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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Mr. Wennink, the COVID-19 situation had some impact on the previous quarter for ASML. How is the situation today? And how are you managing risk?
Well, we are managing risk through our amazing ASML people. If you look at to the challenges that they had to deal with, I mean, they were committed, engaged, creative, and this is why, I think, the company is in pretty good shape. So first of all, thanks to our people. But I think how do we manage? Yes, I think we have to look at the fact where we're still procuring our parts. We're building our systems, we're shipping them, we're upgrading them. They're servicing our customers and Q2 was not without challenges, especially the first half. I think I want to make a distinction between the first half of the quarter and the second half. First half, we had some supply issues because of lockdowns. Absenteeism around the world. But that, actually, the second half of the quarter came back to normal. And that's actually -- we're in pretty good shape. So of course, depending on any unforeseen outbreak of the COVID-19 around the globe, I think we're managing well.
Can you give us a summary of the Q2 results?
Yes. Q2 results were pretty good. We had EUR 3.3 billion in sales. Now that could have been EUR 3.6 billion. Because of the COVID situation in Q2, we had some delays in the production in the beginning of the quarter, and that's why we shipped 2 EUV systems without FAT, factory acceptance test. So the revenue will be recognized for those 2 systems later on in this year. So if you would have been able to book those 2 systems as revenue, the sales would not have been EUR 3.3 billion but EUR 3.6 billion, which is, I think, the 50% increase that we talked about, about 3 months ago. So that was good. Margin, margin over 48%. Also, we indicated in last quarter that would go up quite significantly. And that was a result of, I think, the increase in deep UV profitability, the upgrade business that we have. And of course, we're starting to generate EUV service revenue. So that was good. Net income, just over EUR 750 million, somewhat higher tax rate, which was basically as a onetime prior period tax assessment, that lifted it to 18%. For the remainder of the year, I think for the total year, we would guide at around 14%. On orders, EUR 1.1 billion of orders. That might look low in comparison to previous 2 quarters. Previous 2 quarters, in aggregate, was about EUR 5.5 billion. But then you need to look at where we are from an order book point of view, our order book is a little shy of EUR 10 billion with 54 EUV systems. So very well-prepared for the growth of the business in the remainder of the year, well into 2021.
Any updates on your product portfolio?
Yes. I think also, Q2 was a good quarter in that sense. I mean, very important, we shipped our first multi-beam tool. That was prepared to be shipped in Q1, but because of COVID lockdowns, we couldn't ship. So we shipped in Q2. Very important, I mean it will give our customers a very significant potential in higher productivity in wafer inspection as well. Also very important, we shipped the first dry deep UV tool on NXT platform. Why is that important? Well, it gives a much higher potential for productivity, which will drive the cost of dry deep UV down. It's the NXT:1470, it's very important. We also added -- there's a little piece to our technology product portfolio through a -- probably I would say a bolt-on acquisition of the shares we signed in agreement to acquire the shares of Berliner Glas. That basically a manufacturer of very high-end ceramics and optics and optical modules, very important for the future road map for EUV and for deep UV. And we'll probably -- we'd have to go through regulatory approval. But we think we can -- that can be done over the next couple of months. So that will close before the end of the year. So all in all, you see some good developments, very good developments in the product portfolio, which is very important for the future of this company.
When it comes to EUV, how are you progressing with EUV?
EUV is really getting into the realm of high-volume manufacturing, HVM. It's just becoming part of our normal operational profile. I think in the second quarter, we made good progress in shipping the modular vessel, which is a new solution to our EUV source with the in-line refill, very good. I think also, I think as from Q3 onwards, on every 3400C, we don't expect that we need to ship systems without factory acceptance tests. So we'll go back to normal revenue recognition in Q3. That's the expectation. And I think, all in all, still, we think our EUV sales, as we said before, we are about EUR 4.5 billion, 35 EUV systems. And our capacity was still building out our capacity to 45 to 50 systems next year. Now how many will we ship next year is, of course, also dependent on the development -- economic development as a result of the COVID crisis. We don't know what the impact of the recession will exactly be. So we'll probably get a little bit more clarity on that in the second half of this year, what 2021 is going to look like, like with respect to how many EUV systems we're going to ship.
So business looks good. Are you planning to change your capital allocation policy moving forward?
Actually, business looks pretty good. And I think where we are, and when you look at the road map of our customers, our own road map, the secular trend of growth of sales and profitability is clearly there, and that means we will generate significant amounts of cash. Now clearly, for us, this is very clear to everybody. Our cash return policy is based on -- let's use the cash first for our business, then we'll pay a growing, but in any case, stable dividend. And then for the remainder, we will do share buybacks. Now I think that is still in place. We have a share buyback program of EUR 6 billion over the next 3 years. Now as for the short term, I think for the next couple of quarters, in terms of capital allocation, I think we're focusing on CapEx. So we will have some more CapEx spend in 2020, as we indicated earlier. That's for High-NA and also High-NA investment in Carl Zeiss. That will extend into 2021. And I think because we grow, we will have more working capital. Clearly because there's a growth profile of the company, and we strongly believe in that. On top of that, we will see the next couple of quarters that the extended payment terms we have given our customers. Those customers that actually took the tools in their early high-volume manufacturing ramp. We granted them some extended payment terms, which will peak in the course of this year, and then will come down significantly in 2021. That will also transition into contracts with our customers, not on extended payment terms, but on prepayments. And also, we're negotiating now with our customers' prepayment schedules that will actually help also our cash profile, particularly starting in 2021. So all in all, it looks pretty good.
Regarding the current U.S.-China trade situation, is ASML impacted by the recent U.S. export control changes and the restrictions on Huawei?
Well, I think the short-term impact, and even the medium-term impact of that -- or the new set of regulations is very limited on us. It doesn't impact our short-term shipment profile. And I think medium to long-term, you just need to take a little step back and look at it from a little bit higher perspective. I mean, you really need to ask the question, will innovation stop because of this? Of course, not. I mean the innovation road maps of our customers are there. Our innovation road map is there. Why? Because it needs to fuel this digital infrastructure that we're currently rolling out. It will -- 5G will be there. Artificial intelligence will be there. We need high-power compute. We need memory to support that. That will not go away. And all the devices and the chips will need to be made to support that. Now then the question of which company is going to provide those devices and those types of equipment? It is company A or is it company B? It doesn't really matter. The wafers will be needed and we will support the lithography systems to make sure that we can make those wafers.
Let's have a look at your outlook due to COVID-19. You did not provide guidance for Q2. What's your outlook for the next quarter?
I think that for Q3, we -- like I said earlier, we're basically back to normal, yes. So that also means that we're pretty much under control. Of course, we cannot predict any local outbreak of COVID-19, which could lead to a local lockdown situation somewhere around the globe, but it feels pretty much under control. So this is why we can also guide for Q3. We'll guide between EUR 3.6 billion and EUR 3.8 billion in sales and between 47% and 48% gross margin. And I think for the total year -- I just want to go back to what we said at the beginning of the year. And I think our view as to 2020 really didn't change that much. And I like to reiterate what we said at that time because it's still applicable. And I think the logic business will be approximately the same as in 2019, same level. Memory could grow with 30% in 2020 as compared to 2019, and our installed base business with 20%. Now you can add it all up, and you'll clearly know that 2020 will be a growth year and will be a growth year in terms of top line and profitability. So all in all, I think it's -- we're in a healthy situation.
When it comes to your customers, what's the situation at your customers' base at present? What's your view on that?
Yes. That's an interesting question because everything that we -- if we think about the industry and our customers, we need to put this into the current context, and current context is COVID-19 is there. It will clearly have an impact on the global economy. There will be a recessionary environment, which will impact consumer spending because we can all expect that unemployment will go up. Now consumer spending and consumer electronics, of course, have a relationship. So that will very likely have a negative effect on the end markets, and I think then also indirectly on us and our customers. That's the -- you could say, the negative side. But the positive side is there'll be a very clear transition from what I would call the physical infrastructure to the digital infrastructure. Data traffic is exploding. And there's also what our customers are seeing, significant investments in data centers, in working-from-home infrastructure. That is a very positive. So I think if you put it all together, you get a pretty balanced view. And if you then translate that into the different segments that we are working in, logic, logic driven by the road map. 7-nanometer is rolling out, 5-nanometer is being prepared for ramp next year. And it's all there to support this digital infrastructure. So it's pretty healthy. And then memory, and we said it also last quarter, memory is actually coming out of a downturn. And we saw the trend of increasing utilization in -- for our litho tools in the memory space continuing. And that looks healthy, has corroborated and also confirmed by customers who are actually looking at the market and of course, seeing the potential downside in the consumer market, but clearly seeing the upside in the data infrastructure market, yes. I think -- so that looks healthy. It's also evidenced by our shipment profile and by the order book. And then when we look at our installed base business. Our installed base -- our installed base units are growing. EUV is generating service revenue. I think that also looks pretty healthy. Upgrades, EUV upgrades to the next-generation of productivity are being planned, are being executed as what our customers need, and they want it. So all in all, if you just look at the balance of it, I think we're -- probably, when you look at the total world economy and a lot of types of industry, we're well-placed. And you can always say, we're in a privileged place, and that shows. And it shows in our financial results. It shows in the order backlog. It shows in the confidence of customers to keep executing on the road map because innovation will be the name of the game. And it will put us through this crisis. And like I said earlier, the secular growth trajectory of this company is very much intact.