ASML Holding N.V. (NASDAQ:ASML) Q3 2023 Earnings Call Transcript

Mehdi Hosseini: No, one difference this time compared to when we migrated to FinFET is DRAM, adoption of — insertion of higher EUV layer count for DRAM. If I were to go back to your 2022 and 2021 Analyst Day, you highlighted the fact that more than 30% of EUV demand by 2025 is going to be driven by DRAM. Is that still the case and could that make the EUV recovery much stronger with or without the adverse impact of a transistor change?

Peter Wennink: Yeah, I think that’s absolutely true, but I still believe that percentage is still valid, but like I said, it is not today, but it is because we are where we are in the economic cycle. Yeah. So I think nothing has changed in that sense. And you could even argue because they have quote-unquote under-invested in ’23, ’24, there will definitely be an additional driver on top of the roadmap insertion points that haven’t changed. Yeah. So, yes, I mean, I would expect that to be the case in 2025. Yes.

Mehdi Hosseini: We just have to wait for the first half of ’24 to see that in your bookings.

Peter Wennink: Yeah, yeah. And that is basically also, I said it before, you know. Why we are conservative on 2024? Because of the macroeconomic uncertainties, yeah, and our customers are closely watching this also. They are watching these inflection point trends. I mean, this is what we will also follow with them. They have a better view of inventories. We have a better view of utilization. We have a better view of a lot of things that happen in the fab. We need to look at those inflection points and saying, okay, that means the trough, but then what will be the slope of the recovery, and that’s basically a macro call.

Mehdi Hosseini: Thank you.

Operator: Thank you. We will now go to the next question, and your next question comes from the line of Sandeep Deshpande from JPMorgan. Please go ahead.

Sandeep Deshpande: Yeah. Hi, thanks for letting me on. Peter, I mean, with response to an earlier question, you talked about that you will start seeing this order recovery potentially in 2024, which will help your 2025, but given that at this point what you see into 2024, the demand is not as much as your capacity, particularly in EUV, would you prebuild because, I mean, your tools don’t have any obsolescence risk? This is my first question and then I have one quick follow-up.

Peter Wennink: Yeah. I think you’re absolutely right. I mean, we are very — also our customers keep telling us this, you know. This is not that we in perfect isolation on the 20th floor in a town called Veldhoven think about this. It’s because our customers also show us what they need and why. So this is the 2025 we think is very real. So that means we need to pre-build, yeah, so you will see that in our working capital and the working capital of our suppliers. And if things change a bit faster, we’ll actually need that in the back half of 2024. So we need to prepare ourselves, but you’re absolutely right, because otherwise we won’t be able to react and then we’re in a super crisis in 2025 because we can’t make the tools that our customers want. Yes.

Sandeep Deshpande: And then — thanks, Peter. And then in terms of a follow-up for Roger, I mean, next year is — if you’re looking at a flattish year, I mean, you must have had a spending plan on your OpEx for next year, whether it’s R&D or SG&A. Are you going to continue with that plan, given that the environment has — is different from when you built that plan or are you going to continue spending as you would normally have done and thus there is an earnings impact next year in a flattish year because, you know, you’ve got an upward trajectory on your expenses?

Roger Dassen: Yeah. Sandeep, so obviously in the current environment, we are frugal, right, as you might expect us to do. So we’re definitely controlling our SG&A expense there. On the R&D side, that’s long-term, and I think we would be ill-advised to now go cut our R&D roadmap, and that’s not what we’re doing, right? So we are continuing to execute on the R&D roadmap. You might have seen that on the hiring of people, we slowed down a little bit this year. So part of that is in response to what I’ve just mentioned on SG&A. It’s also in response to the fact that in 2022, we hired 10,000 people. So on the 42,000 people that we have today, that’s massive. So obviously you want a certain level of absorption to happen there, and that’s exactly what we’re doing, right, making sure that people are well absorbed, that the growth also on the R&D headcount is nicely absorbed.

So that’s why you see this slowing down a little bit on hiring, hiring people, but no, I mean, we continue to push down the accelerator on the R&D front because the opportunity is significant. And in order for us to achieve the growth trajectory that we’ve talked about in ’25 and 2030, we simply need to do that. So, yes, we will be frugal. No, we’re not going to cut back on our R&D roadmap.

Sandeep Deshpande: Thank you so much.

Operator: Thank you. We will now go to the next question and your next question comes from the line of Janardan Menon from Jefferies. Please go ahead.

Janardan Menon: Hi. Good afternoon. Thanks for taking my question. I just wanted to go back to the question of the backlog. You do have a sizable backlog of over $35 billion and over $19 billion on the EUV side. So just referring to a previous question on pushouts, do you see a risk, I mean, if you were to look out into 2024, especially on your EUV side, is your uncertainty more on do you get any pushouts on the existing backlog, or is it a question of how many orders you can take in Q4 for shipment into 2024? My question is more — you’ve said that it’s — that you’ve suggested that there’s some conservatism in that, and I’m just wondering where the risk or the upside could come from. Is it more that there could be a risk of pushouts, or is it just the amount of orders you could take in Q4? Thanks.

Peter Wennink: Yeah. I think that’s a good question, Janardan. The way that we look at this is, we look, one, of course, we are close contact with our customers, and we — and we are discussing in depth with them what they really need. But what they really need is also a function of where they are, and what they see that they need going forward. And of course, where they are is they’re in a clear — all of them are in a downcycle where they feel it’s about the trough or we might be seeing the inflection points that will take us out of the trough. So if you then think about the psychology of the customer, and they look forward and they see these inflection points towards the end of the year changing positively that means they will grow in 2024.

That means what we discuss with them now as the, you can say, the minimum scenario, if everything happens the way that we think in terms of the inflection points, they will see growth, then I think this will be it, but that, of course, is — that is — in their current mind, they don’t give us a lot of orders. So their current mind is, we have what we have, we look forward to what we need as a minimum in 2024. They better tell us. They tell us, you better prepare us for 2025, but the minimum in 2024 is what we call the conservative view because you could have a more positive view and say, well, it will turn in the second half of 2024. We don’t have any indication that it’s going to be that soon. So this minimum position that they see is what they have discussed with us.