© 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. Dassen, can you give us a summary of the third quarter results?
Absolutely. Net sales came in at EUR 5.8 billion, which was above guidance included in that EUR 5.8 billion number, EUR 1.5 billion of installed base revenue.
Why was it higher than guided? A number of reasons. First off, the installation time in the field is -- actually, it's faster than we anticipated, and that means that we get revenue faster as a result of that. So that was one big reason.
Secondly, we already mentioned the installed base business. So that was more than we anticipated because of some field upgrades.
And thirdly, we put -- also in the past quarters, we put options at factory -- a specific factory option on the machines. And that factory option led to delayed revenue because, first, the factory option needed to demonstrate its value to the customers. A number of key customers have now accepted that value, and as a result of that, the deferred revenue that we booked in previous quarters has now been released. So it's in that combination really that the revenue was higher than we guided.
Also from a gross margin perspective, higher than we anticipated, 51.8%, primarily driven by, I would say, the last 2 things that I've just mentioned. So the deferred revenue release of the factory option and also the fact that we were into -- able to pull in some installed base business. Also, the factory option was a pull-in, right, because that meant that the value was actually demonstrated earlier than we originally anticipated.
So those are the main reasons why both the revenue and gross margin are higher than guided last quarter.
The net income for the quarter came in at EUR 1.7 billion. And also very noteworthy, I think, is the net BOs -- net bookings came in at a record EUR 8.9 billion for this quarter. Included in there, EUR 3.8 billion for EUV, including a number of High-NA orders.
So all in all, I would say, a strong quarter both in terms of revenue, in terms of gross margin and also in terms of order intake.
What's your guidance for the fourth quarter and for the full year?
For the fourth quarter, our guidance for sales is between EUR 6.1 billion and EUR 6.6 billion. Included in there, we expect EUR 1.6 billion for installed base revenue. In terms of gross margin, we expect approximately 49%. If you then translate that into the full year 2022, we would get around -- at the midpoint, we would get around EUR 21.1 billion revenue for the full year at a gross margin approaching 50%.
Can you give us an update on the current supply chain situation and your confidence in resolving these issues?
Yes, I think it's good in that context, just to look at the facts. And I think one factor is just to look at if you adjust the quarter revenue for the fast ship effect, I think that gives you -- if you normalize that, then I think you get a good proxy for what the -- how the output capacity for ASML and its supply chain really has developed itself. And if you take that perspective, so you normalize the revenue for the fast ship effect, and you would see that for Q1, we were at EUR 4.9 billion in normalized revenue. In Q2, we were at EUR 5.7 billion. In Q3, the quarter we just completed, at EUR 6 billion. And at the midpoint that we're now guiding for Q4, we would be around EUR 6.4 billion. So there you see a gradual uptick of the normalized revenue, again, as a good proxy of the output capability that ASML and its supply chain demonstrate.
And I think that's a good indication and a good evidence, I think, of the fact that we are getting a better handle on the supply chain situation. And the better handle means that we actually see the move rates in the supply chain go up and we also see the predictability of those move rates going up. So we put a lot of effort into this, working very closely with the supply chain and particularly with those suppliers that were struggling a little bit. But I think all in all, I think the situation is definitely progressing. I think the capacity that we now see, both for ourselves and also the supply chain, I think, position us very nicely for what we've communicated before as the output target and the shipment targets that we would have for next year, which is more than 60 EUV tools and more than 375 DUV.
There's a lot of uncertainty around the supply of natural gas. Do you see any impact of that on your business?
So we definitely looked into that. We looked into that for our own operations. We're a very mild consumer of natural gas. So for us, we've established that the risk profile is very low. We also looked at our Tier 1 suppliers -- our key Tier 1 suppliers. And also there, we have determined that either it's -- the risk is low or they are very well prepared to deal with the situation and have developed alternatives. We looked beyond that point, and we really looked into a number of subsuppliers and if there are subsuppliers that are confronted with a high-risk situation around this. In those instances, we're working very hard with them to look at -- to work on the alternatives and just make sure that everyone is very well prepared. So clearly something we're looking into, but I think we're making really good progress on making sure that the entire supply chain is well prepared for that -- for any eventualities in that regard.
Are you seeing any change in demand from your customers with slowing consumer demand potential recession ahead? What does it mean for demand for your products in 2023?
Yes, it's a very valid point. I mean it's very clear that the world is changing very rapidly, and this combination of inflation on the one hand and also consumer confidence taking ahead, it's -- these are serious developments and create a lot of uncertainty and uncertainty that is really at a very different level -- I would say, at the macro uncertainty, I think, is at a very different level than it was even a couple of months or quarters ago. So that's clearly the case.
And of course, in such a climate of uncertainty of consumers, inflation risks, recession risks clearly there, I think that obviously also has an impact on our customers. And you see some customers actually running our tools at a utilization level which is below the record levels that we've seen before. We also see a number of our customers reducing the CapEx that they are forecasting. And we also see now for the first time since quite a while that actually some customers are actually delaying the preferred time that they would like to get our tools. So we see those dynamics.
But I have to say the lion's share of our customers really keeps on pushing us in terms of getting the tools and getting them sooner rather than later. So there's a few customers that are indicating a preference for some delay, but the lion's share of the customers are really pushing, and they're raising their hand to say if there is a delay someplace else, then please get the tools to us even earlier.
And I think that's also evidenced by the strength of the order book. Again, we just mentioned record order intake of EUR 8.9 billion. That gets to an order book at the end of Q3 of over EUR 38 billion, which is a number that we've never seen before at ASML. And in there, 85% of that order book really is for EUV and for immersion, so really caters to the more advanced and strategic part of semiconductor manufacturing.
And I think that's really also what's going on. I think, clearly, the secular trends, as we always call them, are very much intact. I mean customers really want to make those technology transitions. They really are building capacity also beyond 2023. And also, there is still this element of tech sovereignty that we've been talking about, right, the fact that governments want to be more self-sufficient in their semiconductor manufacturing. So those secular trends are still very much intact. And I think that creates a situation that we're seeing, where the lion's share of the customers are really still pushing us to get the tools sooner rather than later.
So your question on '23, obviously, it's a bit early to be too granular and too specific. But we mentioned before the over 60 EUV tools, the more than 375 DUV tools. And I would say if indeed we're able to sustain the good momentum that we just talked about in the supply chain and provided we're not going to be confronted with some very unexpected developments on the demand side, I think that's still a good indication for what we're looking at in terms of shipment. So clearly, uncertainty at a very different level than what we've seen before. But I think we still have some very strong dynamics going in favor of us.
And how do you prepare for these uncertainties?
Well, the key word there, I think, is flexibility, right? And that's also something that we're working on as ASML, so to make sure that both on the supply chain as it relates to our own manufacturing capability and also in our workforce that we have sufficient flexibility available, both flexibility that in terms of an unanticipated sudden decline in demand that we're able to collectively respond to that in the right fashion but also making sure that we're also -- when things start to pick up again, that we're able to respond to that in a very flexible way as well.
So that's what we're doing. I think it's part and parcel of the capacity expansion that we're doing to do that and to execute that in a flexible way. Anything in that way, we do whatever it takes to be well prepared for any eventualities in that regard.
Have you seen any further increases in inflationary effects? And how do you recover from the inflationary costs with regard to your gross margin next year?
So I mean we talked about it last time. Obviously, the inflationary effects are there, both on labor cost, on freight, on parts. So that's clearly going on. We also mentioned we're having good discussions with our customers on that front to kind of share the burden within the ecosystem. And I think generally, there is a good depreciation of customers that they understand what we're being confronted with. And there's also a good appreciation that there needs to be a mechanism to indeed share that burden. So I would expect to get a benefit from that in the course of -- in 2023 and to start seeing that compensation.
In terms of the impact that it will have on 2023, so we should get some positive impact on the gross margin from that element. Also for '23, I would expect to recover, if you like, from the gross margin impact from the fast shipments. Of course, the gross margin of this year was impacted by the fact that we had these fast shipments. That impact should be significantly less in 2023 from a gross margin perspective. So those, I would say, would be benefits.
I mean the flip side of that is, clearly, inflation might continue. So there is still quite some uncertainty around the level of inflation. So it's also very hard to predict what exactly the inflation rate for next year is going to be. And also, we should bear in mind, we continue to ramp. We continue to build capacity. And obviously, that means that you're having costs ahead of really utilizing that capacity, and that will continue to have a burden on the gross margin for next year.
So if you add it all up, I think all in all, as I mentioned, we have the gross margin approaching 50% in this year. That's what we expect. You also know that we indicated -- for 2025, we articulated an expectation of a gross margin between 54% and 56%. And I think we should also, next year, see the gradual development from the gross margin of this year towards that objective of 54% to 56% that we articulated before. We should see that gradual progress actually happening.
As said, there is strong demand for your products. Do you think that this strong demand will continue beyond 2023? And can you elaborate on your expansion plans?
Yes. So as I just mentioned, I think the secular trends are there, right? So clearly, there is uncertainty in the short term, but the secular trends are there for all the good reasons that we just mentioned.
So from that vantage point, clearly, we believe expanding our capacity is the right thing to do. And we are in very close collaboration with our supply chain to get that done. We recently had a Supplier Day here at ASML to really talk with the suppliers about these expansion plans, about the progress that they're making, also making sure that people learn from one another. So there's a lot of positive dynamic around that theme and a lot of alignment within the supply chain to really get to those levels that we mentioned before, which is 90 EUV systems, 600 DUV systems around the '25 time frame and then, medium term, 20 High-NA systems.
What's the impact of the latest export control restrictions announced by the U.S. government? Does this impact your business in China?
So I would say the direct impact on ASML is fairly limited. I should say, of course, we're still in the process of evaluating it. It's a very extensive document, as you know. So we're still in the process of really digesting it and looking at it. But our initial appreciation is that the direct implication for us is fairly limited.
So why is that? Well, first off, as you know, we are a -- we're a European company, right? So there is not a lot of U.S. technology in our tools. So that's the first reason. Of course, we will always adhere to the rule of law, right? So also the U.S. export laws as they pertain to us, of course, we will do whatever it takes to follow those. There's no doubt about it. But the fact that we are a European company with limited U.S. technology in it, of course, it creates this situation where the direct impact on us is fairly limited. We can continue to ship non-EUV lithography tools out of Europe into China.
So the direct impact on us, I would say, is fairly limited. Of course, there could be indirect effects. And those indirect effects could be that the Chinese manufacturers, to the extent that they do not get other equipment that they need in their fabs, for instance, from the United States, of course, there could be an indirect effect on the demand for our tools. But there, I would say it's important to recognize that we're clearly still in a situation where the supply is below what the demand is. So to the extent that at a certain point in time, we would be in a position that we can no longer supply certain tools to certain customers in China. The demand outside of China is still such that we would get compensation for that in the current environment from other customers.
To conclude, can you give us an update on your plans for the use of cash?
Yes. So I would say, in principle, nothing changes, right? So as you all know, the primary utilization of cash is, within the business, to make sure that from an R&D perspective, CapEx perspective, the cash that is needed to pursue our road map is there. So that's still the primary purpose.
Then we've also said we're looking at a dividend that we want to grow over time. And the proposal for next quarter, so for Q4, we will have an interim dividend of EUR 1.37.
And you also know that what is available above that, so what is available in terms of cash over and above what we need for the business to pursue our road map and what is needed for this growing dividend will be returned to shareholders by means of a share buyback -- by share buybacks. The share buyback program -- the existing share buyback program, we just completed. So quite well ahead of time.
We will have -- as you know, we will have our Capital Markets Day on November 11. There, of course, we're going to talk about how we see the 2025 and the 2030 scenarios developing. So how do we see demand developing, the supply situation? So what's our expectation also financially for those years 2025 and 2030. We're also -- in that Capital Markets Day, we'll talk about our plans for a new share buyback program. So there, we will have a concrete program available and ready to discuss and present to the shareholders.
So I'm very much looking forward to that. It's going to be an interesting day, November 11, where -- amidst the uncertainty that we also talked about, to talk about the medium and the longer term and the really good prospects that we continue to see for ASML and its business. So very much looking forward to seeing all of you there, either in person or in video. We'll see you there.