ASML Holding N.V.

Good day and thank you for standing by. Welcome to the ASML 2023 fourth quarter and four year financial results conference call on January 24th, 2024. At this time, all participants are in a listen only mode. After the speaker's introduction, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Skip Miller. Please go ahead.

Thank you, operator. Welcome, everyone. This is Skip Miller, Vice President of Investor Relations at ASML. Joining me today on the call are ASML CEO, Peter Winnick, and our CFO, Roger Dawson. The subject of today's call, is ASML's 2023 fourth quarter and full year results. The length of this call will be 60 minutes and questions will be taken in the order that they are received. This call is also being broadcast live over the internet at asml.com. A transcript of management's opening remarks and a replay of the call will be available on our website shortly following the conclusion of this call. Before we begin, I'd like to caution listeners that comments made by management During this conference call, we'll include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve material risks and uncertainties. For discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and the presentation found on our website at asml.com and in ASML's annual report on Form 20F and other documents as filed with the Securities and Exchange Commission. With that, I'd like to turn the call over to Peter Winnick for a brief introduction.

Thank you, Skip. Welcome, everyone, and thank you for joining us for our fourth quarter and full year 2023 results conference call. Before we begin the Q&A session, Roger and I would like to provide to you an overview and some commentary on the fourth quarter and the full year 2023, as well as provide our view of the coming quarters. And Roger will start with a review of our fourth quarter and full year 2023 financial performance, with some added comments on our short-term outlook, and I will complete the introduction with some additional comments on the current business environment and on our future business outlook. Roger?

Thank you, Peter, and welcome, everyone. I will first review the fourth quarter and full year 2023 financial accomplishments and then provide guidance on the first quarter of 2024. Let me start with our fourth quarter accomplishments. Net sales came in at 7.2 billion euros, which is just above our guidance, primarily due to more install-based business. We shipped 10 EUV systems and recognized €2.3 billion revenue from 13 systems this quarter. Net system sales of €5.7 billion, which was mainly driven by logic at 63%, with the remaining 37% coming from memory. Install-based management sales for the quarter came in at €1.6 billion, which was higher than guided due to additional service and upgrade sales. Gross margin for the quarter came in at 51.4%, which is above our guidance, primarily driven by install-based business. On operating expenses, R&D expenses came in at 1 billion 41 million euros, and SG&A expenses came in at 284 million euros, both basically as guided. Net income in Q4 was 2 billion euros, representing 28.3% of net sales and resulting in an EPS of 5.21 euros. Turning to the balance sheet, we ended the fourth quarter with cash, cash equivalents, and short-term investments at a level of 7 billion euros. Moving to the order book, Q4 net system bookings came in at 9.2 billion euros, which is made up of 5.6 billion euros for EUV bookings, and 3.6 billion euros for non-EUV bookings. These values also include inflation corrections. Net system bookings in the quarter are more balanced between logic and memory relative to past few quarters, with logic at 53% of the bookings, while memory accounted for the remaining 47%. Looking at the full year, net sales grew 30% to 27.6 billion euros, with a gross margin of 51.3%. EUV system sales grew 30% to 9.1 billion euros realized from 53 systems, while in total we shipped 42 EUV systems in 2023. DPV system sales grew 60% to 12.3 billion euros. Our metrology and inspection system sales decreased 19% to 536 million euros. Looking at the market segments for 2023, Logic system revenue was 16 billion euros, which is a 60% increase from last year. Memory system revenue was 6 billion euros, which is a 9% increase from last year. Installed base management sales was 5.6 billion euros, which is a 2% decrease compared to previous year. At the end of 2023, we finished with a backlog of 39 billion euros. Our R&D spending increased to 4 billion euros in 2023, as we continue to invest in innovation across our full product portfolio. Overall, R&D investments as a percentage of 2023 sales were about 14%. SG&A increased to 1.1 billion euros in 2023, which was about 4% of sales. Net income for the full year was 7.8 billion euros, 28.4% of net sales, resulting in an EPS of 19.91 euros. We finished 2023 with a free cash flow generation of 3.2 billion euros. We returned 3.3 billion euros to shareholders through a combination of dividends and share buybacks in 2023. With that, I would like to turn to our expectations for the first quarter of 2024. We expect Q1 net sales to be between 5 billion euros and 5.5 billion euros. We expect our Q1 installed base management sales to be around 1.3 billion euros, Gross margin for Q1 is expected to be between 48% and 49%. Lower revenue and margin relative to Q4 is primarily driven by lower immersion volume, along with an unfavorable change in product mix. In addition, we also expect EUV volume and lower in-store base business in Q1 relative to Q4. The relatively slow start to the year is a reflection of the current state of the industry coming out of a downturn. As it relates to gross margin, I would like to make a few more comments on the 2024 margin drivers, as well as our longer-term ambitions of 54% to 56% by 2025. We finished 2023 with a full-year gross margin of 51.3%, and there are a number of developments that could impact the gross margin in 2024. For EUV, positive drivers include a higher ASP of the 3800E, as well as improving EUV service margins. For deep UV, we expect product mix to have a negative impact on margin in 2024. On our install-based business, we currently expect a similar gross margin as 2023, but the final impact will ultimately depend on the level of upgrades in 2024. And finally, as we have said before, we expect significant costs in 2024 related to the introduction of high NA and to the ramp of our capacity to 90 EUV, 600 DPV levels that we have talked about before, which will create pressure on the gross margin. When we assess the combined effects of these different developments, we expect a slightly lower gross margin in 2024 compared to 2023. We are still targeting our earlier communicated gross margin ambition of 54% to 56% by 2025. This increase in gross margin will be driven by a number of items. First, higher sales volume, both in EUV and DPV, which improves fixed cost coverage. Second, a move to a higher margin EUV 0.33 NA system, as the vast majority of systems in 2025 are planned to be 3800E systems. Third, we expect reduced headwinds from capacity investments as we ramp volume, including high NA. Fourth, we will also be transitioning to a higher margin EUV high NA system, the 5200, in 2025. Lastly, we expect our install-based business to have a positive impact on 2025 margins due to both improved EUV service margins as well as increased upgrade business volume. The expected R&D expenses for Q1 are around 1.07 billion euros, and SG&A is expected to be around 300 million euros. Our estimated 2024 annualized effective tax rate is expected to be between 16% and 17%. In Q4, ASML paid the second quarterly interim dividend of 1.45 euros per ordinary share. ASML intends to declare a total dividend for the year 2023 of 6.10 euros per ordinary share. The third interim dividend of 1.45 euros per ordinary share will be made payable on February 14, 2024. Recognizing this third interim dividend and the two interim dividends of 1.45 euros per ordinary share paid in 2023, this leads to a final dividend proposal to the general meeting of 1.75 euros per ordinary share. In Q4 2023, no shares were purchased. With that, I would like to turn the call back over to Peter.

Thank you, Roger. As Roger has highlighted, we have another year of very strong growth in a very challenging environment. We finished the year with a solid backlog of 39 billion euros. The uncertainty remains in the market due to a number of global macro concerns, while the semiconductor industry is currently working through the bottom of the cycle. Our customers are still not certain on the shape or slope of the recovery this year, but there are some positive signs in the indicators that we have been monitoring. Industry and market inventory levels continue to improve, moving towards more healthy levels, Lithography tool utilization levels are still running lower than normal, but are now improving in both logic and memory. We expect utilization levels to continue to improve over the course of this year. Lastly, as mentioned by Roger, we saw very strong order intake in the fourth quarter in support of future demand. To be able to follow the curve of the industry recovery, we are looking at the combined demand for 2024 and 2025. As mentioned last quarter, we view 2024 as a transition year in preparation for the expected strong demand in 2025. We therefore continue to make investment this year, both in capacity ramp and in technology to be ready for the upturn in the cycle. While we see some positive signs of recovery, we feel it might be a bit too early to change our perhaps conservative view as communicated last quarter and therefore still stay with our previously communicated expectation of 2024 revenue to be similar to 2023. Looking at the market segments, customers are indicating they are seeing healthy growth this year, primarily driven by AI-related demand for both logic and memory, but also expected from other end markets as inventory levels improve. And coming off a very strong year in 2023, with 60% growth in logic revenue, we expect some pause in demand as customers digest the capacity additions and while utilization levels improve. Based on current demand, we see lower logic revenue in 2024 versus 2023. For memory, inventories are approaching normal levels and customers are expecting to see demand growth on a number of end markets this year. Litho demand is primarily driven by DRAM technology node transitions in support of advanced memory such as DDR5 and HBM in support of AI-related demand. We currently see revenue growth in our 2024 memory business versus 2023. Turning to our businesses for EUV, we are expecting revenue growth in 2024, and we are planning to recognize revenue on a similar number of EUV Lovenay systems as 2023, which includes the fast shipments for 2023. Although we plan a similar number of systems as 2023, we will have higher ASPs from the NXE 3800E systems, more weighted towards the second half of the year. In addition, we expect revenue from one or two INA systems. Based on the aforementioned, we expect our non-EUV business to be down in 2024, primarily driven by lower immersion sales relative to 2023. For our in-school-based business, based on our view today, we expect a similar level of revenue compared to last year, As the recovery becomes more clear this year, customers may likely look to upgrade their systems in preparation for 2025, and this could provide future business opportunity this year. As a reflection of the current state of the industry coming out of a downturn and an expected recovery over the course of 2024, we expect a stronger second half relative to the first half of this year. On the geopolitical front, as communicated earlier, We do not expect to get export licenses for our most advanced immersion systems, the NXT 2000 and up for China in 2024. We have been in contact with the US government on their export control regulations announced in October last year, and we can confirm the estimated financial impact as communicated in October. At that time, we stated the impact of the Dutch and the US export control regulations combined is 10 to 15% of our 2023 China system revenue. This impact is based on our presumption that as of 2024, we will not obtain export licenses for NXT 2000 and up immersion systems to Chinese customers, and in the case of only a handful of Chinese fabs, this also includes NXT 1970 and 1980 systems. While the export regulations had an impact on our business, we continue to see strong demand for mid-critical and mature nodes in China. Looking longer term, While there are still significant uncertainties, primarily driven by the macro environment, it appears we are passing through the bottom of this specific cycle and expect an industry recovery over the course of 2024. Based on discussions with our customers and supported by our strong backlog, we currently expect 2025 to be a strong year driven by a number of factors. First, the secular growth drivers in the semiconductor and markets, which we have previously discussed, such as energy transition, electrification, and AI. The expanding application space. along with increasing lithography on future technology nodes, drives demand for both advanced and mature nodes. Second, the industry expects to be in the middle of a cyclical upturn in 2025. And last, as mentioned earlier, we need to prepare for a significant number of new fabs that are being built across the globe, in some instances clearly supported by several government incentive plans. These fabs are spread geographically, are strategic for our customers, and are scheduled to take our tools. It is essential that we keep our focus on the future and build capacity in preparation for further long-term growth as we discussed in the market scenarios for 2025 and 2030 during our investor day in November 2022. We plan to update our view during our investor day this year on November 14, 2024. In summary, although there are still near-term uncertainties with a positive outlook trend, we clearly remain confident in our long-term growth opportunity And with that, we'd be happy to take your questions.

Thank you, Roger and Peter. The operator will instruct you momentarily on the protocol for the Q&A session. I'd like to ask that you kindly limit yourself to one question with one short follow-up, if necessary. This will allow us to get to as many callers as possible. Now, operator, can we have your final instructions and then the first question, please?

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now take the first question. And the first question comes from the line of Mehdi Husseidi from Susquehanna. Please go ahead.

Yes, thank you. Two follow-ups. Peter, you were talking about your view on 24 is still cautious, but you could always change it as the year progresses. Can you share with us the puts and take? What are the key areas that could actually give you confidence and help drive upside? And I have a follow-up. Yeah.

Okay. Yeah, I think in the prepared remarks, I already alluded to it. we are seeing the first signs, the positive signs of a recovery, which is basically the data we get on inventory levels, but also we see our utilization rates going up again. That, and also in the history, not only of the company, but of the industry, means that if we're in a recovery cycle, you will see that continuing throughout the year, which means that 2025 could be the first full year of the recovery. Now, having said that, to assess the slope of the recovery, we take a bit of a conservative view. That could, of course, change. So if the slope of the recovery is a bit faster than we think, then some of that 2025 business, which we're preparing, by the way, to ship or at least to build in 2024, could actually be shipped in 2024. Now, I don't think it's going to be in the first half, but Some of that, if you talk about key areas of potentially improvement, that could be an area seeing some pull-in for system shipments into 2024, one. Two, I think when that happens, customers see it happening, but they also see that they might have some time to take advantage of the time before full utilization and do upgrades and actually install base business, which is generally high margin business. I think those are the two main areas where we see potential upside for 2024.

Okay, so it's not really driven by any particular in-market or application. It could be just a broad-based recovery that could give confidence to a customer and there will be some pull-ins, right?

Yeah, that's always the case. I mean, you could argue, I mean, we've seen the focus on AI in the memory space. Now, Clearly that could happen, but I think it's generally the end markets that are reflective of where the recovery will take us in 2024. That will actually drive higher utilization of our tools and will mean pooling of those machines because customers don't want to miss the market downturn. I think it's all a bit of the same because the end markets ultimately we'll have to drive the recovery. And I think AI is now particularly something which could be on top of that, because that's clearly a technology transition. We've already seen a very positive effect of that in our Q4 order intake.

If I may ask my follow-up, in the last Capital Market Day, you highlighted how DRAM could account for 30% of your EUV shipment in 2025. How does that transition look like? Maybe you can share with us the DRAM mix of EUV shippers in 23 and how does the 24 look like as we focus on a 30% target mix for 25?

Well, in 23 our membership were lower than the 30% that you mentioned. But if you look at 25 and we also take into account what I just said about AI and the need for EUV in the DDR5 and in the HBM era, then, you know, the 30% is a very safe bet and could be on the conservative side.

Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Joe Quattrachi from Wells Fargo. Please go ahead.

Yeah, thanks for taking the question. I know you reported the orders for both low NA and high NA this quarter, but can you help us just kind of quantify that mix in the orders this quarter? I imagine that the high NA orders that you're receiving now are for deliveries that are beyond 2025 at this point.

Yeah, Joe, as you know, we never disclose high NA orders, and we do it for a good reason. I've said it before. The world is very small, and high NA orders are something that is competitively sensitive for our customers. So that's why customers do not want us to be specific on high NA. I think it is fair to say that if you look at the $5.6 billion of order intake for EUV that we recorded in the Q4, obviously the lion's share of that is in low NA. That should be very clear. In terms of overall orders that we have for high NA, I think a couple of quarters ago we said it's now double-digit. I think, you know, since then, we had a few quarters where we added a couple. So I think that's what we're looking at. But the lion's share of the order intake in the quarter really was obviously for lower name.

Got it. That's helpful. And then just as a follow-up, can you give us the puts and takes on free cash flows quarter? I would have, I guess, thought that it might have been a bit higher given the record level of EBV orders in the associated quarter. partial down payments that are related to that. So just any help you could give us on the free cash flow this quarter?

Yeah, of course, down payments were helpful, right? So as a result of that, you did see that in the second quarter, in the last quarter, Q4, free cash flow was quite positive at $2.6 billion just for the quarter, primarily driven, as you say, by down payments. But it's also fair to see that you know, we are in ramping mode. You know, we are preparing for a ramp in 2025, and that means we're taking in materials. We're building inventory for I&A, et cetera, et cetera. So I think on the inventory position, you would see that we're adding quite a bit. So that is obviously a negative, if you like, to the free cash flow. But, you know, still overall, I think the 2.6 billion that we recorded in the last quarter I think was a healthy cash generation. Got it. Thank you.

Thank you. We'll now go to the next question. And your next question comes from the line of Stefan Uri from OdoBHS. Please go ahead.

Yes, good afternoon. Thank you for taking my question. Actually, the question is about the 2025 acceleration. My feeling is that you sound a bit more comfortable on the fact that this strong acceleration is going to happen. And I remember you saying that you were targeting the middle of the range, but at the same time, I am sure you didn't miss this one, consensus has come down really to the lower hand of the guidance for 2025. Can you maybe tell us if you are still targeting the the middle of the range at least, and what do you need to see in terms of memory recovery, logic, orders coming through 2024 to reassure on that? Thank you.

Yes, we feel a bit more comfortable on 2025 after having received 9.2 billion of orders which especially in the EUV domain, it's focused on 2025. So I think you get a vote of confidence from our customers on what we thought was going to happen, which is always good. When you talk about the middle of the range, my comment was that I thought the low end of the range was too conservative. That's what I said. You can make it the middle of the range or the high end of the range. It's your choice, but I'm not going to comment on that because that would give me in January 2024, the 24th of January, give you an outlook or give you guidance on 2025. I mean, it might be a bit early. But I do feel directionally that that's what I said. At the low end, I thought it was too conservative because we do believe that 2025 is going to be a very strong year. Well, no, the order intake actually gives us at least some level of confidence that that statement at that time was actually quite good. So I feel more comfortable. Yes, that's absolutely true. Now, if the recovery in 2025 is indeed what we expect, yes, we should see a further order flow in 2024. Our lead time, order lead time is 12 to 18 months. So, yes, and that's what I also said last time. You know, if we're right on 2025, we need to see orders coming in in the first step of 2024. Now, we've seen a significant batch of those orders already coming in in Q4 2023. So, that's just, you know, supports our assumptions. So in that sense, now, make a long story short, yes, I feel more comfortable, I think, with me and our colleagues.

Okay, thank you. And regarding the memory market as a follow-up, is it really the start of the recovery of investment in memory, or is it just all that is related to AI, DDR5, you know, HBM, or is it wider in your view?

Well, I think what we're seeing is, of course, the information coming off our tools that we see the utilization rates going up. That's one. Clearly, there's also an element of technology transition. That's also clear. I think there's a bottleneck in the AI in making use of the full AI potential. DRAM is a bottleneck. The performance memory is a bottleneck. There are solutions, but they need a heck of a lot more HBM, and that's EUV. So it's a bit of a mix. I mean, yes, you've gone through, I think, the bottom of this memory cycle with prices going up, utilizations increasing, and that combined with the technology transition driven by AI. That's a bit what we see today. So it's a combination of both. And I think that will continue.

Good. Thank you, Peter.

Thank you. We'll now go to the next question. And your next question comes from the line of Sarah Russo from Bernstein. Please go ahead.

Great. Thanks for taking my question. So you've said you're expecting strong demand from China to continue in 2024. Is that expected to be sort of at the same level we've seen for the last few quarters where it's been exceptionally strong? Or is there some rebalancing you're expecting across global demand expected for later in the year as we get towards that growth expectation for 2025?

Well, I mean, we're not going to be specific at the beginning of the year exactly on China. But I think, you know, a few data points that we want to share with you. First off, as we also said in the video, we do see the demand from China being very robust. Second, there is an impact, obviously, coming out of the export controls, and Peter just gave you that impact, the 10% to 15%. So I think fundamentally, it's pretty clear that the China demand remains very strong. As we said before, it's primarily driven towards mature and mid-critical nodes. I mean, that's what it's all for. It's a bit too early to speculate exactly how the China demand is going to pan out, because that's also dependent on how the demand for the rest of the world is going to pan out, because as you know from previous years, we have allocation questions, right? So for a number of tools, you know, we're still supply constrained, so there you have to determine where is the tool going, and that will only be known once you have a complete picture of all the demand on a global basis. So that's why it's too early to make specific predictions. Is China going to be a bit up? Is it going to be a bit down? But one thing is for sure, China will remain very strong in our numbers also in 2024.

Great, that's really helpful. And maybe as a follow up, I understand that because in 2024, you're not expected to be capacity constrained, especially on the EU side necessarily. Are you, if you're going to be prebuilding, are you anticipating incurring additional costs around potentially holding those machines for any period of time? Or are you expecting those orders to materialize closer to when the machines would be ready? Or are there any other, is that sort of a drag on margins for 2024 that you're factoring in?

No, I wouldn't say that the pre-building is going to be a drag on the gross margin, because as a matter of fact, what you're pre-building this year, most of the material that you have for the pre-building is already in, right? So I think from that vantage point, I think there is no big impact on either the cash flow or the gross margin. Of course, the question is you pre-build, but then back to Peter's point, when Peter said in response to the question of the puts and takes from Maddy on this year, Of course, we currently look at pre-built. It could be that some of those are pulled into 2024. So I would look at a pre-built more as an opportunity than as a threat to the gross margin.

Great. Thank you very much.

Thank you. We will now take the next question. And your next question comes from the line of Francois Bovigny from UBS. Please go ahead.

Thank you very much. So the first question, I wanted to come back a bit to Stephen's question on 2025. And you said, Peter, that you thought low-end was conservative for 2025. It was three months ago when, you know, you had the 5 million EUV bookings. And as you know very well, analysts, we are very good at extrapolating trends. So we were very skeptical about, you know, these targets after 500 million of EUV bookings. Now, you come this quarter with indeed this huge booking number in terms of EUV, which basically puts you in a much better position into 2025 and indeed, you know, is clearly supporting your comments three months ago. But I would like to know, you know, with these Q4 orders, we know that it's very lumpy. You know, it's always moving from one quarter to another very significantly. to what extent Q4 orders is a pull-in effect? You know, in other words, do you see still healthy EUV activities? I don't expect, you know, the 5.6 billion every quarter. I'm not saying that. But do you see already in Q1 the activity of EUV fairly healthy and in Q2? Or should we just expect Q4 as an exceptional and it will take a significant post? That's my first question.

I think generally $9.2 billion is pretty exceptional because it was the highest order intake quarter ever. You're right, we would not expect to top that every quarter. I think, yes, the analysts are very good at extrapolating trends, but I have to warn you that trends in EUV order intake in our business with a few customers might be a very tricky thing to do to actually try to, you know, accept it, which is actually proven by, you know, the order intake in Q3 and in Q4. It's lumpy, as you said. It has to do with a couple of things. I mean, in Q4, also clearly, as a part of the EV order intake, had to do with the obvious technology transitions needed in the DRM space to support AI. That will continue. But I think all in 2025, when we look at a recovery of the cycle and have a full year recovery, on top of that, the new FABs, yes, we need to see a healthy order intake for EUV in the first half of this year of 2024. Because like I said earlier, we have 12 to 18 months orderly time, so that needs to happen. And I think this is what we need to see. I don't think that Q4, yes, it was exceptionally high, it was a very good order intake, but for good reasons. It's basically moving the EV orders now into the 2025 delivery timeframe. Orders that we're now getting is not for 2024, it's for 2025. So that will have to continue, and in my mind, will continue in the first half of 2024. So yeah, may not be $9.2 billion again, in the Q1 2024, but yes, in the first half we need to see healthy further order intake and to support our 2025 view, absolutely.

Great, thank you. And maybe a follow-up to that is the memory migration. I mean, this quarter what is really outstanding is the split of memory, you know, within EUV, which is like 50%, I mean, roughly, which is, you know, very high compared to history. to support exactly the migration you are describing. Now, we know that the memory market has low utilization rate right now, recovering, but still fairly low. So I would assume, I mean, to which extent, you know, given the low utilization, they can migrate more, you know, it's many offline tools, so they can migrate, spend a lot of time on it. And to which extent, you know, as utilization grows, they will put the brakes on the migration. Do you see what I mean? In other words, should we expect the memory as investing significantly right now, but then we'll slow down as the industry comes back? Or should we expect a fundamental line, growing line, because you have a lot of wafers to migrate anyway, and therefore we won't see so much lumpiness? Do you see what I mean?

Not entirely, but I do believe that what is important to us, you look at these memory cycles as this game of chicken. You build the capacity. There's always big step-ups. The underlying growth pattern is also more regular. So you have these times where you have overcapacity. I think this is part of it. Today, we are going through this cycle. We just see the utilization rates of our memory tools going up. I think EUV is always, in that sense, scarce. You don't buy loosely extra EUV systems in your dynamic space. That's always going to be the gating item. Now, if you then come to the conclusion that you need more EUV because DDR5 and HBM is where the external demand is, then There's not much to migrate. You just need more. I think that's on the back of a cyclical recovery because inventories are being consumed. That migration, having the space to do migration, I don't see that. It might be available in the non-EUV space, but in the EUV space, That is actually this, you know, scarce tool which you won't have available in abundance, and that tool will be the first to be fully utilized. So I don't know whether it's answering your question, but it's just trying to think of what you meant or what the question meant. But I think the recovery in memory is cyclical, and on top of that, I think we have to technology transition into DDR and into HBM. And that drives memory, and I don't think it's going to be something that is very short-lived, i.e. one or two quarters. This will continue.

Great. Thank you, Peter.

Thank you. We will now go to our next question. And the next question comes from the line of Tammy Q from Barenburg. Please go ahead.

Hi, thank you for taking my question. So first one is on high NA. So there has been some concerns relating to high NA UV being too expensive to be used for things like 1.4 nanometer. So Peter, if you have any feedback on customers' current development process, I know it's still at early stage that is high NA going to be the best option when you go to 1.4 nanometer?

Yeah, I think it's a good question because we always need to ask that question to ourselves and to the customers, whether we feel that the next generation lithography tool is economic for our customers. As you know, Moore's Law is an empirical law of economics. Now, having said that, there is no doubt in my mind now that the high energy cost of all our customers that are using EUV is the right choice from an economic point of view. We get that corroborated now very clearly to our customer contacts. That used to be a question some time ago, but I think everything that we're currently seeing, and also looking at alternative patterns of multi-patterning low and AUV, high NA is very clearly the most cost-effective solution. I think that is also driven by the answer that Roger gave, that he said, you know, we've had, he said, Last year, we have double-digit orders in the order book, and every quarter, we comfortably add a couple of those. Customers give us those orders because they do those calculations and they see this. So, yes, I can understand the question. I think our confidence that it's the most cost-effective solution, both in memory and logic, logic and memory, has only gone up.

I think the commitment of customers is not just visible in the orders, but for instance, also, as you saw, one of our customers has entered into a joint research center, which is really focused on this and on the utilization of INA. So I think that's another very strong underpinning of the fact that customers do believe that this is an important way forward. Absolutely.

And I think the fact that our launching customer of INA was very happy that we were shipping on time and the pressure. that they rightfully put on us was also felt throughout our entire organization. We have to be on time, because this is the tool that they need.

Amazing. Thank you. And also, a follow-up regarding the memory adoption of HiNA. So my understanding is that memory will be on low MA in UB for a few years. How would you view this HiNA adoption timeline for memory versus 3D DRAM?

Versus 3D DRM?

Yes, I mean, which will come first?

I don't think that's a question. I think HiNA will be introduced way before 3D DRM. So it will just be introduced, and I think it will be introduced in about the same time frame as logic. So it's not a competing technology in that sense. from a timing point of view.

And that's also clear in the order intake. So in the order intake that we see for high NA, we equally see memory orders for high NA as we see logic orders. So I think that it is clear that customers are looking at the same time frame for the introduction of high NA, both into logic and into memory.

And not considering any trade-off against a 3D DRAM introduction. That's not on the roadmap.

Amazing. Thank you. Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Didier Sikama from Bank of America. Please go ahead.

Yes, thank you. It's Didier from Bank of America. Thanks for taking my question. My first question, Peter, When we see this big wave of AI orders coming from the memory vendors and coming from foundries, I just wonder related to your point earlier that HBM and DDR5 could drive an upside to that 30% contribution to EUV volumes in 2025. Do you think there is upside to your potential demand capacity limit? You've got like 75, 80 units.

uh from from hbm first or from others um that's a very good question that's something that we need to consider very carefully we've set our capacity bill that will be 90 uv low in a systems 20 high in a whereby internally we are looking at that number as a kind of a base number uh we're investigating whether that number should be higher um the question is whether 90 is going to be enough now You have to realize we are selling wafer capacity, which is not only a function of the number of units, but also a function of the productivity of those tools. Now, we have a pretty aggressive roadmap for the productivity in terms of wafers per hour. Now, it's a complex question that you're asking, but actually we need to look at this, especially against the the math that we're seeing for little requirements in the area of AI, whether it's HBM or whether it is, you know, logic, whether the number of units and the roadmap on productivity, which gives wafers, because the combination is wafer capacity, whether that is sufficient. That is a constant thing we need to look at. And it's going to be something that I think is going to be very central when we do our Capital Markets Day by the end of the year. I think we're going to give you, that also gives us a bit of time to actually engage with our customers to really understand those requirements and translate that into units and productivity. So, good question, DJ, but I have to... refer to the capital markets today by the end of the year where we're going to be a bit more detailed. But this is exactly what we're now looking at.

Because DJ, it's also pretty clear that this is not a 24, 25, or 26 question, right? This is longer term. And in that context, we absolutely, to Peter's point, we need to look at the ramifications of AIR. But they really are long term and therefore will be addressed in our 2030 scenarios at the CAC. Super.

Thanks very much. Maybe my follow-up is a follow-up to Tammy's question. I'm going to be – so on the high-end system bookings that you had this quarter, can you say whether you had more than one customer placing orders or not?

We could just say that all our customers have placed orders.

But not in the quarter, to be exact. No, not in the quarter, because that would be a lot. We know all of them have placed orders in the double-digit units you talked about. I just wonder whether, because you made the point, Peter, that now you know from your customers' test that high NA is more economical than low NA, and you know there were some bloggers out there, people who talk a lot, who said that high NA is not economical, and so I just wonder whether you could break that bear case once and for all.

Yeah, but DJ, I made it very clear earlier on the call why it is that we are not being very detailed on our comments on high NA, and I think for that precise reason, We're not going to give the color and context that you're looking for. I love it. It's very simple.

No, DJ, it's only a few tools. And as a customer, you know whether you did place your order or you didn't. So they actually make that very simple game. And then we get all these questions. And our sales force is already under pressure, and we don't want to put more pressure on these guys than necessary. But you've got an A for effort there, DJ, for sure.

I appreciate it. Thank you so much. And, Peter, do we hear you on the next earnings call, or is that your last earnings call?

Well, no, I think I will definitely be there. I will talk a lot. I don't know, but you will hear me.

I think you will, DJ.

But you won't hear me laughing at some answers, but that's just kidding. It's going to be funny for you. I will definitely be there, but I think Christophe and Roger and myself will definitely do that, but I'm pretty sure that you want to hear Christophe also giving his view on what lies ahead.

Perfect, thank you very much guys.

Thank you. We will now go to the next question. And the next question comes from the line of Andrew Gardner from Citi. Please go ahead.

Good afternoon, guys. Thanks for taking the question. You've spoken a lot about the 2025 outlook around the state of the cycle and process node development. We haven't spoken as much today on all of the new fabs that are being built around the world, so an unprecedented level of activity. And there has been some various press at different points over the last how many quarters about sort of delays and push outs and some challenges Be it in terms of labor force or chips act money that kind of thing I'm just wondering if you can give us an update in terms of your From your point of view and speaking with the customers have things been moving around at all in terms of the key customers and their plans for these new fads and the tool installs or is it a pretty rock solid from your point of view and therefore evident perhaps in that 9 billion euro order number.

Thank you. Yeah, I think a good question, Andrew. I think, you know, I think the longer term, let's say, positions that customers have taken are pretty rock solid. I think they will happen. Now, the question is about timing and timing could be a function of, you know, the things that you just mentioned. Is there enough capable resources or are there enough capable resources? People, will permits and all the things that are necessary like energy and water will all be available on time. Those are, you could say, tactical and operational considerations that are always there. Now, we have examples where we have indeed delays because of the things that you just mentioned. We also have examples where things are spot on time. So it's really very dependent on the specific situation of a specific FAB. I think the intentions are very clear. We don't see any delay there. We could see operational delays that will push things back six months or nine months. That could happen. But generally those FABs are there. Those FABs are there in the U.S., they're in Japan, they're in Taiwan, they're in Korea, they're in China, they're in Europe. I mean, we don't see any indication or any customer messaging to us that those things won't happen. Yes, it could be some regional issues, but we also have some good examples. I'll give you Japan, for instance. Things will happen on the dot. So that will probably also like to happen in Germany. So these are things that will happen. And in other areas, there might be more problems with, like you mentioned it, water, energy, people, building restrictions and stuff like that. But that's normal. That's our business.

Understood. Thank you. And then just a quick mathematics clarification, if I could. Did you say 38 or 39 billion euros worth of ending backlogs? 39 39 39 and so if we think of the guidance you guys have set for 24 um so the tool revenue within that that implies that you've got about mid-teens or so already booked for 2025 is that a correct assumption I think you know we're booking nicely into into 2025 now which also means that we need to still book a lot

for the remainder of the year. But that's why we're still January 24. We still have some time to go. But yes, we're booking nicely into 2025. Thank you.

Especially for the UV. But when you say mid-teens, you do make the adjustment, obviously, for the installed base business, right, Andrew? Yes. OK, because that's obviously needs to be added. Then I get a bit higher than mid-teens. That's OK. Yeah.

Thank you. We will now go to the next question. And your next question comes from the line of CJ Muse from Cantos Fitzgerald. Please go ahead.

Yeah, good afternoon. Thank you for taking the question. I guess first question focused on memory. So a couple parts here. Were you surprised that memory ended up 10% for you And if you think about the magnitude of the record orders in the December quarter, can you kind of, you know, separate CXMP and Tuishou domestic China versus kind of the technology buys that you're seeing out of Korea and the US?

Yeah, I think, you know, very easy answer. The technology buys are dominant. Yeah. So, and they're also very much focused on the technology transition, so EUV. And were we surprised? I must say, yes, to a certain extent, we were surprised. In the meetings we've had with customers, and especially the memory customers, the leading-edge memory customers, we were surprised about the technology requirements for little, UV specifically, and how it impacts, how important it is for the rollout and the ramp of the memory solutions for AI. This is why we received more EUV orders than we anticipated, because it was obvious in the detailed discussions and the reviews we did with our customers that EUV is critical in that sense. And that was a bit of a surprise, a positive surprise, but that's what we learned. So yeah, a surprise, yes.

Was that a function of EUV layer count or perhaps where they're repurposing equipment and so now they're realizing they need more footprint for EUV?

It is layer count and imaging performance and that's what led to the surprise, the positive surprise, which immediately led to more orders.

Perfect. And just a quick follow-up on high NA. Can you kind of update us on your planned shipments and revenue for calendar 25 and how you expect to kind of shrink that timeframe between shipping and revenue? And as part of that number, how should we think about the overlay of memory adoption into 25, 26, 27?

Yeah, so CJ, the revenue for 25, as you know, at a capital market today, We expect five systems in revenue, and that's still the way we look at it. There will be more shipments, but it's a bit too early to say how exactly is the revenue recognition going to work. As you know, we just chipped only the first modules of the first tool. So it's a bit early, but the five in revenue, that's still the way we look at it. In terms of the introduction of high NA into memory, I think that's consistent with what we had at an earlier question. Yeah. we do see the timeframe of memory and logic adoption more or less in sync. So to us, that is more or less the same timeframe.

Thanks so much. Thank you.

Yeah, so we have time for one last question. If you are unable to get through on this call and still have questions, please feel free to contact the ASML Investor Relations Department with your question. Now, operator, may we have the last caller, please?

Thank you. We will now take the last question. And the question comes from the line of Sandeep Deshpande from JPMorgan. Please go ahead.

Yeah, hi. Thanks for letting me on. I have a question to follow up somewhat on Dedea's question. I mean, there is this bear case on high NAEUV. I mean, when you look at your 2030 guidance, you look at you're guiding to about 20 high NAEUV tools. but when you looked at, if you remember when you had guided the initial ramp of EUV, you had talked about 50 plus tools. So is it that your guidance on high NA EUV on 20 tools is a function of the throughput of the tool or is it a function on the adoption of the high NA EUV into lipography, into semiconductor production, because there is this emerging case that ASML itself is not so bullish on the adoption of high NA UV. I have a quick follow-up.

Well, it is the latter. It has nothing to do with the productivity of the tool, although we will work on the productivity of the tool, which we always do to help our customers get costs, but it's basically the adoption of high NA lithol, because it's needed. It is needed when you look at the customer roadmaps and the customer designs. That's what they need from a cost point of view. So I don't know where the notion comes from that we at ASML are less bullish about INA or the adoption of INA. That's not the case. I think on the contrary, we've seen in the interactions with our customers that All our customers now are convinced that high NA is a more cost-effective solution as opposed to mobile patterning low NA. So, yeah, I don't know how to answer it differently.

Thanks, Peter. I mean, and then another quick follow-up. I mean, in terms of your optimism, I mean, clearly memory orders were much stronger than we expected in Q4, but there is all these new fabs which are going to be built over the next two, three years. I mean, and your customers would have given you what you need to ship to those fabs, really. But do you expect to sign up those logic-related? I mean, clearly memory is going to ramp. You've talked about it earlier, but But on the logic side, those orders will be signed up in the next few quarters for 2025 and 2026?

Yes, I think certainly for 2025. I think when we look at our large logic customers, there are still some large customers that still need to order for 2025. It still has to come. Of course, we're in discussions, as is clear. You could also say that some are not in the order book that definitely need to be there if they want to have tools in 2025. So, yeah, this is something that you will see over the next couple of quarters.

So just to clarify, Peter, what I'm trying to understand is you will get the orders in advance rather than, you know, terms, business orders that, you know, you sometimes recognize orders in the quarter, you ship, et cetera, but you are demanding that these customers sign orders, et cetera, really.

Yeah, I know. I mean, we will get those orders before we start shipping. I mean, that's clear. In the past, what we used to do, but now that's true, you know, some time ago, and that is the advantage of being in this industry very long, so we have a good memory. In the past, we used to do this because we knew the customers were having actually opened the fat, the pedestals were there, and we were still negotiating some terms and conditions, but it was largely on deep UV, which the tool price is, of course, lower. Now, you won't do that when your tools are 200 million euros or even 350 million euros. I mean, that's where the financial risk on both sides is a bit higher, so you want to get a little bit more certainty. practice might still be true for some, let's say, I wouldn't even call it cheaper tools, you know, calling it a $70 or $80 million tool a cheap tool is a bit of an anomaly. But that's what happened that time, but I don't think with EUVs that's going to be the case.

Thank you so much, Peter.

Okay.

Thanks. All right. Before we sign off, I'd like to remind you and mentioned a few times today and also in the video with Roger earlier that our Investor Day is currently planned to be held in Veltoban on November 14th this year, and we hope you'll all be able to join us. Now, on behalf of ASML, I'd like to thank you all for joining us today. Operator, if you could formally conclude the call, I'd appreciate it. Thank you.

Thank you. This concludes the ASML 2023 fourth quarter and four-year financial results conference call. Thank you for participating. You may now disconnect.