Earnings Call Transcript
ASML HOLDING NV (ASML)
Earnings Call Transcript - ASML Q2 2023
Operator, Operator
Good day, and thank you for standing by. Welcome to the ASML 2023 Second Quarter Financial Results Conference Call on July 19, 2023. At this time, all participants are in a listen-only mode. After the speakers' introduction, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference call over to Mr. Skip Miller. Please go ahead.
Skip Miller, Vice President, Investor Relations
Thank you, operator. Welcome, everyone. This is Skip Miller, Vice President, Investor Relations at ASML. Joining me today on the call are ASML's CEO, Peter Wennink, and our CFO, Roger Dassen. The subject of today's call is ASML's 2023 second quarter results. The length of this call will be 60 minutes and questions will be taken in the order that they are received. The call is also being broadcast live over the Internet at asml.com. The 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 would like to turn the call over to Peter Wennink for a brief introduction.
Peter Wennink, CEO
Thank you, Skip. Welcome, everyone, and thank you for joining us for our second quarter 2023 results conference call. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the second quarter 2023, as well as provide our view on the coming quarters. And Roger will start with a review of our second quarter 2023 financial performance with 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?
Roger Dassen, CFO
Thank you, Peter, and welcome, everyone. I will first review the second quarter financial accomplishments and then provide guidance on the third quarter of 2023. Let me start with our second quarter accomplishments. Net sales came in at €6.9 billion, which is at the high end of our guidance. We shipped 13 EUV systems and recognized €2 billion revenue from 12 systems this quarter. Net system sales of €5.6 billion, which was mainly driven by Logic at 84%, with the remaining 16% coming from Memory. The net sales value of our fast shipments not yet recognized in revenue in the first half of 2023 amounts to €1.4 billion. Installed Base Management sales for the quarter came in at €1.3 billion as guided. Gross margin for the quarter came in at 51.3%, which is above our guidance, primarily driven by additional DUV immersion revenue in the quarter, partly related to starting revenue recognition upon shipment for immersion systems that are fast-shipped. On operating expenses, R&D expenses came in at €1 billion and SG&A expenses came in at €281 million, both basically as guided. Net income in Q2 was €1.9 billion, representing 28.1% of net sales and resulting in an EPS of €4.93. Turning to the balance sheet. We ended the second quarter with cash, cash equivalents and short-term investments at a level of €6.3 billion. Moving to the order book, Q2 net system bookings came in at €4.5 billion, which is made up of €1.6 billion for EUV bookings and €2.9 billion for non-EUV bookings. These values also include inflation correction. Net system bookings in the quarter were driven by Logic with 69% of the bookings while Memory accounted for the remaining 31%. At the end of Q2, we have around €38 billion in our backlog. With that, I would like to turn to our expectations for the third quarter of 2023. We expect Q3 net sales to be between €6.5 billion and €7 billion. We expect our Q3 Installed Base Management sales to be around €1.4 billion. Gross margin for Q3 is expected to be around 50%, a little below last quarter due to deep UV mix. The expected R&D expenses for Q3 are around €1 billion, and SG&A is expected to be around €285 million. Our estimated 2023 annualized effective tax rate is expected to be between 15% and 16%. An interim dividend of €1.45 per ordinary share will be made payable in August 10, 2023. In Q2 2023, we purchased around 0.8 million shares for a total amount of around €500 million. As mentioned last quarter, in the current environment, we expect to see ongoing pressure on our free cash flow. As a result, we will be prudent in managing our cash flows and maintaining relatively higher levels of cash. With that, I would like to turn the call back over to Peter.
Peter Wennink, CEO
Thank you, Roger. As Roger mentioned, we delivered another solid quarter in a dynamic environment. There is still significant uncertainty in the market due to various global macro concerns such as inflation, rising interest rates, recession, and geopolitical factors, including export controls. Some end markets appear to be hitting the bottom of the cycle, but the semiconductor industry is facing high inventory levels, prompting customers to reduce wafer output as they work on balancing their inventories. To limit wafer output, customers are operating at lower litho tool utilization rates and are cautious because of the unpredictability surrounding the timing, shape, and slope of recovery. We experienced an increase in bookings this quarter, leading to a backlog of about €38 billion at the end of the second quarter. In our EUV business, there have been changes in demand timing primarily due to fab readiness issues and uncertainty around recovery. Demand for deep UV remains higher than supply. Although some customers have delayed deep UV demand, strong demand for tools at mature and mid-critical nodes, especially in China, has helped balance this out. Our Chinese customers have had a demand fill rate of less than 50% over the past two years, so they are seizing the opportunity to receive and install systems in their fabs as tool availability improves. In our deep UV segment, we plan to ship more than 375 systems, with over 25% being immersion systems. For these immersion systems, we have reached an agreement with customers to simplify the acceptance test procedure, allowing for revenue recognition upon shipment. This adjustment means we anticipate an additional revenue of around €700 million in 2023, reducing the amount of revenue that will be delayed to 2024 from approximately €3 billion to about €2.3 billion. This incremental revenue from deep UV increases the expected year-over-year growth of our non-EUV business from around 30% last quarter to about 50%. In the EUV segment, due to adjustments by customers regarding demand timing linked to fab readiness delays and ongoing supply chain issues, we now expect to ship around 52 systems this year, leading to a year-over-year revenue growth of about 25% compared to our earlier expectation of roughly 40%. Regarding our Installed Base business, given the current utilization rates and market uncertainties, customers are postponing productivity and performance upgrades on their litho systems. As a result, we now expect our Installed Base business this year to remain similar to last year instead of growing by around 5% as previously anticipated. Overall, based on our current outlook, with increased deep UV revenue somewhat offset by lower expectations for our EUV and Installed Base businesses compared to last quarter, we now expect net sales growth for the year to trend towards 30%, up from our earlier estimate of over 25%. We still expect a slight improvement in gross margin relative to 2022, consistent with our previous guidance, as the positive impact from increased deep UV immersion revenue is expected to be offset by lower upgrade revenue in 2023. Concerning geopolitical matters related to export control, the final Dutch regulations published recently align with our earlier expectations. These regulations require ASML to apply for export licenses with the Dutch government for all shipments of its most advanced immersion deep UV lithography systems. It's important to note that EUV tool sales have already been restricted, and our business in China is primarily focused on mature and mid-critical nodes. The new Dutch export regulations will be effective starting September 1, 2023. Recent media reports have suggested additional U.S. export controls, but we cannot respond to speculation. Based on our current understanding, we do not foresee a change in our outlook. Therefore, we do not anticipate that the Dutch regulations or any potential U.S. measures will significantly impact our financial outlook for 2023 or our long-term scenarios discussed during our Investor Day last November. Looking ahead to next year, our customers across various market segments are increasingly cautious due to ongoing macroeconomic uncertainties. Previously, customers anticipated a recovery in the latter half of this year, but now it seems more likely to be pushed into 2024, with the specifics of the recovery still unclear. However, given the current strong demand and a substantial backlog of around €38 billion, there are still growth opportunities available in 2024. Yet, due to existing uncertainties, it's premature to provide concrete forecasts for next year. We will continue to monitor market developments and provide updates in the upcoming quarters. Despite the short-term uncertainty, the long-term trends we discussed at our Investor Day are expanding the application space and driving demand for both advanced and mature nodes. Growth factors in semiconductor end markets like electrification and AI, along with increasing lithography intensity for future technology nodes, continue to drive demand for our offerings. In summary, while the current macro environment presents notable uncertainty, we are navigating a strong backlog and expect growth this year approaching 30%. In the near to medium term, customers are cautious as they adjust wafer output to lower inventory levels across the supply chain and seek to gain confidence in the recovery's timing and progress. ASML and our supply chain partners remain focused on enhancing capacity to meet future customer demand, and we maintain confidence in our long-term growth prospects. With that, we welcome your questions.
Skip Miller, Vice President, Investor Relations
Thank you, Roger and Peter. The operator will instruct you momentarily on the protocol for the Q&A session. Beforehand, I would like to ask that you kindly limit yourself to one question with one short follow-up, if necessary. This will allow us to get it to as many callers as possible. Now, operator, can we have your final instructions and then the first question, please.
Operator, Operator
Thank you. The first question comes from the line of Krish Sankar from TD Cowen. Please go ahead.
Krish Sankar, Analyst
Yeah, hi, thanks for taking my question. I have two of them. Peter, I understand you don't want to give an outlook for next year and I'm not looking for revenue guidance, but if I look at from a unit standpoint or a system shipment standpoint, do you think deep UV and EUV units would grow in calendar '24 relative to calendar '23?
Peter Wennink, CEO
I'm not able to provide specific guidance for 2024. However, I can highlight that we have strong demand from our customers and a solid backlog. It's important to note that our entire order book for 2024 isn't completely secured by purchase orders yet, so we still need those orders to come in. The demand we see for 2024 is closely linked to the outlook for 2025, which points to the launch and initial ramp-up of major advanced fabs in the Logic sector, including 2-nanometer and 3-nanometer fabs for leading customers. This contributes to the firm demand we are currently experiencing, suggesting we have significant growth opportunities in 2024. Still, we must acknowledge uncertainties related to macroeconomic conditions, particularly regarding the pace of recovery. Analysts and customers believe we may experience the bottom of this downcycle sometime this year, followed by a recovery. However, the nature of that recovery will be impacted by macroeconomic uncertainty, including whether fabs will increase capacity in 2024. There's a heightened level of uncertainty regarding which fabs will take on more machines in order to ramp up for 2025 as planned. Although our order book and demand appear strong, we prefer to wait for these conditions to translate into orders over the next few quarters. Therefore, we will closely monitor the situation and keep you informed about what we observe from our customers in the near future.
Krish Sankar, Analyst
Got it... Okay, Krish, and I know I didn't give you a specific answer, but I hope it was specific enough. No, it was. Thanks, Peter. Really appreciate the context and the input. And then, a quick follow-up for Roger. Can you give us the composition of the backlog in terms of EUV, deep UV, Memory, Logic, China? And also, what do you expect China as a percentage of sales to be for this year? Thank you.
Roger Dassen, CFO
The backlog is combined in terms of composition, which I believe provides a clear view regarding regions. As mentioned previously, China represents over 20% of the backlog, and this factor influences our expectations for the development of system sales in the upcoming period.
Unidentified Analyst, Analyst
Yes, thanks for taking my question. Peter, I understand you don't have a clear picture on '24 outlook. But how are you adjusting your own capacity? Can you give us an update how we should think about DUV and EUV capacity into '24? And I have a follow-up.
Peter Wennink, CEO
That's a good question. We are currently discussing this internally, but the capacity for 2024 really depends on our needs for 2025. The positive aspect about 2025 is that when we examine the number of fab openings and the ramp profile of new fabs in 2025 across our customer base, which also includes memory, it suggests we should be cautious about reducing our capacity in 2024. If we decrease capacity, we might struggle to ship in 2025, considering that our lead times in the supply chain range from 12 to 18 months. Therefore, at this moment, we don't see any reason to change our capacity plans for 2024, as our outlook for 2025 influences this decision. I do not expect any adjustments and we aren't planning for any.
Unidentified Analyst, Analyst
But perhaps the question has to do with the slope of the capacity ramp like on DUV going from 375 to 600, that requires significant ramp. And I'm just wondering if the ramp would look more like a step function in the latter part of '24 as you prepare for '25.
Peter Wennink, CEO
There is a difference between the ramp and the capacity. The capacity is 600 units, with about 25% being expensive immersion capacity and 75% being less expensive dry capacity. We plan to ship more than 375 systems this year. Given the firm demand for deep UV, we will need more capacity next year, even though we don't have all the orders yet. Capacity increases occur in step functions rather than gradually. To reach 600 units by 2025 or 2026, we need to integrate that step capacity into the supply chain by the end of 2024 and throughout 2025. The decision to place all orders depends on demand. However, our plans for 2025 and 2026 will set us up for the rest of the decade, as we remain confident in our long-term outlook for this market. It is important to differentiate between the ramp driven by market demand and the capacity ramp, which functions in steps and supports our long-term objectives.
Unidentified Analyst, Analyst
And my follow-up has to do with technology migration, especially on EUV NXE:3800E supposed to be a platform upgrade, which carries a higher ASP. And it's my understanding that the platform could be used for both 3- and 2-nanometer. Where are we with booking for those systems? And would that ASP uplift would provide you something as a cushion against a challenging macro environment?
Roger Dassen, CFO
Yeah, in terms of bookings, of course, the bookings for the 3800 are coming in, because if you look at next year, next year is going to show you a good blend of 3600 and 3800 tools. So, obviously, quite some of the bookings for EUV, that are currently coming in are also for the 3800. The 3800s, we promise you that on this call we would disclose the ASP and the ASP is at least north of €200 million. So that is a clear indication I think of how that indeed will also help in terms of revenue. It will also help in terms of gross margin ultimately because even though it's a more expensive machine to make, because bear in mind, there are commonalities. There is quite some commonality in parts between high-NA tool and the 3800 tool. It's a more expensive tool to make, but it's also a very healthy uptick in terms of ASP. So it will help both on the revenue side and also on the gross margin side starting in '24, but definitely in '25 when the lion's share of the tools there will be 3800s.
Unidentified Analyst, Analyst
Thank you.
Operator, Operator
Thank you. We'll now go to our next question. And your next question comes from the line of Stephane Houri from ODDO. Please go ahead.
Stephane Houri, Analyst
Yes, good afternoon. Thank you for taking the question. I would like to speak about the gross margin, because you said basically that despite the changes in the growth rate of different products, you still see slight improvement this year, but you also confirm the 54% to 56% in 2025, so that's quite an improvement. What does it mean about the ramp of 2024? And can you maybe give us some color on the ingredients for the increase in the gross margin until 2025? Thank you.
Roger Dassen, CFO
Yeah, I think you heard our enthusiasm to share numbers on 2024 or I’m not going to do that. The growth drivers for 2025 in terms of the gross margin, that's a number that I think are significant there. We just talked about one important one and that's the 3800. Of course, that's an important driver of gross margin improvement, definitely also in 2025. So that's one. The second one that I think is important in comparison to today, as you know, we are preparing both for capacity expansion on deep UV and low-NA, but we're also preparing significantly and putting a lot of money into getting everything ready for high-NA, both the manufacturing capacity here, we're building up teams in the field etc. That currently is a significant drag on our gross margin as we have it today, because all of the costs that we're incurring to prepare for that capacity ramp and for preparing for high-NA everywhere in the entire organization go straight to the gross margin today. That effect should be gone by 2025, because at that point in time, you would hope that you're actually going to be in a position to utilize at least a significant part of that incremental capacity that you built. And also by that time, you would see meaningful numbers of high-NA. So those are really important drivers of gross margin. And the only other one that I probably would give you is that is on the service side. As you know, we see a continued improvement of the EUV service margin in particular, but also in deep UV. And on both, we are driving to get the service margin up, both as a result of what we're doing on the revenue side, but also in terms of trying to further control the cost. So those are the main drivers why, looking at 2025, we believe the scenarios that we gave you there, the 54% to 56% is a tenable and reasonable aspiration for us to have.
Stephane Houri, Analyst
Okay, thank you. And a quick follow-up if I may is about the order book. The Memory now represents 31% of the bookings versus 21% last quarter. Is that the sign of a rebound in Memory, or is it something special here?
Peter Wennink, CEO
No, I think that's just where we are at this moment. Part of it is that this is the minority. There are some orders from Chinese memory customers, but they are a small portion. The majority is essentially due to technology transitions from the leading memory makers. They are preparing for the next node transition, which involves technology that requires certain machines and systems, like the EUV systems, the 3800s. So, this situation does not indicate an immediate increase in memory output capacity, except perhaps from Chinese companies, which we know are focused on mid-critical to mature products rather than leading edge.
Stephane Houri, Analyst
Okay. Thank you. Very clear. Thank you very much.
Operator, Operator
Thank you. We will now take your next question. And your next question comes from the line of Sandeep Deshpande from JPMorgan. Please go ahead.
Sandeep Deshpande, Analyst
Yeah, hi. Can you hear me?
Peter Wennink, CEO
Very good. Thank you. Very clear.
Sandeep Deshpande, Analyst
Peter, I have a question for you. You've mentioned the difficult macro environment we're currently facing. How do you perceive the utilization rates among your customer base? On average, where does utilization stand now? This will be a key factor in determining when customers might become more optimistic about placing orders in the coming quarters. Additionally, regarding China, it is clearly a significant factor in your sales this year. When we look at utilized revenue and consider the supply chain data, especially from logic companies in China, utilization appears to be just as bad, if not worse, than what we're seeing in other sectors. I’m interested in understanding how sustainable these orders from China might be for next year, given that the end markets in China seem to be extremely weak right now.
Peter Wennink, CEO
The question about utilization is important as we differentiate between Memory and Logic. In Memory, we don't see much evidence of it bottoming out. While some may argue that it's reaching a bottom, we don't identify a significant turning point. In Logic, it's still early, but we may be observing early signs of an inflection point today, though this is based on a short timeframe, so its sustainability remains to be seen. If you consider this, you might conclude that it is bottoming out, and it could be said that we've passed a turning point, although it is still too soon to tell. Regarding China, the sustainability of this situation is indeed a concern. The utilization trends in China mirror those observed worldwide. However, it is essential to understand that demand in China consists of two components. Firstly, there is the need to meet current demand, which we acknowledge is weak. The more critical aspect involves strategic investments, as factories are being developed for specific purposes. China's focus is primarily on mid-critical and mature semiconductors, which align with significant global trends. These trends include electrification in mobility, energy transitions, industrial IoT, telecommunications infrastructure development, and battery technology. China is at the forefront of these megatrends. Consequently, the Chinese semiconductor industry needs these specific semiconductors. In discussions with our Chinese clients, many expressed concern that due to rising geopolitical tensions, they prefer not to rely solely on domestic suppliers. Therefore, they plan to significantly increase their capacity for mid-critical to mature semiconductors to support these megatrends in which China excels. When we consider the overall market and the growing anxiety stemming from geopolitical issues, it becomes apparent that there is a strong motivation to build new fabs domestically. Many companies are emerging, committed to supplying these semiconductors necessary for the megatrends China is leading. This trend reflects not so much the current economic situation affecting demand but rather a strategic need, driven by the Chinese industry's dependency on imports. I believe this demand is sustainable for the coming years.
Sandeep Deshpande, Analyst
Thank you very much.
Operator, Operator
Thank you. We will now go to our next question. And your next question comes from the line of Sara Russo from Bernstein. Please go ahead.
Sara Russo, Analyst
Hi, can you hear me?
Peter Wennink, CEO
Yeah.
Roger Dassen, CFO
Yeah.
Sara Russo, Analyst
Great. Hello, thanks, and thanks for taking my question. I was just wondering if you could give us an update on high-NA. So indications are that customers are not delaying the tech transition. So, are you still on track for first shipments to customers in 2024? And have you seen any increase in orders as we get closer to those first shipments?
Peter Wennink, CEO
Yes, I believe we are still on schedule for the first shipment in 2024. This year, we are beginning to ship the first module, which keeps us on track for 2024. I don't think there are any delays in the introduction. You're correct, and we continue to see orders coming in. This aligns with what Roger mentioned, that we need to ensure the supply chain, which is critical for providing us with new technology, is on time. Our primary focus is on executing within the supply chain rather than on demand; it's really about execution.
Sara Russo, Analyst
Great, thanks. Can you provide some insight into the status of high-NA orders in the backlog? Assuming that you are currently seeing a good number of orders, could you share the details on the backlog and the timing of those orders?
Roger Dassen, CFO
We have previously mentioned that due to the limited number of customers for high-NA, they prefer that we do not disclose purchase order bookings related to it. That's the current situation, which is why we are not sharing that data. However, we have been observing double-digit numbers in the backlog for quite some time now, and we crossed that level some time ago.
Peter Wennink, CEO
And it's increasing.
Sara Russo, Analyst
Excellent. Thank you very much.
Operator, Operator
Thank you. We will now go to our next question. And your next question comes from the line of Francois Bouvignies from UBS. Please go ahead.
Francois Bouvignies, Analyst
Hi, thank you very much. Can you hear me okay?
Peter Wennink, CEO
Loud and clear.
Francois Bouvignies, Analyst
Perfect. The first question is about the uncertainty for 2024, particularly in terms of units, and we look forward to your updates later with more clarity. Roger, you began to discuss the average selling price for EUV next year with the new e-model coming to market, specifically the 3800, which I understand is projected to have an average selling price growth of nearly 20% compared to all other models. Could you provide more details on the average selling price? You mentioned it briefly, but I’d also like to understand the situation with deep UV, especially considering the dynamics with China and your new deep UV models in the market, like the 2100s, which offer a 20% improvement in overlay, alongside inflation pressures. How should we evaluate the average selling price for both of your businesses moving forward?
Roger Dassen, CFO
Yeah. Francois, I think I was quite clear I think on the ASP for the 3800. So, I said north of €200 million. So, I think that was clear. When it comes to ASPs in the deep UV landscape, of course, it is very widely distributed. And there obviously the mix effect is quite significant. And that is true, both within the portfolio of KrF of dry tools and also in wet tools. So, you're absolutely right, I mean, the new models that we're introducing, of course, give significant value to the customer and therefore command a significantly higher price than all the models. So that is clearly the case. But it is completely dependent on the mix within the drive business and the immersion business.
Peter Wennink, CEO
In the immersion business, it's important to note that, as mentioned in the prepared remarks, we cannot ship our most advanced immersion tools to China, but we can ship our mid-critical immersion tools there. This creates a significant variation even within the immersion category, making it challenging to provide a single figure for the deep UV numbers due to their diverse nature.
Francois Bouvignies, Analyst
Thank you for that. Roger, regarding the Installed Base Management, the flat guidance suggests a decline in the second half of the year compared to last year. How should we interpret this in light of Peter mentioning a small sign of recovery? While it's still early, the small sign indicates that Installed Base Management should closely align with demand as recovery picks up. I'm trying to understand how this will impact Installed Base Management for next year, particularly with your EUV and the increase in average selling price per tool.
Roger Dassen, CFO
Let me first take the question on '23 and then maybe, Peter, you want to expand it further. But as it comes to '23, I think the right frame of reference of course is not half year over half year, but it is the second half in comparison to the first half. In the first half, we had €2.7 billion and flat would mean that we're going to have €3 billion in the second half. So that would point at a recovery. And given the guidance that we've given for Q3, Q3 we indicated €1.4 billion, so it doesn't take a lot of compute power to calculate that, that would mean €1.6 million for Q4. So that tells you that indeed we are looking at a recovery there. That would be commensurate with the perspective of the recovery that Peter has been talking about, but that's what we're looking at for this year and the slope of recovery there.
Peter Wennink, CEO
The slope of recovery is crucial because, even though it's early, the utilization graphs suggest there might be a turning point for logic. We've observed that, but it remains early in the process. If this trend continues, it's vital to monitor the slope. For the upgrade business, there's a limited window within which high utilization is reached, and customers may hesitate to shut down their tools. We need to closely collaborate with our customers to analyze the slope, and if it accelerates, we need to initiate negotiations for upgrades swiftly. This could present an opportunity as recovery gains momentum. Conversely, if the slope is gradual, upgrades may take longer, but there’s still an opportunity since we aren't at full utilization of the Installed Base. Customers are currently cautious due to market conditions and high-value CapEx upgrades. It's essential for us to maintain close engagement with our customers in the coming quarters and seize opportunities quickly before they run out of time.
Francois Bouvignies, Analyst
All right. Thank you very much.
Operator, Operator
Thank you. We will now go to our next question. And your next question comes from the line of Aleksander Peterc from Societe Generale. Please go ahead.
Aleksander Peterc, Analyst
Yes, hi, thank you for taking my question. I just have two. First one would be, you talk about the recovery being pushed out somewhat. And you do give a cautious message on 2024. So my question is really, is there a possibility that the significant fab openings you talked about in '25 could be pushed out by six months or a year? Is that something that's possible? I mean, if the customers have idle capacity for longer, won't they push out capacity additions as a result, or all of those strategic planned openings really strategic that will go ahead regardless of demand patterns? That's the first one. I have a follow-up. Thank you.
Peter Wennink, CEO
I believe that the leading-edge logic fabs will proceed as planned. This is primarily influenced by the roadmaps of key customers like Apple, Qualcomm, and NVIDIA. They have a clear strategy surrounding the 20 or 3-nanometer designs and are eager to launch new products accordingly. Therefore, I have no doubt that this will happen. Regarding the strategic fabs in China, it is evident that they are focused on this area to mitigate potential negative geopolitical impacts. I see minimal downside for 2025.
Aleksander Peterc, Analyst
Excellent. Thank you very much. And then just kind of a technical follow-up on the €700 million catch up in DUV that are moving out of fast shipments, did all of that occur in the second quarter that you reported, or is it split between the reported and the current quarter? And if then, what proportions, please? And while we are talking of fast shipments, are discussions of a similar change still on the table for EUV, or is that off the table now? Thank you.
Roger Dassen, CFO
So, the €700 million is what we expect to achieve by the end of the year. There may be some fluctuations throughout the year, but €700 million is our goal for the full year. Some of that expectation is also reflected in this quarter, but the primary focus is on the full year figure. Regarding EUV, our expectations stem from our discussions with customers. They are willing to take on the risk associated with the immersion tools upon shipment, and they prefer a shorter testing program for EUV. However, we have not reached that point yet. The question for next year will focus on the volume of fast shipments for EUV compared to standard shipments. This is the key question about EUV. The potential for tailwind in this regard will depend heavily on our plans for regular versus fast shipments. There are two factors to consider for next year. First, with the introduction of new technology, we typically want to conduct more extensive testing. The 3800 is a major advancement in our EUV offerings, so for certain tools, we will conduct more thorough testing and therefore will not fast ship them initially. We will proceed with regular shipments and complete the entire testing program. Second, it will also depend on the utilization of our capacity. Fast shipment allows us to deliver tools to customers sooner, but it also serves to optimize our capacity. These two factors will determine the type of shipments we make next year, which in turn will indicate whether we can expect any tailwind for EUV revenue.
Aleksander Peterc, Analyst
Excellent. Thank you very much.
Operator, Operator
Thank you. We'll now go to our next question. And your next question comes from the line of Alexander Duval from Goldman Sachs. Please go ahead.
Alexander Duval, Analyst
Thanks for the question. You spoke about a push-out in demand timing for EUV. I wondered to what extent we should think about this as a one-off push-out from '23 to '24 given the customers presumably would still need these tools for their fabs that are still getting built and their customers in turn have product aspirations for '25 that you've just mentioned? Or to what extent would you expect some 2024 units to be subsequently pushed into 2025? And then, I've got a quick follow-up.
Peter Wennink, CEO
Good question. We need to recognize the situation. The main reason for the delay is related to the readiness of the fabrication facilities, largely due to the availability of skilled construction workers. It may seem straightforward to hire a few workers and build a facility, but constructing a $20 billion fab for advanced processes like 5, 3, or 2 nanometers requires specialized skills. This expertise has been developed over decades, primarily in a few locations, notably Taiwan and Korea, with some presence in China. While we are still constructing these fabs in Korea, Taiwan, and other regions, including the U.S., the challenge lies in accessing the skilled labor necessary to keep construction on schedule, which is what our customers are indicating as the primary issue. Consequently, delays of a few months or a quarter are understandable. We need these advanced fabs ready by 2025, and it will take about 18 months to address the skills gaps. However, it's also possible that construction industry difficulties might recur towards the end of next year, depending on how fast they can train workers. This explains the changes in timing for demand, although there have also been a few supply chain issues this year affecting specific systems. Overall, the key reason behind the timing changes is fab readiness. I'm hopeful that the industry will quickly resolve these skill shortages, so by the end of 2024, we won’t face these issues.
Alexander Duval, Analyst
Okay. Thanks. Just a quick follow-up. We've seen some news flow on demand for leading edge chips driven by AI applications. Could you just share your latest views on any growth opportunity from AI in 2024 given that obviously 2023 shipment schedules are full? I think you alluded in your video prepared remarks to that potentially being an incrementally supportive driver of demand. So just curious for any thoughts there.
Peter Wennink, CEO
Yeah, I think that's true. But I think we're at the beginning of this, you can say, AI high power compute wave. So, yes, you'll probably see some of that in 2024. But you have to remember that we have some capacity there, which is called the current under-utilization. So, yes, we will see some of that, but that will be taken up that particular demand by the Installed Base. And that will further accelerate, I'm pretty sure, but that will mean that, that will be, you could say, ship to customers by 2025. So I don't see that or don't particularly expect that there will be a big driver for additional shipments in 2024, given the utilization situation that we see today.
Alexander Duval, Analyst
Very clear. Thank you.
Operator, Operator
Thank you. We'll now go to the next question. And your next question comes from the line of Joe Quatrochi from Wells Fargo. Please go ahead.
Joe Quatrochi, Analyst
Yeah, thanks for taking the questions. One on domestic China demand. You talked about a fill rate that was less than 50%. Do you expect to be caught up to that exiting this year or will you still be trying to kind of fulfill that demand looking into '24?
Peter Wennink, CEO
I believe we still have more demand than we can fulfill, which means our fill rate is not at 100%. However, it is significantly better than the less than 50% we experienced in 2021 and 2022, when customer demand was overwhelming and we were unable to ship. China was particularly affected during that time. Currently, with the fabs operational and the necessary infrastructure in place, any product not shipped to other countries goes to China. Still, there remains some demand that is expected to carry over into 2024, as we do not have a full fill rate at this moment.
Joe Quatrochi, Analyst
Got it. Thanks for that. And then just as a follow-up, in the recovery of the Installed Base Management business that you talked about implied for 4Q '23, is that predicated on just Logic alone or is there also some expectation that you see some Memory recovery embedded in that?
Peter Wennink, CEO
I believe that at some point in the future, there will be a recovery, likely occurring as we pass through certain turning points in the latter half of this year. The focus will then shift to the pace of that recovery, which we have expressed some uncertainty about. This uncertainty comes from our customers, who are also unsure. Therefore, I think it's a bit premature to make any definitive statements.
Roger Dassen, CFO
I think it's fair to assume that the utilization rates on Memory are lower than the utilization rate on Logic, right?
Peter Wennink, CEO
Yes, for sure.
Roger Dassen, CFO
It's reasonable to assume that Logic would be ahead of the curve in terms of upgrades.
Peter Wennink, CEO
Yes, as I mentioned earlier, there's a case to be made that we are witnessing a turning point when we examine the statistics. However, it is still early in the process, so we will need to monitor how this develops over the coming weeks and months regarding Logic.
Joe Quatrochi, Analyst
Perfect. Thanks for the color.
Operator, Operator
Thank you. We will now go to your next question. And your next question comes from the line of C.J. Muse from Evercore ISI. Please go ahead.
C.J. Muse, Analyst
Yes, good afternoon. Thanks for taking the question. I guess, first question for Roger. I think you're fairly clear on the call that no changes to kind of the capacity add. So curious how we should think about OpEx growth into 2024.
Roger Dassen, CFO
Yeah. I think the OpEx that we're currently guiding for the year, I think that's a pretty good estimate I think for what we see for the rest of the year. I think in terms of next year, I think it would also be a little bit dependent on how we further see things develop. And that to a certain extent will at least drive also the SG&A side of life. On R&D, as you know, we continue to have really good ideas. And on R&D, we typically try to play this on the longer-term. So, I think it is realistic to assume that on R&D, you will see some increase, albeit at a slightly lower pace than the very sharp increase that you've seen in the past couple of years.
C.J. Muse, Analyst
Very helpful. And then, Peter, I guess as a follow-up, I know that you're actively working with the Dutch government, but curious as to your kind of thoughts around any potential timeline from hearing from maybe more restrictive kind of thoughts out of the U.S. government?
Peter Wennink, CEO
We have ongoing discussions with the Dutch government, which is currently inactive due to the political situation as they prepare for new elections. We need to see what happens in the U.S. The reason we expressed our understanding is based on my experience in this business. I felt confident about what the Dutch would eventually say. That's why we confirmed our stance in March, and I have a sense of what might happen for the rest of the year regarding the new rules. My instinct, based on our insights, suggests that the new regulations won't have a significant impact. However, we are unsure about the specifics of these new regulations and will have to wait. Japan has made announcements, the Dutch have too, and we expect the U.S. government to provide updates soon, which will help confirm whether my feelings about the situation are accurate.
C.J. Muse, Analyst
Thank you.
Skip Miller, Vice President, Investor Relations
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?
Operator, Operator
Thank you. We will now take your last question for today. And the question comes from Tammy Qiu from Berenberg. Please go ahead.
Tammy Qiu, Analyst
Hi, thank you for squeezing me in. So, firstly, Peter, relating to your China exposure, do you have any format of customer concentration, i.e., does one or few customers accounting for more than, let's say, 50% of the demand from China at all?
Peter Wennink, CEO
No, I think the number of customers in China is significantly higher, and the spread of those customers is much broader than anywhere else in the world. This is related to the growth of Chinese industry as a whole, not just in the semiconductor sector. The growth is occurring in areas aligned with major megatrends, which creates specific requirements for semiconductors that cater to these trends. This leads to a substantial demand for a wide range of mid-critical to mature semiconductors. Consequently, we see many semiconductor customers now focusing on various segments of the industry, whether it's memory, logic, or foundry. It's quite widespread, and it's not just concentrated on a few customers; it’s a broad-based demand across the industry.
Tammy Qiu, Analyst
Okay, thank you. And also you mentioned that you can actually ship the mid-critical machines to China and still basically allow them to do whatever they want to. So let's say the mainstream you're shipping to China from an immersion perspective is 1980. If you can only ship something like 1970 or older machine, do you think that can allow them still do what they want to do?
Peter Wennink, CEO
When shipping an immersion tool, you need to understand the calculation involved, which is the wavelength of light divided by the numerical aperture of the lens. This results in a minimum of 38 nanometers, taking into account the process factor. Regardless of the year, whether it's 1970, 1980, 2000, or 2100, that size remains constant. To achieve smaller sizes, techniques like double patterning come into play, depending on the materials and capabilities related to deposition and etching. The precision of the tool is crucial, as highlighted by the Dutch regulation, which focuses on technical specifications rather than specific types. The key aspect is how accurately the features can be positioned on the wafer, which is governed by regulation and revolves around deposition and etching processes.
Tammy Qiu, Analyst
Okay, thank you.
Skip Miller, Vice President, Investor Relations
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, I'd appreciate it. Thank you.
Operator, Operator
Thank you. This concludes the ASML 2023 Second Quarter Financial Results Conference Call. Thank you for participating. You may now disconnect.