Francois-Xavier Bouvignies: Thank you very much. So two quick ones from me. The first one is on maybe 2025. So you gave your market low and market high scenario at your Capital Markets Day. Now, looking at the current macroenvironment, I guess, for many people, it’s actually we are more in the low market scenario at least today in terms of macro. If we look at your guidance on 2025 and taking into account the geopolitical environment, should we lean towards the low end of your guidance in a way? I mean, it would still imply a significant recovery in 2025, but I just wanted to check if it’s fair to assume given the current utilization rate in the industry and the pushout that you are also seeing on your side, if we should lean towards the low end of your guidance. And I have a quick follow-up.
Peter Wennink: Well, I mean, let me explain the following. I think our industry is cyclical when we’re in a downturn, and the deeper that downturn is, the higher the upturn. And that’s simply because the underlying trend, the secular trend of the capacity that is needed to support all these transitions that we all talk about, and we all believe in, it has a downturn for whatever reason, could be macro, could be macroeconomic shocks. The deeper the downturn is, the higher the upturn. That has been — you just look at the 30-year cyclical behavior of our industry. That’s exactly what is always happening, and it makes sense because the underlying trend is there. Now, having said that, in my introductory comments, I actually had three reasons for why we believe 2025 is going to be a very strong year.
One is these secular trends. They are there, and also actually will — actually means that we need to build the capacity to support those trends. And if you don’t build the capacity in 2023, 2024, and for Memory, it even started earlier. It started in mid-2022, then it will have to be there to support those secular trends, which we all believe in, so and also going back to that, that’s number one. Number two, in answer to the previous question, it feels like, and also our customers keep telling us that they feel that it’s a trough, we’re in this trough or we’re very close. And that means they will see growth in 2024. You could argue about the slope of the growth because of macroeconomic uncertainties, but you all tell us please prepare for 2025.
So they strongly believe that growing in 2024, and it will probably start slow, but will accelerate into 2025. So it tells be ready. That’s number two. Number three, when you look at the number of new fabs that are being opened geographically, fab extension that will — that will need machines in Europe, in the US, across Asia, yeah, then that is already — when we look at the demand, already more than 50% of our 2025 forecasted demand is on new fabs for DUV and EUV. So if you put it all together, also realizing that we actually look at 2024 and ’25 together. Why is that? Because our lead times are more than 12 months, yeah, that for EUV, they are a year and a half. So we need to have that very close connection with our customers, and we have these insights into these new fab expansions.
Not so much where they are going to add capacity for the existing fabs because that’s basically that is a — that is a — that is a question of where the cycle is, but if you take those three things together, and then we look at the demand that we’re currently discussing with our customers, then 2025 is a very strong year, and a very strong year doesn’t jive with your low end of the guidance. So it’s — again it’s the cyclical nature of this industry. We are now — let’s take Memory. If 2024 is not a full recovery year, then Memory is in a downturn of two and a half years. Now, just look at it historically, always followed by a strong recovery. Same is true for Logic. And if we look at those building blocks — of those three building blocks, that gives us the conviction at this moment in time that 2025 is going to be a — is a very strong year.
But then we need to prepare 2024, we can simply not wait until first quarter 2025, and then we — and then we start accelerating because the supply chain won’t be there. Our lead times are simply too long. So we have to prepare that also in the year 2024. That’s why it’s a transition year. We look at ’24, 2025 together. Why? Because the lead times of our tools and discussions with our customers are actually supporting all of that. Sorry for the long answer.
Francois-Xavier Bouvignies: No, no, no. That’s very clear. Thank you. And maybe as a follow-up then, if we have long lead times and strong recovery in 2025, the orders, I mean, this quarter has been, let’s say, quite low compared to many people expected, but if you expect a very strong year in 2025 and the lead times that you are describing.
Peter Wennink: Yeah, yeah.
Francois-Xavier Bouvignies: Do we expect that to see in the order behavior in the first half of 2024? I mean, if we take into account your lead times or how should we think about that because we should see the improvements of that, right?
Peter Wennink: Absolutely. Yeah, no, I think that’s absolutely true. We are in Q3 of the 2023, and we have more than EUR35 billion in the backlog. If you are a customer, you can actually wait, you know, because they — you also see 2024 as a recovery year. Is it going to be Q3, Q4, Q1? So when is it? So they will just wait because they don’t need. They have the capacity. If they want the capacity, they can just call it off. Yeah. So — but indeed, you are right. If 2025 is the kind of strong year that we expect, then indeed you would have to see the order recovery in the first half of 2024, absolutely. Yeah.
Francois-Xavier Bouvignies: Great. Thank you, Peter.
Operator: Thank you. We will now go to the next question, and your next question comes from the line of Rolf Bulk from New Street Research. Please go ahead.
Rolf Bulk: Yes. Thank you for taking my question. In your prepared remarks, you mentioned shifts in timing of say your western customers, their demand profile. Could you give us a bit more detail on this? Are these pushouts primarily on the leading edge or is it more trailing edge? And has this trend of pushouts increased in recent months?
Peter Wennink: Yeah. I think when you think about trailing edge, I mean, we did not see pushouts from many of our trailing edge customers because many of them are in China, but even the ones that are not in China, because they are supplying the mature market, which, for instance, supplies the automotive industry and industrial IoT, they actually kept pretty — pretty — pretty strong. They were pretty healthy. So it is more in, you could argue, the leading edge than it was in the mature area, and but don’t forget, leading edge doesn’t only need high-end DUV or needs high-end immersion. It only — also needs mature. It needs KrF, it needs i-line. So — but if you want to split this, then the demand shift was probably more in those areas where — which is logical, look at the end markets, you know, smartphone sales, yeah, PCs. This — the end markets where — and that is where the inventory was.
