Stronger than expected demand drives ASML Q1 sales
Positive momentum expected to continue throughout 2017
VELDHOVEN, the Netherlands, April 19, 2017 - ASML Holding N.V. (ASML) today’s Investor Call - 2017 first-quarter results.
Peter Wennink
Good morning / good afternoon ladies and gentlemen, and thank you for joining us for our Q1 results
conference call.
Before we begin the Q & A session, Wolfgang and I would like to provide an overview and some
commentary on the recent quarter as well as provide our view of the coming quarters. Wolfgang will
start with a review of our Q1 financial performance with added comments on our short-term outlook. I
will complete the introduction with some additional comments on the current business environment
and on our future business outlook.
Wolfgang, if you will.
Wolfgang Nickl
Thank you Peter and welcome everyone.
2017 is off to a great start with a stronger than expected quarter. I would like to first highlight some of
last quarter's financial accomplishments and then finish with our view of the coming quarter.
Turning to our Q1 results, net sales came in at 1.94 billion euros. Net system sales accounted for 1.22
billion euros, nicely balanced between logic and memory. With the addition of HMI products we are
now including metrology and inspection equipment in the system sales, versus previously reporting it
as service and field options revenue. This also means that metrology and inspection system orders
are from now onwards included in our booking and backlog numbers. This provides more visibility of
our current and future system business in this product group. Net service and field option sales for the
quarter came in much stronger than expected at a level of 728 million euros, driven by major DUV and
holistic lithography upgrades. As noted, YieldStar and HMI system revenue are now reported in net
system revenue, otherwise the service and field options revenue would have been even higher at
approximately 790 million euros.
Our gross margin for the quarter came in at 47.6%, slightly higher than guided, driven by a higher topline and favorable mix. Gross margin includes the amortization of intangibles as well as the effects
from the fair value assessment of HMI's inventory as of the closing date of the acquisition.
Overall OPEX came in as guided, although R&D expenses came in slightly lower at 315 million euros
and SG&A expenses came in slightly higher at 99 million euros.
Moving to the order book: Q1 system bookings came in at 1.9 billion euros including orders for three
3400 EUV systems from two customers. Strong bookings continued in the logic sector in support of
the 10 nm ramps and in support of the EUV insertion at the 7 nm node. Memory bookings
strengthened further from its strong Q4 level, supporting expected year-on-year growth in the memory
sector in 2017. The continuing order flow for EUV systems increases our EUV backlog to 21 systems,
valued at 2.3 billion euros. Our overall systems backlog now stands at 4.5 billion euros. In addition we
also have four EUV upgrade orders, valued at approximately 200 million euros. This will bring these
four NXE systems to NXE:3400 performance. In total, we have 14 3300 and 3350 systems in the field
which are candidates for upgrades. As a reminder, system upgrades are not included in our system
backlog.
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Turning to the balance sheet: quarter-over-quarter cash, cash equivalents and short term investments
came in at 3.84 billion euros.
As already mentioned in January, we saw a significant level of early payments from customers in Q4 of
last year, which resulted in a negative free cash flow of 212 million euros in Q1. As a reminder, in Q2
we have several extraordinary cash outflows which will bring the overall cash balance back to our
target level. Assuming approval at our AGM, we will pay a dividend of 1.20 euros per ordinary share or
approximately 515 million euros in total to shareholders. We also have a bond maturing in Q2 with an
outstanding value of 238 million euros, and lastly, we expect to close the acquisition of 24.9% of Carl
Zeiss SMT during the quarter for 1 billion euros.
Based on our current business view, we see a continued strong demand for DUV, Holistic Lithography
and EUV products throughout the year in both Memory and Logic. Our view is supported by our
highest backlog ever.
With that I would like to turn to our expectations and guidance for the second quarter of 2017.
We expect continuing sales strength in Q2 with total net sales between 1.9 and 2.0 billion euros
including an estimated 200 million euros EUV revenue. We plan to ship three NXE:3400's in the June
quarter. Our EUV shipment plan for the full year includes 12 systems and is back-end loaded.
We expect our Q2 service and field options revenue to again come in above 650 million euros driven
by continued demand for holistic lithography options, high value upgrades and our growing installed
base.
Gross margin for Q2 is expected to be between 43 and 44% driven by the recognition of EUV system
revenue. Excluding the EUV revenue gross margin would be approximately at the same level as Q1.
Q2 gross margin also continues to carry the effect from the purchase price allocation for the HMI
acquisition. The negative impact of these purchase price allocation adjustments for Q2 is more than
one percentage point. The impact for the full fiscal year is about 90 million euros and will reduce to
about 40 million euros per year from 2018 onwards.
R&D expenses for Q2 will be about 315 million euros and SG&A is expected to come in at about 100
million euros.
As a reminder, our share buyback program remains paused for the time being as we close our
planned equity investment in Carl Zeiss SMT. The remaining approval from China is expected in time
to close the transaction in Q2 2017.
And finally, as mentioned before: an increase of our annual dividend from 1.05 Euro to 1.20 Euro is
submitted for approval at our Annual General Meeting of Shareholders on April 26.
With that I’d like to turn the call back over to Peter.
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Peter Wennink
Thank you, Wolfgang.
As Wolfgang has highlighted, our business continues to perform well. We started the year with a very
strong quarter and we expect this positive momentum to continue throughout the year.
While Wolfgang reviewed our current quarter performance and outlook for the coming quarter, I would
like to provide some additional commentary on our markets and our longer term outlook as well as
provide a few highlights on our product portfolio.
As seen in our Q1 results, logic demand remains solid and our memory demand continues to
strengthen, with DRAM largely compensating for weak spending in 2016. Logic demand is driven by
continued ramp of 10nm with memory demand driven by DRAM 1xnm node and additions of 3D
NAND capacity. The strength in shipments to China this quarter was driven by existing Chinese and
non-Chinese customers. As for new China business, we are in discussions with multiple Chinese logic
and memory customers regarding timing of system demand for their new fab projects. We expect
shipments to support pilot production in these new fabs starting in 2018.
While it is still too early to provide quantitative guidance for 2017, our directional view as expressed
last quarter remains largely unchanged. However, in terms of potential magnitude of our business it
now appears that memory demand will be up significantly compared to prior year.
On the ASML product side, let me start with an update of our EUV business.
We started shipment of our NXE:3400 system, which will be the EUV work horse in volume
manufacturing over the coming years.
Furthermore, we continue to make progress towards our 125 wph productivity and 90% availability
commitment. At the SPIE Advanced Lithography conference in February, our customers presented
their latest results confirming our progress on these metrics. The status of the EUV infrastructure was
also presented by our customers, and while there is still work to be done on things like pellicles, there
appear to be no major roadblocks for EUV insertion in the timeframes indicated by our customers.
Regarding demand, we took 3 EUV production orders from 2 different customers this quarter, bringing
our total EUV backlog to 21 systems. As Wolfgang mentioned, on top of this we booked 4 orders for a
total value of around 200 million euros for upgrades of EUV systems currently in the field to
NXE:3400B production specifications. By the way, these orders are field upgrades and do not show in
our reported order backlog. EUV order flow continues while we work to finalize a VPA with at least one
of our major customers, which will translate into additional orders over the next quarters. As
customers continue to assess timing of their roadmaps and firm up the layer adoption, we are
beginning to get a clearer view of EUV demand for next year. The average analyst demand
expectation stands at around 20 new systems shipped in 2018, which given our current view seems
reasonable while we still have the option to build up to 24 systems next year.
In DUV lithography, demand for our TWINSCAN NXT:1980i immersion systems continues for both
logic 10nm and DRAM 1x nm nodes, bringing the installed base to more than 60 systems. We are
also seeing strong demand on our KrF platform, where we boosted the productivity of our XT:860
system further to 250 wafers per hour. For our 3D NAND customers, we released new options that
improve focus and alignment performance on the high-topography layers typical for this application.
To maximize capital efficiency, a number of customers also upgraded their immersion systems through
significant enhancements to productivity, imaging and overlay. These upgrades drove significant
growth in our option business, which will continue to drive growth through 2017.
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In Holistic Lithography, we continue to ship our most advanced YieldStar 350 metrology systems to our
customers supporting qualification and ramp of the 10 and 7 nanometer logic node as well as 1x nm
DRAM node. In addition to YieldStar metrology systems, we are also shipping HMI e-beam systems
that are now reported as part of our system revenue as Wolfgang mentioned. Integration of HMI is
progressing well and customer interest in our pattern fidelity products remains high.
So in summary, a great start to the year with a very solid quarter. Strong DUV demand, service and
option business showing further growth momentum and continued EUV order flow provides a clear
indication that this technology has now become a part of our mainstream business. We expect the
positive industry environment to continue resulting in a very good year for ASML.
With that we would be happy to take your questions.
Forward Looking Statements
This document contains statements relating to certain projections and business trends that are
forward-looking, including statements with respect to expected trends and outlook, including
expected customer insertion of EUV in volume manufacturing, including expected volume orders,
systems backlog, expected financial results and trends for the second quarter of 2017, including
expected sales, other income, gross margin, R&D and SG&A expenses, and effective annualized
tax rate, annual revenue opportunity for ASML and EPS potential by 2020 with significant further
growth potential into the next decade, including further growth potential into the next decade,
expected industry trends and expected trends in the business environment, including our
expectation that the trends exhibited in the first quarter of 2017 will continue in the second quarter
of 2017 and our expectation of healthy demand through the end of 2017, statements with respect
to EUV targets, manufacturing, supply chain and service capabilities, and ASML’s commitment to
secure system performance, shipments and support for volume manufacturing, including
availability, productivity, throughput and shipments, including timing of shipments and the ability to
support a larger installed base, shrink being a key driver supporting innovation and providing longterm industry growth, lithography enabling affordable shrink and delivering value to customers,
expected industry adoption of EUV and statements with respect to the intent of customers to
insert EUV into production, the extension of EUV beyond the next decade, the expected
continuation of Moore's law and that EUV will continue to enable Moore’s law and drive long term
value for ASML beyond the next decade, intention to return excess cash to shareholders, and
statements about our proposed dividend, dividend policy and intention to repurchase shares and
statements with respect to the share repurchase plan. You can generally identify these statements
by the use of words like "may", "will", "could", "should", "project", "believe", "anticipate", "expect",
"plan", "estimate", "forecast", "potential", "intend", "continue", "targets", "commits to secure" and
variations of these words or comparable words. These statements are not historical facts, but
rather are based on current expectations, estimates, assumptions and projections about the
business and our future financial results and readers should not place undue reliance on them.
Forward-looking statements do not guarantee future performance and involve risks and
uncertainties. These risks and uncertainties include, without limitation, economic conditions,
product demand and semiconductor equipment industry capacity, worldwide demand and
manufacturing capacity utilization for semiconductors (the principal product of our customer base),
including the impact of general economic conditions on consumer confidence and demand for our
customers' products, competitive products and pricing, the impact of any manufacturing
efficiencies and capacity constraints, performance of our systems, the continuing success of
technology advances and the related pace of new product development and customer acceptance
of new products including EUV, the number and timing of EUV systems expected to be shipped
and recognized in revenue, delays in EUV systems production and development and volume
production by customers, including meeting development requirements for volume production,
that demand for EUV systems being sufficient to result in utilization of EUV facilities in which
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ASML has made significant investments, our ability to enforce patents and protect intellectual
property rights, the risk of intellectual property litigation, availability of raw materials and critical
manufacturing equipment, trade environment, changes in exchange rates, changes in tax rates,
available cash and liquidity, our ability to refinance our indebtedness, distributable reserves for
dividend payments and share repurchases and timing of resumption of the share repurchase plan,
and other risks indicated in the risk factors included in ASML's Annual Report on Form 20-F and
other filings with the US Securities and Exchange Commission. These forward-looking statements
are made only as of the date of this document. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future events or otherwise.
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