© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Mr. Wennink, can you give us a quick summary of the second quarter results?
Yes, of course. Second quarter ended EUR 5.4 billion in sales and about EUR 1.3 billion in Installed Base, which is slightly ahead of our guidance. We had gross margin coming in at 49.1%, which is a bit of a lower end of the guidance, just to do with the increased inflationary effects that we've seen. Net income, EUR 1.4 billion. And very good order intake, EUR 8.5 billion of orders, which is a quarterly record.
Now all in all, I think a solid quarter. However, it was not without challenges and mainly because of supply chain challenges, supply chain constraints, parts not coming in on time, but we managed the quarter.
What's your guidance for the third quarter?
Well, like I said, what we saw in the second quarter, which is basically an acceleration of supply chain constraints, is actually also happening in Q3. And I think it will happen throughout the remainder of the year, which will mean that in the third quarter, we will see more fast shipments than we planned, and this shall also be true throughout the remainder of the year.
Now we have to remind what the fast shipment is, and the fast shipment is, in fact, a way to reduce the cycle time by cutting or not doing certain tests in our factory, which could lead up to 1 month of cycle time reduction, very important when the customers are waiting for those machines. So we only do those tests at the customer site, and which means the revenue recognition will, as we move to that moment in time, which means, yes, we will have more fast shipments, so we'll have more deferred revenue than we anticipated.
So when we look at Q3 and look at the guidance of Q3, I would say that it's more or less in line with the guidance that we gave for Q2. So it's between EUR 5.1 billion, EUR 5.4 billion of sales, between 49% and 50% margin and about EUR 1.4 billion of Installed Base Management.
So are there then any changes to your fuel for 2022?
Well, first of all, 2022, we have to put this into context. 2022, the demand is still significantly higher than what we can make. So this is the situation that the last quarter and is still the same, and we don't see any demand reduction. But what we do see is what I said earlier is that shipments will be indeed later, so we have more fast shipments. So we have revenue recognition delayed.
Now we said a quarter ago that the impact of those fast shipments, this revenue recognition delay, was going to be about EUR 1 billion for this year. Now where we are today, we think it's going to be EUR 2.8 billion. So we have about EUR 1.8 billion of more revenue recognition delays. And those delays, of course, translate into our 2022 sales number. So currently, we think sales will grow a bit about 10%, which if you do the math, would come around EUR 20.5 billion for 2022.
Now in summary, if you then look at what we said a quarter ago and where we are today, a quarter ago, we said sales going to grow with 20%, grow which brings you to EUR 22.3 billion, but with EUR 1 billion of deferred revenue recognition because of fast shipments.
Where we are now, we say, well, it's 10%, let's will bring you to EUR 20.5 billion with EUR 2.8 billion of deferred revenue because of fast shipments. So when you look at the business volume or the shipment value, it's effectively these quarters are basically the same. So our guidance from that point of view has not changed.
What does it all mean for the different business segments for the year?
Well, when you look at EUV, we're shipping 55 systems. We said that before. However, because of those fast shipments and the revenue recognition delay, the deferred revenue, we are now looking at -- which, by the way, are 15 EUV systems. We are now looking at a revenue, a booked revenue for EUV for 40 systems, so which is about EUR 6.4 billion in sales.
Now on deep UV, we see a significant number of deep UV shipments, a significant increase as compared to last year. But also there, we are seeing the impact of these fast shipments. So we think we'll end up around EUR 8.6 billion in sales for deep UV, which is just over 15% increase as compared to last year, which, by the way, previous quarter, we thought it was going to be 20%.
And on Installed Base Management, 10% growth as compared to last year, EUR 5.5 billion in total. So add up to EUR 6.4 million for EUV, 8.6% for deep UV, 5.5 for Installed Base management, 20.5 billion for 2022, which is about a 10% increase.
So we see an increase in delayed revenue. There are concerns around inflation. How does this all impact your gross margin for the year?
Yes. We started the year with a gross margin expectation of about 53%, and we corrected that in Q1 to -- with 1 percentage point to about 52%, largely because of the unexpected increased inflationary effects. Where we are today, we see the following. Of course, most importantly, we are deferring EUR 1.8 billion more of revenue to 2023. It happens to be our higher-margin immersion and EUV systems.
Now next to that, we're starting our systems late because of the late delivery of parts, which means that we have fewer systems this year that can cover the fixed cost. So it's fixed cost coverage. And you have to remember the fixed costs are also going up because we are planning, and we will ship more systems next year as we see it today. So we need to invest.
And last but not least, we see inflationary effects. I mean, we've seen an acceleration of inflationary pressure on labor, on freight, specifically on parts. And all in all, if you then look at it, we expect that, the gross margin for 2022 will end up between 49% and 50%.
Now having said that, of course, we're in discussion today with our ecosystem partners, our suppliers and our customers to see how we can basically fairly share the burden of all these cost increases. And now looking at it, I think it's really when you look at 2022 and look at the lower guidance on gross margin, it's driven by these short-term effects. It's inflationary effects that we didn't plan for. It's the supply chain challenges that led to deferred revenue, is all shorter term.
And of course, we're in discussion with our customers to see how we can fairly share this. But I think longer term, there is no reason whatsoever we see currently to change our ambition for our gross margin targets around 2025, which is between 54% and 56%.
Let's have a look at the market. What's your current view on the market, both in the near term and the longer term?
Yes. A good question. I think near term, clearly, we see a very mixed messages coming out of the customer base. With respect to consumer-related products, we clearly see a slowdown, particularly in PCs and in smartphones. On the other hand, in the industrial space, when you talk about high-performance compute, you talk about automotive, the demand is still very, very strong.
And I think it's also evidenced by the utilization rates of our machines that are in the Installed Base, which are at a historical high. and it's still the case today. But we were also seeing across different semiconductor nodes inventories going up towards, let's say, pre-COVID-type levels. And that's pretty broad based. So all in all, yes, it's a bit of a mixed picture shorter term.
Longer term, I think there is no denying that the digital transition that's taking place will continue. We see it very clearly in automotive. Talking to customers and customers' customers, we see a quadrupling or quintupling of the semiconductor content.
Lately, our customers are talking about the energy transition. The renewable energy transition, which is very topical these days, will require semiconductors for wind and for solar and for the smart grid. On top of that, we see the Internet of Everything, everything that we've seeing in terms of sensors and actuators needing semiconductors, it's happening, will not go away.
On top of that, more energy-efficient, high-performance compute, need more transistors. So the die are getting larger. We're needing more extra wafers. The geopolitical situation, the technological sovereignty that countries are after is driving these big investment and subsidy programs. And we also think that if we look at the announcements, the competition in the foundry space will also go up. So all in all, longer term, very healthy and abated views, a good and very healthy growth. Shorter-term mixed signals.
What does this all mean for the demand for your products this year and next year?
Well, let me, first of all, say that when we look at 2022 and 2023, you look at the order intake, EUR 8.5 billion of order intake, which is a quarterly historical high, very engaged order discussions with our customers this quarter. We see a backlog of over EUR 33 billion. So I think that looks very healthy.
Now having said that, I think for 2022, we are, of course, not blind for anything that we hear with respect to inflationary pressures, probably recessionary concerns. So for 2022, I don't think it will have any real effect in terms of our shipments.
For 2023, you really have to ask the question, what kind of recession are you looking at? If it's a moderate recession, I think the impact will be very limited for a simple reason that we have such a big backlog that our customers are coming to us and saying, listen, if we see a slowdown, sure, well, one thing is certain, we want your machines. And it's logical. Those machines are very critical, long lead time.
And you have to remember that, of our backlog, 85% is for advanced semiconductor manufacturing, high-end immersion and EUV. And of the remaining 15%, mature technology also needed for advanced production. So I think all in all, pretty healthy.
And for 2023, if we see the supply chain constraints going away by the end of the year, which we're planning for or even if it's the first part of 2023, we will definitely need our capacity that we are planning, which is over 60 EUV systems and over 375 deep UV systems; with this potential risk of a moderate recession, we will need that capacity because our customers tell us. So it's going to be a good and healthy year.
Yes. So anyhow, strong demand. Do you expect that strong demand to continue beyond 2023?
Yes, absolutely. I think I talked about the big secular trends. These are the longer-term trends, and semiconductors are everywhere. And it's also obvious that big societal challenges need big solutions, and semiconductors go to the heart of those.
So as is yes, semiconductors will grow, semiconductor industry will grow, litho intensity will increase. And as a matter of fact, if we look at that, we just -- are going to just repeat what we said a quarter ago that we do need structurally more capacity.
And as we said, by 2025, we want to have a build capacity for EUV of 90 systems and deep UV of 600 systems. And beyond 2025, we want to build at least 20 High-NA systems. I think that is still very much intact, and we're working with our suppliers to get it done. Now clearly, we will go into some more detail on those capacity numbers and on the drivers for those capacity numbers during our Capital Markets Day, which is on November 11 of this year.
Can you give us an update on your plans for the use of cash?
Yes. I think the future is very bright. So our cash generation will be quite significant. But first of all, like we've always done, we will use the cash first to run our business. And secondly, then we will pay a dividend, which is going to be an increasing dividend.
And by the way, we've decided to move from a semiannual dividend to a quarterly dividend, where we're starting in Q3 an interim dividend for the first time this quarter. And any excess cash we will use for share buybacks, as we have done in the past. So no change to our policy.
How would you all summarize this?
Well, if you look at the big picture, you have to really make a distinction between the short term issues and the long-term issues. Short term, there's no denial that there are concerns. There are inflationary concerns, recessionary concerns. As at the [indiscernible] it is now, we have supply chain constraints that leads to fast shipments and deferral of revenue recognition, we'll deal with that.
But also short term, we look at an order backlog, which is very strong. We look at a customer demand for 2022 and 2023, that is unabated, which can withstand any moderate recession in our opinion. And then, of course, we have the longer-term trends.
I think the longer-term trends are, like I said earlier, unabated. I mean, it's obvious that the digital transformation will continue and will provide a very, very healthy growth profile for the company going forward with us and with our customers.
And of course, we'll go into more detail. We will go into more detail in November, November 11, I said it before, where we will definitely share with our stakeholders and with our investors our views as to the drivers and to the capacity needs for this industry and for ASML specifically. So we're looking forward to that.