ASML Holding N.V. (ASML) Q3 2024 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the ASML 2024 Third Quarter Financial Results Conference Call on October 16, 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. [Operator Instructions] Please be advised that today conference is being recorded. I would now like to hand the conference call 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's CEO, Christophe Fouquet; and our CFO, Roger Dassen. The subject of today's call is ASML's 2024 third quarter results. The length of this call will be 60 minutes and questions will take 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 will include forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the Safe Harbor statement contained in today's press release and presentation found on our website at asml.com and in ASML's annual report on Form 20-F and other documents as filed with the Securities and Exchange Commission. With that, I'd like to turn the call over to Christophe Fouquet for a brief introduction.

Thank you, Skip. Welcome everyone and thank you for joining us for our third quarter 2024 results conference call. First, let me apologize for the confusion yesterday after the early public hearing of our press release due to a technical error. Particularly given the serious nature of the key messages we wanted to deliver and discuss with you, this was very important. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentaries on the third quarter 2024, as well as provide some additional comments on the current business environments and on our future business outlook. Roger?

Thank you, Christophe, and welcome, everyone. I will first review the third quarter 2024 financial accomplishments and then provide guidance on the fourth quarter of 2024. Let me start with our third quarter accomplishments. Total net sales came in at EUR7.5 billion which is above the high end of our guidance driven by more DEEP UV system sales as well as higher installed base management sales. Net sales came in at EUR5.9 billion which is made up of EUR2.1 billion of EUV sales and EUR3.8 billion of non-EUV sales. Net system sales was driven by logic at 64%, with the remaining 36% coming from memory. Installed Base Management sales for the quarter came in above guidance at EUR1.54 billion due to higher service and upgrade revenue. Gross margin for the quarter came in within guidance of 50.8%. On operating expenses, R&D expenses came in slightly below guidance at EUR1.06 billion while SG&A expenses came in as guided at EUR297 million. In Q3 was EUR2.1 billion representing 27.8% of total net sales and resulting in an EPS of EUR5.28. Turning to the balance sheet. We ended the third quarter with cash, cash equivalents and short-term investments at a level of EUR5.0 billion similar to last quarter. We ended Q3 with a free cash flow of EUR534 million which is somewhat improved relative to last quarter. However, as mentioned last quarter, there continued to be pressure on free cash flow. This is primarily due to a relatively lower level of order intake and therefore less down payments as well as higher inventory level. The higher inventory level is primarily attributable to EUV, both High NA and Low NA driven by longer lead times in the build cycle as well as inventory in support of future ramp. Moving to the order book. Q3 net system bookings came in at EUR2.6 billion which is made up of EUR1.4 billion of EUV bookings and EUR1.2 billion of non-EUV bookings. Net system bookings in the quarter was more or less balanced between memory at 54% and logic at 46% of bookings. The relatively low order intake is a reflection of the slow recovery in the traditional end markets as customers remain cautious in the current environment. At the end of Q3 2024, we finished with a backlog of over EUR36 billion. With that, I would like to turn to our expectations for the fourth quarter of 2024. We expect Q4 total net sales to be between EUR8.8 billion and EUR9.2 billion. We expect our Q4 installed base management sales to be around EUR1.9 billion. Gross margin for Q4 is expected to be between 49% and 50%. I would like to make a few comments on the Q4 guidance. Net sales include the expected revenue recognition of two High NA systems. Installed base management revenue is higher than Q3, primarily as a result of achieving specific EUV performance milestones and some EUV productivity upgrades. Although Q4 revenue is higher than Q3, gross margin is expected to be slightly lower than Q3 as the positive impact from the higher upgrade revenue is more than offset by the dilutive gross margin impact from the expected revenue recognition of the two High NA systems. For the quarter, the dilutive effect thereof on the gross margin is approximately 3.5%. Based on the Q4 guidance, we expect 2024 revenue at around EUR28 billion with a gross margin of around 50.6%, which is slightly lower than 2023 as expected. The expected R&D expenses for Q4 are around EUR1,090 million and SG&A is expected to be around EUR300 million. Our estimated 2024 annualized effective tax rate is expected to be between 16% and 17%. In Q3, ASML paid the first quarterly interim dividend over 2024 of EUR1.52 per ordinary share. The second quarterly interim dividend over 2024 will be EUR1.52 per ordinary share and will be made payable on November 7, 2024. In Q3, 2024, no shares were purchased. With that, I would like to turn the call back over to you, Christophe.

Thank you, Roger. As Roger highlighted, it was a solid financial quarter, but there were also a number of market dynamics in the quarter. Starting with our technology, we continue to make good progress on both our new EUV products. On our Low NA technology, we continue to ramp the NXE:3800E system this quarter with EUV customers now rapidly shifting to this new model due to its higher performance, including over 37% improvement in throughput compared to the NXE:3600D. We have now demonstrated the full 220 wafer per hour throughput at the new record overlay in our factory, and we are on-track to deliver full specification system with new system shipment and upgrades from the beginning of next year. As customer transition to the NXE:3800E, the majority of shipments in Q4 are the NXE:3800E systems. Regarding High NA, the two shipped system are now exposing wafers at our customer and we expect to recognize the revenue from the system by the end of the year. The first system is in the process of being shipped to a second major customer. Momentum continues to grow with around 10,000 wafers now exposed from multiple logic and memory customers using the High NA system in the joint ASML-imec High NA lab and the systems in the field. At the recent lithography conference, we published new High NA data showing major performance benefits in imaging overlay and contrast. Those benefits also indicate a significant-cost reduction opportunities for both logic and DRAM customers. As a reminder of the value High NA provides, we have demonstrated the system ability to print features at resolution of 8 nanometer, compared to a Low NA system, this represent an improvement to nearly 3x in transistor density per exposure. All-in-all, we have seen continued momentum EUV technology and we are progressing well relative to customer expectations. With regards to market condition, while we continue to view AI as a key driver of the industry recovery with potential upside, we see other segments recovering more slowly than anticipated. The recovery will extend well into 2025, which is leading to customer cautiousness and some push outs in their investment. In logic, the slow recovery of end markets such as mobile and PC, together with specific competitive foundry dynamics, as resulted in a slower ramp of new nodes at certain customer who are as a results pushing out some of their fabs and changing their litho demand timing. In memory, the slower market recovery is also resulting in limited capacity addition with the focus still on technology transition, supporting the high bandwidth memory and DDR5 AI related demand. And finally, we expect the China business to go back to a more normalized percentage of our business in line percentage of China business in our backlog. In summary, while the long-term trends are still very strong and positive, the developments over the past few months combined with customer specific circumstances has led to a reduced growth curve in 2025 and an over overall reduction of our lithography demand. Due to this dynamics over the last quarter, we felt it'll be appropriate to make some comments on 2025 at this time versus waiting until our Investor Day next month. With that, I will turn it back over to Roger.

Thanks, Christophe. And as we discussed in our Investor Day in 2022, we provided market scenarios for 2025 of between EUR30 billion and EUR40 billion. With a gross margin of between 54% to 56%. Based on the recent market dynamics that Christophe just described, we now see 2025 revenue moving through the lower half of the range, so between EUR30 billion and EUR35 billion. To the logic stand, this is driven by a significant reduction in our expected Low NA shipments in '25 fewer than 50. We also now expect our China sales to be around 20% of our total revenue next year, trending back towards our historical China percentage and in-line with its share of the backlog. With regard to gross margin, one of the key drivers of the expected improvement was Low NA driven by both an increase in the number of systems as well as a move to the higher margin 3800E system. While the improvement in gross margin for the 3800E has been achieved, the large reduction in EUV unit numbers for next year is significantly margin diluted in comparison to earlier expectations. Also, the reduction of our China sales, which typically contain a high percentage of immersion sales, is dilutive to our gross margin. Therefore, based on the current outlook of lower and the less favorable mix in comparison to the 2022 Investor Day, we now expect a gross margin of between 51% and 53% in 2025. In comparison to 2024, the 2025 gross margin is expected to benefit from the higher gross margin on the 3800E, gradual margin improvement on High NA and the improvement in EUV service margin, but we'll also see a dilutive margin effect of recognizing more High NA tools in revenue. On operational expenses for 2025, we expect total OpEx to be at the upper end of the bandwidth of EUR5.6 billion to EUR6.1 billion provided during Investor Day in 2022. We will continue with our R&D roadmap and have been able to absorb the significant wage inflation effect since 2022 within the bandwidth. With that, I once again hand it over to Christophe.

Thank you, Roger. As we look out longer-term, consistent with what we have previously stated, the secular growth drivers in the semiconductor end markets are still very much intact. AI, energy transition, electrification, among other applications, continue to provide a very strong and very positive perspective to our industry and ASML business. The expanding application space, along with increasing lithography needs on future technology nodes, drive demands for both advanced and mainstream nodes. In line with most of our industry peers, we continue to see AI as an upside and continue to watch carefully how this will affect us on the short and in the long-term. Despite some of the push outs we have discussed, we continue to prepare for a number of new fabs that are being built across the globe to address the future demand and needs of the industry. Those fabs are spread geographically, our strategy for our customer and our schedule to take our system. We will therefore continue to build capacity in order to respond to the demand increase that we expect throughout the remainder of this decade. We will provide a more detailed assessment together with the scenarios of 2,030 at our Investor Day on November 14, 2024. We look forward to seeing you there. With that, we will be happy to take your questions.

Thank you, Roger and Christophe. The operator will instruct you momentarily on the protocol for the Q&A session. Beforehand, 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, could we have your final instructions and the first question, please?

[Operator Instructions] And your first question comes from the line of Joe Quatrochi from Wells Fargo.

Yeah. Thanks for taking the question. I wanted to kind of understand the change that you're talking about in terms of the China demand. What are you seeing there that is causing that normalization? And then if we were to try to think about what in your 2025 guide you're implying for non-China DUV revenue, it seems like you're embedding a pretty significant increase year-over-year. What's the underpinning driver of that?

Thanks, Joe. So when it comes to China, I think it's a combination of two things. As we've said before, in the past 2 years, we've been very much eating into our backlog for China, and that backlog has come to that level simply because in the years before that, we were -- we had a fairly low auto fill rate for China. So as a result of that backlog build-up in the past because of the global market circumstances, we were able to deliver on that backlog. So that's why the China sales in 2023 and 2024 have been so high. So as a result, we indicated before that we expect at a certain point in time for that to normalize, and that is, I think, what you now see in the numbers. So that's one driver. Secondly, I think we all read newspapers, right? We all see that there is speculation around export controls. And also that is a driver for us to take a more cautious view on the China sales. So with that combined, we stated that we believe the China sales for next year are going to go to, let's say, 20% of our expected sales level for next year. When it comes to DEEP UV and the non-China part of the DEEP UV business, if you do the math a little bit, our expectation is that the DEEP UV business next year will be lower than it is this year. So we believe DEEP UV will go down a bit. But you're right. I mean, with the China business going down as we've indicated that means that the non-China part of the DEEP UV business will go up. And the main reason is that if you look at the more advanced nodes and if you do the math on the growth that you might anticipate in the EUV business for next year, you will see that there is quite some growth there. In the combination of Low NA and High NA, you will see quite some growth there. I think what you're going to see is that the non-China part of the DEEP UV business is sort of following that trend. So the attach rate, if you want to call it like that, of the DEEP UV business to the EUV business will be similar. So the growth rate you will see in EUV, you will sort of see back also in the growth rates for the non-China part of the DEEP UV business.

Got it. That's helpful. And then as a follow-up, I wanted to try to understand a little bit better the 2025 gross margin guidance and the commentary. I can certainly appreciate the lower mix of Low NA, but for total revenue, it would still be kind of within the low end of the target range. I think it would still imply that your immersion shipments maybe being down year-over-year, it sounds like still better you're thinking about from the target model, which I think would be a positive for in terms of offsetting just some of the mix. So maybe can you help us unpack that a little bit of just how do we think about like the immersion relative to what you were thinking about at the Analyst Day in 2022 and that mix effect?

So Joe, immersion in comparison to the Investor Day in 2022, I think there you will see that immersion is not dramatically different from the expectations that we had in 2022. I think the immersion expectation has gone up a bit, but with everything I just told you, including or our view on chart, I think immersion has come down a bit, and all-in-all, I think our immersion view is not dramatically different from what we held out at the Investor Day. The line, if you simply contrast the gross margin that we have that we now articulate for 2025 and compare that to the gross margin that we articulated three years ago, it really is to a very large extent, it is driven by EUV. And there are two elements in EUV that do this. One element is volume, so the volume that we have on EUV now in our model with 50 is substantially below the numbers that you saw in the Investor Day of November ‘22, but there is also a mixed effect in there, because in 2022 we were looking at the high end of the mix, i.e. 3800 was going to dominate. The fact we were expecting a few 4000 in there as a result of the dynamics in the market, you actually, quite a few, 3600 in 2025 as well. The 3800 will dominate, but it will clearly be 3600 in there as well. So there is also an ASP and gross margin mix effect in there. It's that combination of particularly a significantly lower number of EUV units, and also the mix effect in the EUV that is primarily driving down the gross margin expectation in comparison to what we were looking at in November of the ‘22. And the unit effect is by far the biggest effect in that explanation.

Your next question comes from the line of Didier Scemama from Bank of America.

Roger or Christophe, I don't know, when you look at the cut you have made to EUV shipments for next year, call it 20 to 25 Low NA systems, how much of that do you think spills over to ‘26? And I've got a follow-up.

I think, it's a difficult question as you can imagine, because I think the feedback we have got from our customer in the last few months was about pushing out those tools. I think, you could say mathematically, this move into 2026, I think that's the simple way to look at that. I think, that we have to, of course, over time reconfirm the dynamic of the market, I will say for the second half of ‘25 and ‘26. So if you think about mathematically, we have talked about push out, because we really see our customer delaying basically their fabs. We don't see a customer basically changing their mind on those fabs. So that's why we refer to push out. Of course, ‘26 is an opportunity to see those tool back, but like I say, there's still a long way until 2026 and we will continue to watch the market dynamic there.

A follow-up to that would be how much of the push out is a reflection of just the end demand being pulled versus maybe several of your customers struggling with process technology and attracting effectively customers to justify the construction of the factories?

I think it's both. So, it's a mix of that. I think that we mentioned the slower recovery first, because I think this affect every single customer. So we are still quite optimistic about AI. I think today without AI, the market would be very sad if you ask me. But for the rest, I think our customer continues to confirm that when it comes to power, when it comes to PC sorry, when it comes to automotive, the recovery is not what I think A1 had wished for. And that affect, I would say, a large part of our customer on all segments and application. I think we also indeed mentioned as well some competitive dynamic on logic. I think that also has been expressed at plans in the press in the last 3 months. I think that's not really new for you. And this also contribute to some of the push out. So, I think those two things are really the 2 dynamics that have come up in the last few months to a level where our customer basically started to really make, I would say, decision that were in line with their expectation both on the total market, but also maybe in some cases on the share they may end up having in some of the logic market.

Makes sense. And just a tiny follow-up to Roger, if I may. When you look at your IBM revenues in Q4, there is a big step up. Can you give us a sense as to whether that's sort of a new normal? And especially thinking about 25% in your guidance and coming back to the point that was raised earlier on the EUV revenues, which are look optimistic. So is the installed base management going to grow a lot in 2025 and effectively picks up the baton a little bit from EUV?

Yes, Didier, I wouldn't say that it's the new normal as we also explained today in the earlier and also as we explained in the video, there is clearly also a one off effect in there meeting a certain performance target. So that was one reason that we expect that's a one off effect, if you like, in what we see for Q4. That said, we do believe that the installed base business, both on the service side and also on the upgrade side, is going to grow in a quite healthy way to -- in 2025. So yes, we do project that it will that there will be quite healthy growth in that. So there will be healthy double-digit growth as we currently see it in the installed base management in '25 in comparison to '24.

[Operator Instructions] Your next question comes from the line of Mehdi Hosseini from Susquehanna.

Yes. Thanks for taking my question. Excuse me. First one for Christophe, I wanna better understand the momentum with High NA, I think at the SPIE conference a couple of weeks ago, there was increased interest by your key customers for changes to the radical going to larger radical size. And I want to better understand how you see that evolving or impacting booking for High NA or would the reticle or change it to reticle would cause a push out as you try to book 5200? And I have a follow-up.

Yes. So I think the interest you said it is increasing. And I think what you have seen at the conference is that the initial data that have been shared on High NA by ASML, but also by some customers have been received very positive because it shows significant performance improvement when it comes to imaging and some good very good cost support duty on some of the layer for DRAM and Logic. So I think the interest is high indeed and increasing. The discussion on the 12 inches reticle is a bit a discussion about what else could we do in the future to further improve the productivity of High NA first and potentially of the tool. So the conference you referred to is a bit of a technical conference. So people likes to discuss basically what could come next. It was a good engagement. This was a sign indeed also of the fact that more start to count really on High NA into the future. And that timeframe is not at all aligned with the 5000 or 5200. So I think there's absolutely no connection between what we do with High NA and what we may do in the future with the 12 inches A reticle. To give you an idea that discussion may become more concrete towards the end of the decade or the beginning of the next one. So, it's really a long-term technical discussion we have engaged with our customer and we are happy discussion with them because this can provide a significant productivity improvement for High NA, but for lithography in general. But that's not for tomorrow, and therefore, this will in no way impact our current discussion and business on High NA.

Okay. Thank you. And then a quick follow-up for you and Roger. Where are we with internal capacity targets? And given the updated ‘25 target, how do you see the capacity targets that you put out in 2022, evolving? So where are we today with DUV and EUV manufacturing capacity? And how are you changing the targets for additional capacity that you put out back in 2022?

Yes. So if you realize today, we have a lot of focus, of course, on 2025. And I think what we say is that for next year, with a slower recovery, the number of tools we will be head of shipping to our customer is mostly less than what we expected, both in Capital Market Day 2022, but also a few months ago. Now what I've also said in the introduction is when we look at the long term, when we listen to our peers, I think that the bullishness about the long term opportunity of this market is strong. We share that, which means that at some point of time, the need for more capacity will be there. So what we do, we continue to execute on the long lead time items, things like building some equipment. On the other hand, because the short-term market is a bit, I will say softer than, what we expected previously. We are also slowing down, basically any short-term investment. When it comes to people material, etcetera, et cetera. We don't have to do that today. We will do that when we have, again, visibility for a larger demand, but the structure of our capability, we want to still drive, because I will say when a recovery take more times to happen, if you believe on the long-term trajectory of the market, there is always a point where you have to deliver more tools, and we want to be ready for that as well.

Thank you. I love what to see in you at CMD.

Your next question comes from the line of Chris Caso, Wolf Research.

My first question I'd like to dig into a little bit more of what more specifically may have changed over the last 90 days, because some of the things you referred to you China, some of the memory spending, some the logic spending, some of it I think was sort of known 90 days ago and some may be incremental. If I take, each of those three and some of the fab push outs that have come about that, how would you characterize the change in your calendar ‘25 guidance among those three areas? Basically, what was new to you as compared to when we had the last earnings call?

I think, if you take the different pieces, I think when it comes to China, we already started to indicate in the last call that over time we do see China trending towards a more normalized percentage. I think the intensity also of the discussions in the press, including discussions on more export restrictions, I think have driven us to more cautiousness when it comes to China. That I think is really driven by developments in the past couple of months. I think when it comes to other customers, on previous calls we've indicated that there was uncertainty. I think what we see to a large extent is that part of that uncertainty has really materialized. What became a -- what was a question mark maybe a number of quarters ago, has now become quite clear that a certain level of demand from certain customers was -- is in all likelihood not going to happen. So that was the reason why we decided to -- that we could no longer hold a large window of EUR30 billion to EUR40 billion at the in the world. That as a result of that, we needed to reduce that window to the lower half. I think, Chris, the background of it, and that's what really changed. It's the materialization of certain risks and uncertainties that we talked about before that have driven us to this lower expectation.

Just as a follow-on with your comments on China of course there haven't been new export restrictions announced. So, is a correct to interpret your comment is that you're making some judgment on what you think some of those restrictions, how that may affect revenue in ‘25, prior to those being fully implemented. Is that the correct interpretation?

Yes, Chris, as we were newspapers and we see continued speculation on things that might happen, and as a result of that, we've decided to take a more cautious view. And that indeed has resulted in is one of the drivers. I mentioned the other driver as well. But the combination of China being us eating less and less into the backlog of China and speculation around more export control restrictions that has led us to the conclusion that it is prudent to go back to this 20% for China as far as 20% of our total business.

And your next question comes from the line of Francois-Xavier Bouvignies from UBS. Q – Francois-Xavier Bouvignies: Thanks a lot for letting me in. My first question is on the comment that you mentioned on the smartphone market and PCs and the market is a bit slower. Versus 3 months ago, the smartphone market and PCs indeed is slower. But the magnitude of the revision of EUV of 15% to 20% is still quite big compared to the weakness of the market. So I was just coming back and it seems to be really 2 customers that have been well in the press having some issues. So we would have thought that you would see some swap out in the orders in terms of customers. Did you see any sign of like upside risk into some orders at least a bit offsetting or interest related to these customer issues? Or is it a scenario that your customers gave you some too optimistic forecast in light of a big shortage of EUV you had in recent years and therefore the swap out will the swap will take much stronger than expected? I'm sorry for the long question as usual.

No, it's okay, Francois. Those are good questions. And I think you touched again on the two drivers that we have seen changing our, I would say, demand expectation for next year. So the combination of the 2 again is important. And the first one, I think you see yourself as you mentioned, the recovery on mobile PC to be weaker than expected initially. This has an impact, I will say, on the capacity planning, but also maybe on expectation of capacity planning. So, I think we use the word cautiousness a few times in the call. When you become cautious, I think this means you are careful on the short-term, but also a bit on the midterm. So, you have a bit of a double hit if you want with the cautiousness. So that's the first one. On the second one, I think we also mentioned some upside on the AI, because we still believe that the overall demand for those application is there, continue to increase. So if we look at the server demand, we see there a very nice recovery, a lot of that has to do with AI application. So we talk about upside, which also means that the overall dynamic of the market is still playing, and we felt the need to hover an update for next year based on some of the development we have seen. I think in no way we are also saying that there is a complete understanding of how the entire market will continue to play out in the next few months. So I think on the second part of your question, I would say maybe this has not played out fully yet.

Okay. Thank you. And you would expect to happen then I guess to -- at some point to happen?

Well, I think if everyone and I think a lot of us still believe in the strong AI demand in the coming years, I think that demand has to be fulfilled. Therefore, yes, I would say mostly we will see some development also on that front in the coming months. Q – Francois-Xavier Bouvignies: Okay. Thank you, Christophe. And maybe my follow-up would be on the High NA. I don't want you to spoil the Capital Markets Day, but could you maybe give us an update on the High NA now in terms of years of adoption, maybe Logic Memories, anything happening here versus maybe 3 months ago, 6 months ago since you passed the wafers?

Well, I think I said a few months ago that the period we are in, the months we are in will be important for the data generation, generating data to our customer, our customer that have placed many order already on High NA for R&D. And when you generate data, you have two options. The data are bad and customer kind of like it less, or the data are good and they like it more. And I think we are more in the second situation today. We continue to generate data. We talked about 10,000 wafer exposed. These are all to demonstrate basically the performance of the tool, on logic, memory, and all of that is helping our customer to, I would say, to make their plan of insertion and adoption a bit more concrete and start to define some very specific milestones. So, this is a bit where we are. We are very happy with the progress on High NA. We are very happy with the performance. We are happy with the data, and we'll continue in the next few months to work with our customer to translate basically those initial good results into real, I would say, plan in their manufacturing fabs.

Your next question comes from the line of Alexander Duval from Goldman Sachs.

Yes, May. Thanks for the question. I wondered if you could talk about what level of orders you need in the coming quarters to hit the new midpoint of guidance. I think previously you talked about EUR6 billion of orders in the second half of this year to hit the prior midpoint. And now we've obviously seen EUR2.5 billion in the quarter, but a lower target. So how should we be thinking about this? And to what degree are is there some wiggle room in the Q1 given lead times potentially to still get orders which could benefit 2025? That's my first question.

Yes, Alexander. So you're right. And I would say that in addition to what you observed in terms of the overall order intake, it's also clear that obviously there has been some push outs into 2026. So that's also something that you should recognize, right? That's orders that originally were provided to us as 2025 orders and the mix that we just discussed have been shifted to beyond 2025. So that dynamic should also be considered. What we're looking at today, I would say, I think we're when it comes to EUV because obviously that is relevant I think in this conversation. I think DEEP UV given the significantly lower order lead times is less relevant here. But when it comes to EUV, at this stage, I think it's fair to say that we're sort of fully booked for the low end of the guidance that we've provided. In order to get to the midpoint of the guidance, I would say that we need another, let's say, EUR2 billion in order to hit the midpoint of the guidance before the end of the year. So, EUR2 billion should then come in this quarter. When it comes to flexibility, I think there is some flexibility. To the extent that orders would come in Q1, I think we would still probably be able to cater to those orders in 2025. I think we build in sufficient flexibility to create that.

Maybe it's a quick follow-up. We've had a number of investor questions about sort of lithography intensity in the context of areas ramping like advanced packaging, advanced deposition, for example. Just curious to what degree you see that as having a structural impact on litho intensity. To what degree does that matter in 2026, and beyond on the assumption that the semis market continues to grow over time?

Yes, so I think, we will talk about that in the capital market day, in a few weeks from now, because those are more longer-term considerations. Anything we discuss today I think is in no way related to those kind of I would say considerations. The whole discussion is really around the market dynamic. I think those question are very good for our longer term opportunities and we will be spending quite some time discussing that again in the November meeting together.

Your next question comes from the line of Tammy Qiu from Berenberg.

The first one is on China. You mentioned that China is going to normalize from here, because of different reasons. Is it right to understand that the 2025 level of Chinese business will be the new baseline of China? Are you, we shouldn't see another 20% or 30% decrease from here into 2026?

I think, the 20% is what we consider to be a normal percentage of our business for China. We would assume that is a number that also on a go forward basis we believe would be realistic for China. Of course, subject to anything related to export controls and what have you, which is beyond our control. But simply looking at the market, we believe, that the China market structurally would be able to accommodate about 20% of our revenue.

The follow-up I have is on the two large customer which push out their order in this quarter. In your 2025 number, on those two big customers, did you actually budgeted more trim in there when you estimate your 2025 revenue or basically you have taken the push out from this quarter come out with the 2025 number, so therefore we may actually subject to further push out if they do it another round in the next, let's say two quarters.

Tammy, real quick to clarify, you said in 2025 we budgeted. What was that?

Basically, I said, when you are budgeting a 2025 revenue, when you give this new guidance range, at mid-point [EUR32.5 million], did you actually budget additional cut from those two big customers or you only reflected the cut you have seen in this quarter?

Tammy, we've essentially taken the latest view that we've developed with that customer. So you will appreciate with those customers. You will by the way, you talk about two customers, I think it's fair to say it's more than two customers, but what we’ve reflected in what we have now is the latest status of the conversations with those customers. That's what is in here. But you will also appreciate that the closer you get to the year, the more firm those customers will be on their demand. So I think what we're looking at for now is a pretty current and I would say accurate view of those customers of what they need for next year as a baseline.

And the question comes from the line of C.J. Muse from Cantor Fitzgerald. Q – C.J. Muse: I guess first question, was trying to dig a little bit deeper into China. You are guiding to 20% of revenues, which basically suggests down 30% year-on-year. I'm curious, does that 20% reflect just normalization or are you taking certain precautions in terms of anticipated regulatory pressure? And if so, what kind of dollar amount or percentage is reflected by maybe more cautious behavior as opposed to a change in end demand trends?

Yes. I think C.J. I said it. The cautious view is for the two reasons. The cautious view is because as we said before, we believe at a certain point in time China will go to a more normalized level because we're not over delivering on their backlog. That's 1. And second, I said given the discussions that we also read in the press, we've become a bit more cautious. To dissect that is impossible to do. So it's that combination that has given rise to our expectation of China being 20%, which is not too far away indeed from your 30% decline. Q – C.J. Muse: But I guess I'm trying to, decipher why it's impossible. I mean, obviously, you have a vision for end demand and then you're taking a haircut to reflect maybe more conservatism. Is there a way to understand that haircut?

It's related, C.J. So the 2 go hand-in-hand. So you cannot dissect that and I will not dissect that. Q – C.J. Muse: Okay. Maybe a bigger question. In a world where 2 leading logic players are floundering, you really kind of have 3 big EUV customers in TSMC, Hynix, and Micron. And just curious, as you think about kind of monopoly versus monopsonist, are you thinking about changing your plan to pre-build? I would think that pricing power and pre-building don't go hand-in-hand. So we'd love to hear your kind of philosophy around that.

Well, I think the one priority for us is to serve our customers, which means that whatever total demand our customer will give us, we want to be able to honor that. And that's especially important to do that when you are the single supplier of EUV tools. I think that's the responsibility we have. I think the discussion on pre-build started when we saw a situation where we may not be able to meet the demand with the output of 1 year. And then to be consistent with my previous point, prebuild in the lower year is a way to do that. So, this means also that this number of prebuild tool will of course evolve with the market situation. And if we are in a situation where the market is low, we don't see the need to do that, except specific request of our customer. But what we have seen also in the past is that things tends to change, and I think the mix between our customer is also evolving back and forth over time. So I think that's also something we keep in mind.

Your next question comes from the line of Sandeep Deshpande from JP Morgan.

Yeah. Hi. Thanks for letting me on. I want to go back to one of the early questions again. I mean, in terms of your guidance for next year, I mean, when we look at the numbers, it looks like your growth in DUV outside China is going to be incredibly strong. I mean and also when I've looked at ASML for so many years, I mean, the view is that ASML, when you give one year guidance, you tend to be within that ballpark. You don't tend to be wrong in that -- in those terms. So I mean, how confident do you feel that the DUV outside China is going to see significant growth next year given that DUV does tend to have shorter lead times than EUV? And I have one follow-up after that.

Yes. So as I well, you caught it in incredible growth. As I mentioned before, I think you're looking for the non-Chinese part of the DEEP UV business. We're looking at about similar growth as we see it for EUV. So leave it to your own imagination how you want to qualify that. But it is the two things go hand-in-hand. We see quite a bit of DEEP UV demand also particularly I would say on the leading nodes. So therefore, I think assumptions on a strong correlation between capacity build on EV and capacity build on the non-Chinese part of the DUV, I think that is a realistic assumption. So therefore, with that very strong correlation as we see it, we believe that the underpinning for that demand increase, something we believe is robust.

And Roger, I mean, just on the same question, I mean, in terms of your forecasting for 2025, this is in line with how you forecast in prior years, correct? So there's nothing different? Or do you think that this year is 2025 looking something very dramatically different and so you may have to change later or something like that?

No, I think it's essentially the same. You could argue, Sandeep, that we're a bit early. And the reason that we're a bit early is because we believe given the dynamics that Christophe talked about at the beginning, we believe that the second or the high end of the bandwidth is not realistically in reach based on what we know today. So that's the reason why we believe it was prudent to say we should be looking at the lower end. Of course, in the next couple of months, we're going to once again talk to customers and listen to their plans, etcetera, etcetera. But I think the way we're looking at next year and the work that we've done on that is not dramatically different from what we've done in previous years.

Okay. Thanks. And one for my second question is on High NA. Christophe, I mean, there have been public comments by one of your customers on High NA. Clearly, the data which has been available at the last conference at High NA seems to be very good. So my question is, are your top three customers all going to sign up for High NA quickly? Or is this some of them go to delay like one of them did with EUV and we know the consequences of that, of course?

I think we've been consistent in the last few quarters mentioning that all our EUV customer had order an High NA tools. All our EUV have been engaged with us in the High NA lab. So everyone is really using this time to collect the data. So the data you may have a chance to see, the one you referred to, I think are also looked at seen by all customers. I think the engagement today on High NA is really coming from all of our EUV customer, and the timing they have in mind for insertion for adoption is still pretty much in line with what we are discussed in in the past. I think, the good data we have been able to generate on the very first tools are just if anything, supporting that approach.

All right, 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?

We will now take our final question for today, and your final question comes from the line of Adithya Metuku from HSBC.

Firstly, just a clarification, if I heard you correctly, you said the competitive dynamics between the logic players, you pointed out earlier you're saying that the problems that these, some of these customers have led to downside risks crystallizing for 2025, but the upside risks from the share shifts between these logic customers haven't yet crystallized and are not yet in your assumptions for 2025. Is that right, did I hear that correctly?

I think, I would say short answer is yes. That's again why we refer to some upside on some part of the market.

Essentially, you're saying, you're priced in caution for China even though we have no clarity on export controls and how they'll develop, and then there could be upside risk from share shifts between logic customers into 2025. And then maybe just as a follow-up. On Low NA EUV ASPs for Roger. When I take the numbers you're giving, less than 50 Low NA tools and 5 High NA tools and the growth -- and DUV declining, so essentially, your EUV has to grow quite significantly. But with the ASPs you've given for the 3800 machine and the mix shifts you're still talking about for 2025 between 3600D and 3800E, it sounds like your Low NA ASP has to be something like EUR240 million, and I'm not sure how I get to that number. I don't know if you can help me reconcile those figures, if possible. Apologies if the question isn't clear.

Well, the question is clear, but your model isn't clear. So that's why it's difficult to reconcile it on this call, Adithya. But by and large, I think you mentioned EUR240 million, that would definitely be too high and that is also not what we have in our numbers. So if we look at the ASP that I recognize or that we recognize in our model to get you to the midpoint of the guidance, there is an ASP that is above EUR200 million, but that's definitely not at a EUR240 million level. So I think you might want to revisit that. I don't know exactly what you have on High NA. So it's a matter of really taking a thorough look at your model. On High NA, you should have at least for the 5200, you should have an ASP of over EUR350 million. So I don't know if you have that in there. But the ASP to work on for Low NA would be north of EUR200 million in the mix, but would be -- would definitely be lower than the EUR240 million that you just noted.

All right. Now on behalf of ASML, I'd like to thank you all for joining us today. Operator, if you could formally conclude the call, appreciate it. Thank you.

Thank you. This concludes the ASML 2024 third quarter financial results conference call. Thank you for participating. You may now disconnect.