades, we will see Maersk Law continuing because it's a combination Of everything. And I think when we talk to our customers, we see this value accretion per transistor or per function Of the chip, still higher than the cost. But that's our challenge.

Speaker 1

That's the challenge that we have, together with our peers, to manage that cost.

Operator

Okay. Let's go to Asia again. Pei Lin Liu from Caixin Media. The new message is that I think it's a clarifying question. The new message is that you are now expecting for a handful of fabs not to get export licenses for China for the 1970.

Operator

In last quarter's conference call, you didn't mention anything about the 1970. How does it happen? And then a follow-up question, which we also got from Thijs Roske from Nupend and L. Will we see more models banned in the future?

Speaker 1

Well, this just a confirmation, yes, it's a 90.70 percent, 90.70 percent, 19.80 percent. There's not a big difference between the 2. So you can Mention a win in one sentence. I think

Operator

that was the

Speaker 1

So yes, I mean, that was indeed also for this handful of fabs that cannot access

Operator

U. S. Rules, yes.

Speaker 1

And for the rest, I'm the last person that's going to speculate on any additional export control rules. But we have to realize that Export control rules as a mean to control national security interest, Very valid, yes. That's pretty normal, yes. But where we are today is that when we have done that And the rest is for mature and mid critical chips, which we need for day to day life and for all these transitions that come, that's an economic Decision to actually help society and to actually solve these big problems. I think I would be of opinion that we should absolutely Keep that open.

Speaker 1

We should just make sure that the world, if we want to grow to a semiconductor industry, that's over 1,000,000,000,000 Dulles, because that's going to support all those major transitions, then we better make sure that there is enough capacity. Thank you very much.

Operator

Okay. Thank you. In the room, any questions? Yes, Peter.

Speaker 2

You mentioned in your presentation that you need that international population, international students coming to the Netherlands. How do you look upon the formation of the new Dutch government, which may not be very open to knowledge migration to the Netherlands?

Speaker 1

Yes. Well, I always say, You should know what you wish for. So if you don't want this in the Netherlands, then you should accept the consequences. And the consequence are just to give you an example, 65% of all the international students in a technical university in Eindhoven lands in this region, the Brainford region. That is a very significant source of talent That we need to drive innovation.

Speaker 1

Well, this industry is not going to stop. We're going to have $1,000,000,000,000 plus, Yes. And we have to expand across the globe. We need to support it with R and D and with people and with innovation. If we cannot get the people here, We get the people somewhere else.

Speaker 1

It's very simple. We will go where we have access to the means to grow the company. If the Netherlands shuts down because we cannot get immigrants or foreign students, yes, fine, yes, you have to accept the consequences. You should know what you wish for. Yes.

Speaker 1

So we are a company. We are a global company. We will go where we need to go to make sure the company can grow and service our customers.

Operator

Okay. Any questions here? Then we go back to My iPad, again, Luzine Neuvel. You seem to be moving against the grain of the semiconductor market. The market was down.

Operator

According to Gartner, that was minus 11% in 2023, and you end the year with a 30% jump. For 2024, the market is forecast to see strong growth, plus 17% according to Gardiner. And you are counting on a flat turnover. Why these contrary developments?

Speaker 1

Yes. That sounds intuitively, yes, but it was what Roger said, Juan, part of the 2023 Sales is a catch up of customers that you undershipped us more than 50%. So can you please give us the machines that you obviously reserved for all the customers? Okay. You know, shipping to us.

Speaker 1

Thank you. And these are very long lead time items. So they get the machines in 2023. So they have the capacity. That's what Roger said, Logic is a bit down probably this year because they're going to use that capacity, don't need to invest twice.

Speaker 1

Would love them to invest wise, but they're probably not going to do it. So this is why there seems to be a contradiction, but this is why if you chop up Life In periods of January 1 to December 31, you get these very strange views, yes? That's why we look at 2024, 2025 together Because it's a continuum, yes, whereby long lead times of ASML, short lead times of our customers all play a role And how the dynamics within such a period actually happen. So it's not a contradiction. It's perfectly in line.

Operator

Yes. Okay. I have one more question on my iPad, but we already covered that. So if there's nothing else here, Then I have one more slide for you, which is thank you. Thank you for being here.

Operator

Thank you, Roger, for again explaining the figures so well and make them come alive. And a really big thank you, Peter. This is our last press together in January. You'll be here for the next coming months and I'm sure you're not going to slow down, but I just want to thank you here for all the times you were here to talk To everyone and taking the time for interviews, it's been a pleasure and a privilege to work with you on this way. Thank you.

Speaker 3

Thank you. Thank you. It's an

Speaker 1

absolute pleasure to work all These years with ASML, I mean, I got a question on one of the interviews. I said to you, how do you feel? I said, that's a bit sweet and sour. It's the sweetness is to see where the company is and to see what we've done. And the sour part is that you have to say goodbye, which is logical.

Operator

Not yet, where you're still here at all?

Speaker 1

Not yet, but I'll tell you. I got the confirmation this week that my state pension, Ah Okay, will start on June 1st. So well, what it is.

Speaker 3

So you can afford, right?

Operator

Okay. Thank

Speaker 1

you. Thank you for all the years that we've exchanged our ideas And our thoughts. So thank you so much. Okay.

Operator

Well, thank you all for coming and see you next year.

Speaker 1

Thank you. Bye bye. Bye.

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Earnings Conference Call
ASML Q4 2023
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