ASML（Minutes）: Revenue in mainland China will fall to around 20%
ASML released its Q4 2024 financial report (ending December 2024) before the US stock market opened on January 29, 2025, Beijing time. The key points are as follows:
The following is the summary of ASML's Q4 2024 earnings conference call. For the financial report interpretation, please refer to “ASML: The Leader Returns, The Heavyweight Has Arrived”
1. $ASML(ASML.US) Core Information Review of the Financial Report:
2. Detailed Content of ASML's Financial Report Conference Call
2.1 Key Information from Executive Statements:
- Business Progress
① EUV Technology Progress:
a. Low Numerical Aperture (Low-NA) Technology: The NXE:3800E system demonstrated full system specifications, achieving a throughput of 220 wafers per hour, setting a new record.
b. High Numerical Aperture (High-NA) Technology: Two systems were installed and accepted by customers in Q4, with very positive feedback from customers, particularly noting significant performance advantages in imaging, overlay accuracy, and contrast, which also provide substantial cost reduction opportunities for logic and DRAM processes.
c. Deep Ultraviolet (DUV) Field: Launched the latest KrF system NXT:870B, with a throughput of over 400 wafers per hour; and the latest immersion DUV system NXT:2150i, with a throughput of over 310 wafers per hour, with overlay accuracy equal to or better than 1 nanometer.
d. Application Field: After closely collaborating with multiple customers, successfully completed the evaluation of over 1,100 inspection systems and confirmed revenue for the first time. Overall, the product line remains strong, capable of meeting customers' technology roadmap needs and enhancing overall competitiveness.
② Outlook for 2025
a. Artificial Intelligence (AI): The main driver of growth, but changes in market dynamics may lead to adjustments in the market landscape.
b. Market Segmentation: Logic business is expected to grow from 2024 levels, while memory business is expected to remain strong; the installed base business is expected to grow, mainly benefiting from service and upgrade business growth.
c. Mainland China Business: It is expected that the mainland China business will return to a more normal sales proportion in 2025, anticipated to account for 20%-25% of total sales (low-20s).
- Financial Performance
① Revenue Side a. Total net sales: Reached €9.3 billion, exceeding expectations, mainly due to the growth in installed base revenue, which includes the revenue recognition of 2 High-NA systems.
b. Net system sales: Totaled €7.1 billion, with EUV sales at €3 billion and non-EUV sales at €4.2 billion. The logic market contributed 61%, and the storage market contributed 39%.
c. Installed base management sales: Exceeded expectations, reaching €2.1 billion, mainly driven by additional upgrade business.
d. Gross margin: Exceeded expectations at 51.7%, mainly due to additional upgrade business and lower-than-expected costs associated with the introduction of new High-NA system products.
e. Operating expenses: R&D expenses were €1.116 billion, in line with expectations; SG&A (selling and administrative expenses) were €318 million, higher than expected, mainly due to year-end salary adjustments and early IT cost expenditures.
f. Effective tax rate: Stood at 21.5%, due to one-time tax expenses related to historical tax situations, bringing the annual effective tax rate to 18.6%. For 2025, the annualized effective tax rate is expected to be around 17%.
d. Net income and earnings per share: Net income was €2.7 billion, accounting for 29.1% of total net sales, with earnings per share at €6.85.
e. Dividends: In the fourth quarter, a second interim dividend for the second quarter of 2024 was paid, at €1.52 per ordinary share. No stock repurchases were conducted in the fourth quarter.
② Cash flow and balance sheet
a. Total cash and cash equivalents and short-term investments: Reached €12.7 billion.
b. Cash flow: Free cash flow was €8.839 billion, significantly increased compared to previous quarters, with most cash inflows occurring at the end of the quarter.
③ Order situation
a. Net system order value: €7.1 billion, with EUV orders at €3 billion and non-EUV orders at €4.1 billion. The order share from the logic and storage markets was 61% and 39%, respectively.
*Future reporting order adjustments: Due to potential fluctuations in quarterly order flow, it may not accurately reflect business momentum. Sales guidance is primarily based on regular reviews with all customers, which is part of the planning cycle. Therefore, orders will continue to be reported quarterly until 2025, after which orders will no longer be reported. Starting in 2026, total system backlog orders will be reported annually.
④ Annual situation
a. Sales and gross margin: Net sales were €28.3 billion, with a gross margin of 51.3%. Among them, EUV system sales were €8.3 billion, from 44 systems (including High-NA), a decrease of 9% compared to 2023. Deep ultraviolet (DUV) system sales grew by 4%, reaching €12.8 billion. Measurement system sales increased by 20%, reaching €646 million.
b. Market segments: Logic system revenue was €13.2 billion, a decrease of 17% compared to 2023; storage system revenue was €8.6 billion, an increase of 44% compared to 2023. Installed base management sales were €6.5 billion, an increase of 16% compared to 2023. As of the end of 2024, the net system backlog order was approximately €36 billion c. Research and operating expenses: R&D expenditure increased to €4.3 billion, accounting for approximately 15% of sales. SG&A (selling and administrative expenses) rose to €1.2 billion, about 4% of sales.
d. Net income and earnings per share: The annual net income was €7.6 billion, representing 26.8% of net sales, with earnings per share of €19.25.
e. Cash flow: Free cash flow was €9.1 billion, and €3 billion was returned to shareholders through dividends and share buybacks.
⑤ Q1 2025 Outlook
a. Sales guidance: Total net sales are expected to be between €7.5 billion and €8 billion. The installation base management sales for the first quarter is estimated to be around €2.1 billion.
b. Gross margin expectations: The gross margin for the first quarter is expected to be between 52% and 53%, primarily due to the lack of positive impact from High-NA revenue recognition this quarter, partially offset by a decline in immersion system sales.
c. Operating expenses: R&D expenses are expected to be around €1.14 billion, and SG&A (selling and administrative expenses) are expected to be about €290 million.
d. Dividends: The plan is to announce a full-year dividend for 2024 of €6.4 per share of common stock. The third interim dividend will be €1.52 per share of common stock, payable on February 19, 2025. Combined with the two interim dividends paid in 2024 (€1.52 per share each), this will lead to a final dividend proposal of €1.84 per share to the shareholders' meeting.
⑥ Full-year 2025 Outlook
a. Revenue and gross margin guidance: Full-year revenue is expected to be between €30 billion and €35 billion, with a gross margin between 51% and 53%.
⑦ Future Plans
a. 2026 Outlook: ASML expects 2026 to be a year of growth, but currently cannot provide specific direction or magnitude.
b. Long-term outlook: By 2030, ASML anticipates revenue opportunities between €44 billion and €60 billion, with gross margins expected between 56% and 66%.
2.2 Q&A Analyst Q&A
Q The company mentioned that if customers can build capacity for AI, it could reach a higher position for the 2025 revenue expectations. How should this be considered based on the company's delivery timelines? Has the company pre-built EUV equipment, and should it be clear in the first half of this fiscal year whether high-end target guidance is possible?
A As we enter the new year, the company will gain more visibility on final expectations. Currently, the company has considered some upward opportunities in its supply plan. As opportunities become more specific or less specific, the company will decide whether to build these devices.
Q Regarding gross margin dynamics, last quarter's high numerical aperture installation costs were lower than expected. How do you view the expected costs of installing these devices in the second half compared to this quarter's outperformance? Are there any updates?
A Last quarter's costs were indeed slightly lower. However, these experiences were also incorporated into the 2025 forecast. Therefore, while the company acknowledges that costs have decreased for 2025, it still views this as a one-time benefit for the quarter. This does not necessarily mean that the company did not recognize significant savings when providing guidance for a gross margin of 51% to 53%. However, as mentioned, the company does expect gross margins to decline slightly in the second half, as revenue recognition for high numerical aperture will tend to occur in the second half Q Since CMD, the company has mentioned that customer progress in high numerical aperture has exceeded expectations. Is the company currently negotiating with customers regarding the timeline for using this technology? Is it possible for customers to use it faster, as it helps save manufacturing costs?
A The use of new equipment like high numerical aperture by customers requires several conditions to be met. First, the performance must be attractive and good, which may be a requirement that needs to be checked currently. The second would be the maturity of the platform. The company typically first ships a few early devices (such as the 5000 model) to actively enhance its maturity. Subsequently, the company will begin shipping the 5200 model equipment, which is more suitable for mass production, and it will take some time to demonstrate the maturity of the equipment to ensure customer satisfaction with its use in production. This process usually takes 12 to 18 months, depending on the initial state of the equipment.
The company regularly discusses this issue with customers, as the willingness of customers to accelerate or slow down the pace will adjust accordingly based on progress.
Q Regarding the business in mainland China, it has been noted that the company may have received some orders in advance due to the new restrictions that the U.S. is about to implement. So, are customers really placing orders in advance? Therefore, will we see a faster decline in orders from mainland China in the coming months because all orders have been concentrated in advance?
A The company's view on the business in mainland China has not changed significantly since the last communication. The strong performance of the mainland China business in 2023 and 2024 is due to the accumulation of a large backlog of orders, as the order fill rate in mainland China has been low over the past few years. This is also the reason for the higher sales in mainland China in 2023 and 2024. Currently, the company has significantly consumed these backlog orders and believes that the backlog is returning to normal levels, which means the company expects sales in mainland China to return to a more normal proportion in 2025.
The company expects the mainland China business to account for about 20% of the company's total sales in 2025 (around 22%). The order volume received from mainland China in the fourth quarter is healthy, but there is nothing dramatic or unusual. Therefore, the company believes that the previously mentioned mainland China business will return to a more normal sales proportion, which will be the case in 2025 and beyond.
Q The company has decided to stop reporting order information quarterly and instead report backlog orders annually. Can you elaborate on the considerations behind this decision? How might investors react to this? Is this a response to the increased focus on orders over the past 12 to 18 months?
A The company has already explained the reasons for this decision in the video. To briefly recap, the company sets annual guidance based on the review process with customers. The company maintains ongoing dialogue with customers, and based on these conversations, the company can understand the business situation of customers and thus provide expectations for total sales for the year at the beginning of the year.
As everyone has seen in the past few quarters, and as the company has emphasized multiple times, the order intake can fluctuate significantly. This is because the order size for each customer can be quite substantial, especially since high numerical aperture and low numerical aperture equipment are priced relatively high. If a customer orders multiple pieces of equipment at once (which is quite common), the order amount can become very high This means that if several major customers place orders in one quarter, they typically will not place orders again in the next quarter, resulting in a situation where order volumes are very high in one quarter and lower in others.
This fluctuation does not necessarily reflect the company's business momentum. Therefore, the company believes that the market is better off accepting the well-validated guidance provided by the company at the beginning of the year, rather than the fluctuations seen in previous order patterns. A review of past quarters shows that the market's reaction to these orders has sometimes been very strong, whether positive or negative. This is precisely why the company has repeatedly emphasized that the order intake can be volatile and may not accurately reflect business momentum. However, the market's reaction has been very strong. Therefore, the company concludes that perhaps the market is more suited to accept the content just provided by the company, including the update on annual backlog orders.
The company has engaged in discussions with many investors, especially during Investor Day, where in-depth communications took place with numerous investors. These interactions have led Christophe, himself, and the entire team to believe that the decisions just made by the company are correct for the company and its stakeholders.
Q: Thank you very much for providing this background information. I have a quick follow-up question. In the last earnings report, the company mentioned that EUV orders might be at the low end of the guidance range. Given that the company has just gone through a very strong order quarter with EUV orders reaching €3 billion, does the company have more confidence in reaching the midpoint of the 2025 guidance range? Or, given the usual 18-month delivery time, has the company already started receiving EUV orders for 2026?
A: It was indeed mentioned last time, that to achieve the expected midpoint of EUV business revenue in 2025, we need about €2 billion in EUV orders. Now we have €3 billion in orders, which has already met that target. So clearly, we are either starting to prepare for 2026 or moving towards exceeding the expected upper limit, but it really depends on the timing; it is truly a matter of timing.
However, as mentioned, the company does need €2 billion in EUV orders, and the company has already recorded €3 billion in orders, which gives the company confidence in the midpoint at least for the EUV portion. In terms of deep ultraviolet lithography, the company has not fully covered it yet, but the coverage for deep ultraviolet lithography is also quite high, sufficient to cover the midpoint of the guidance range. As Christophe mentioned, of course, there is always a timing issue, and customers always have the ability to advance or delay orders as needed within a year.
Q: The company sees strong demand for EUV driven by AI in the logic chip sector. Christophe mentioned in the video that this mainly comes from one large customer. How do you view the capacity at the 2-nanometer node, which could be a very important node? Will we see a front-loaded capacity build that makes 2025 a year of large-scale construction in preparation for 2026? In other words, will we see a larger capacity build in the first year, followed by gradual increases in 2026 and 2027, or will it be a gradual capacity build? Company A does not fully grasp the details of the customer's capacity ramp-up. The company has not observed any abnormal capacity ramp-up patterns. As previously shared, the capacity ramp-up indeed starts in 2025 and will continue into 2026, and it is likely to extend into 2027, with a mix of a 2-nanometer node and some other nodes. This is the situation the company currently sees. Therefore, no abnormal patterns have been observed.
Another point mentioned by the company is that if demand remains strong, there may be opportunities to accelerate the capacity ramp-up. This is also a topic the company is discussing with advanced logic chip customers. However, the company has not seen any patterns described by other companies.
The company has also confirmed the capacity ramp-up situation of the N2 node mentioned by TSMC in its conference call. Therefore, TSMC's relevant comments can be referenced.
Q Regarding lithography technology, given the delivery times, the market may have some concerns about the recent developments in AI. The company described the potential upside for AI if capacity is obtained in the second half of the year or if demand remains strong.
But similarly, if we look at the iPhone (or Apple), which reportedly accounts for a large portion of the company's demand at advanced nodes, is AI strong enough to offset any downside risks in the smartphone sector, at least in the short term? Because in the long term, the company mentioned it is neutral at CMD, but the company is more interested in understanding the dynamics of high AI demand and the resulting slowdown in smartphone demand during the 2025-2026 period.
In the short term, the company is trying to explain this by describing the upside potential. Therefore, demand is strong enough to genuinely drive the initial capacity utilization of advanced logic chips. By the way, this will not only be primarily used for AI. So yes, even though other markets have not shown particularly outstanding performance, demand still exists.
The company believes that as capacity gradually ramps up and capacity is built over time, the company will not reach peak capacity in the short term. Therefore, the company considers this part to be solid at present. Thus, what the company sees more is upside potential rather than risks, at least based on all the information currently available.
Q Regarding the decline in sales in mainland China from 47% in September to 27% in December, is this entirely due to mainland Chinese customers digesting inventory? Because assuming the new export control rules did not affect the company's business last quarter, I am curious when this digestion will reach a steady state or bottom out?
Yes, the company signaled in the third quarter that this trend might occur. The company reiterated its previous views on mainland China, believing that the main reason for the recovery of mainland China business to normal levels is the previously mentioned factors. So yes, export controls are part of it. But the majority of the reason is that the backlog of orders accumulated throughout 2022 is now being digested, and the company is now seeing a normal business pattern.
Q Regarding the memory chip market, the company mentioned that logic chips may grow this year, but memory chips may remain flat. In terms of memory chips, the company is more exposed to DRAM rather than NAND, and the company has been hearing about increased capacity for high bandwidth memory (HBM), but it seems the company has not seen better dynamics for DRAM this year. Q: Can you share the situation the company sees in the memory ecosystem?
A: High Bandwidth Memory (HBM) has indeed driven some positive capacity increases today, at least for certain customers. For regular DRAM, the company's comments are similar to previous remarks about mobile chips. The company believes that although there is nothing particularly outstanding, the mobile chip market is recovering, which is also driving demand for more capacity. Therefore, the company still believes that the DRAM market will perform strongly in 2025.
Q: It sounds like the company may be in a situation similar to early last year when it also had a fairly good backlog to start the year. Last year, the backlog changed mid-year, so I understand the company's cautious attitude.
First, does this accurately describe the company's current situation? Second, what should we focus on and be concerned about that could reasonably lead the company to the lower end of its guidance range? Is it export control restrictions? Is it issues in mainland China? Or are there concerns regarding AI? What scenarios would lead the company to lean towards the lower end of its guidance?
A: The company is not entirely sure if it fully understands the other's logic, that the company's current position is the same as early last year. The company also pointed out that last year it provided a guideline, and it believes it essentially achieved that guideline last year. The performance delivered by the company last year was basically in line with the guidance provided last year.
I believe the current situation cannot be compared to last year because at the beginning of last year we indicated that we expected the situation that year to be similar to 2023. This year, we started the year with a clear growth expectation, with the midpoint of the expected growth rate around 15%. So I believe the two situations are not similar.
I think regarding the lower end of performance, I think Roger has even mentioned it. I mean, we saw this situation last year, I think it was a low point in the third quarter of last year. We saw some customers significantly delay part of their capacity expansion plans. I believe that from our performance guidance this year, this risk is much lower in scale.
Considering various dynamics, the situation of some capacity delays cannot be completely ruled out. That is why we set the performance range.
Geopolitical issues, the company also mentioned this. Of course, this is harder to quantify because the company has just released new export controls. So the company has no expectations in this regard, but it is also based on experience that keeps the company cautious in this conference call. So this is somewhat what the company is trying to reflect at the lower end of the guidance range, and that's all.
Q: So, this inevitably raises views on 2026. Given the delivery times and customer forecasts, the company may have some visibility, although it is still early. At this point, does the company expect 2026 to be a year of growth? And what variables is the company considering when thinking about 2026?
A: Yes, the company currently views 2026 as a potential growth year for ASML. That is the company's current view. But as mentioned, it is still early to provide any direction or magnitude Q I would like to return to the order reception situation for EUV and DUV. So, perhaps first about DUV. Can you help us understand how many of the DUV orders are related to non-critical layer DUV capacity construction outside of mainland China? Or can you provide some other information? And I have a follow-up question regarding the segmentation of EUV orders.
A The company typically does not disclose this information, as you know. The company does not break down orders by customer or region. However, a significant portion of the deep ultraviolet lithography orders this quarter is indeed related to major customers for non-critical layers, as you mentioned. But the company will not provide specific percentages.
Q Regarding the segmentation of EUV orders, it is clear that it is primarily driven by foundry logic chips. The company may have previously mentioned a 50-50 ratio. Can you provide some information regarding DRAM and foundry? Clearly, in the foundry area, the company has three major customers. In the DRAM area, the company also has three major customers. Can you share some insights about the health of these different categories? For example, does DRAM look better because the customer base is more diversified, while perhaps there hasn't been much change in foundry, but it would be interesting to hear the company's views on these categories.
A These are not details we would share, as this could even increase speculation in some market situations. So the only thing the company can say is, once again emphasizing, that there have been no significant changes compared to the discussions from previous quarters. That is the company's answer to this question.
Q Regarding high numerical aperture, can you provide some insights about the shipment of the third machine? Is it intended for North American customers? Or is it also for customers in Taiwan or South Korea? That would be very helpful.
A The company mentioned that this is not intended for North American customers, but the company will not say where it is going.
Q In the video, when the company discussed the outlook for 2025, it mentioned that AI supports the high-end, while other markets support the low-end. The company believes it has already mitigated risks for those customers who have pushed orders to 2026 over the past year. For the high-end market, by the fourth quarter timeframe, do those foundry and HBM customers have enough cleanroom space to actually receive the equipment?
A Yes. The company believes—on the first question—that when it comes to orders, the company thinks it has mitigated most of the risks in EUV. So the risk—the company believes it will repeat itself, but the risk is only in some potential order delays. The company believes it is being cautious based on everything everyone experienced last year. So that is the answer to the first question.
For the second question, the company thinks this is a good question. The company believes that what is most likely to be seen today is the opportunity to gain more cleanroom space. The company believes this is what it means to increase additional capacity. If this is possible, and if it happens, then the company is most likely to place some equipment there. But this is what the company is currently discussing with customers.
Q As a follow-up, the company talked about the ongoing shift driven by AI in high-performance computing (HPC) and high bandwidth memory (HBM). Can the company share what it sees in terms of EUV layer counts when discussing these two areas with customers, whether it is A16 or HBM3, 4, etc.? The company is very eager to hear its views on this trend.**
Company A believes that it attempted to explain this in November. Therefore, the demand for high-performance computing and the demand for high-bandwidth memory are basically driven by AI chips that have higher requirements for advanced processes. The company believes that what it mentioned is that most of these new products require acceleration of Moore's Law, so its customers are more proactive in technological transformation. The company believes that to some extent, you have already seen this at the 2-nanometer node and most likely in what will appear after that.
The company also mentioned in November that historically, this has always driven more demand for advanced lithography technology. Of course, this is also one of the topics the company is currently discussing with customers. Therefore, the trend the company sees, which it described in November as a favorable positive trend for us. The company believes that when it comes to trends, they do exist. Well, the company was asked a very detailed question about future nodes. The company does not have a detailed answer yet, but the trend does exist.
Q: Regarding customer order visibility, it is encouraging to see the company ending 2024 with strong orders. However, if we look at the total order volume from logic chips for the entire year of 2024, it is the lowest level since 2020. The company understands various reasons for the lower order volume over the past few quarters. Therefore, the company is more interested in a more forward-looking perspective.
The company has explained that 2025 is basically fully booked. But when the company looks towards 2026, and assuming growth, as Roger mentioned, based on different assumptions, 30% to 40% may already be booked for 2026. So, if the company considers delivery times and the customer capital expenditure plans mentioned, the migration to the 2-nanometer node, especially the ramp-up of significant capacity early next year, does the company need to see EUV order commitments in the first half of this fiscal year to be able to meet these customer demands in a timely manner?
A: Yes, the company believes this is a reasonable assumption. So the company should see order intake in the first two quarters, especially when it comes to EUV. The company does have some flexibility in its supply chain and manufacturing capabilities. So this does not mean that at some point, it just stops. But of course, the company should continue to see good order intake in the first two quarters. The company believes this is a reasonable assumption.
Q: Is the company's pre-build strategy still ongoing? Given the changes in customer dynamics over the past 6 to 9 months, has the company adjusted this strategy?
A: The company is actually doing this to ensure the balance of factory load, so this is the first point; second, to create enough flexibility. So the company is reviewing this. The company is certainly reviewing based on the latest information obtained from customers. The company reiterates ongoing dialogue with customers, rather than just calls. And based on the information the company receives from customers, as well as the company's insights for this year and next year, this also determines the company's pre-build strategy. But the company—this is an option the company continues to have and use to better optimize factory load Q Are there two follow-up questions. Can you update the throughput situation of NXE:3800E? How is the situation today? How does the company plan to end this year? Then for the team, the company wants to better understand how it plans internal capacity, especially looking beyond 2025.
When the company experienced a strong cycle a few years ago, the backlog was around $40 billion. Has the company seen more capacity flexibility to shorten delivery times, especially considering the higher EUV ratio and more concentrated customers? Or will the company be more cautious, trying to build a longer backlog? The company is just trying to balance its internal planning for the next few years with its ability to commit to customers, particularly given the more concentrated EUV customers.
A Yes, so regarding throughput, the system throughput shipped by the company last year exceeded the throughput of the 3600 model, but has not yet reached maximum throughput. The maximum throughput has been proven, and the company is now promoting this achievement. Therefore, the new equipment shipped to customers will gradually reach this specification, and the company will also ensure that the 3800 model equipment already installed on-site can also meet this higher expectation within this year. Thus, the company will continue to report improvements and the recognized revenue from customers due to achieving these higher throughputs. So this is the company's status. So the throughput of 220 has been proven in the equipment shipped by the company, and now the company is promoting this achievement to new equipment and extending it to the already installed 3800 model equipment.
In terms of capacity beyond 2025, the key thing the company is doing is ensuring that so-called long delivery projects are in place, meaning the company can respond to higher demand, and the company already has these long delivery projects. If the company looks at its growth forecasts for the second half of this century, including its forecast for 2030, it is clear that capacity needs to be increased. Therefore, the infrastructure the company has established will continue to do so, so that once the company receives clear signals from customers that demand is accelerating, it can respond with its supply chain and workforce. This is the company's approach.
Q So does this mean the backlog will be around 18 months? Or will the company revert to the situation of 2022-2023, when the backlog was extended due to supply constraints?
A No, that is not the company's goal. The company believes that a normal backlog is ultimately what it wants to provide to customers. The company hopes to provide customers with a normal backlog, as this will also help them manage their business. The company believes this is the ultimate goal it wants to achieve. This is also why the company aims to be as flexible as possible, and this is why the company invests in infrastructure so that it can provide customers with a normal order delivery period. This is the goal the company is pursuing.
Q Back to the 2025 guidelines. Last quarter, the company gave us some rationales for how it will reach the mid-range. The company specifically mentioned two factors. One is about non-EUV, non-mainland China business, which is expected to grow significantly, by about 50%. So can the company come back to confirm whether this is still what the company expects?**
The second element is about installed base management revenue. The company said it could reach around €7.5 billion. But if the company looks at the first quarter, the guidance is €2.1 billion, and if you multiply that by 4, you get an operating rate far exceeding €7.5 billion, reaching €8.4 billion or €8.5 billion, which is €1 billion higher than €7.5 billion. So should the company consider seasonal factors in installed base management?
Company A first answered the second question. So the €7.5 billion figure is still part of the company's guidance. Of course, the company has seen some fluctuations over the past few quarters, and there were also some last year. It largely depends on upgrades. So this will fluctuate from one quarter to another. The company also stated that its visibility in upgrades is certainly not as good as in the service business. But the company believes that, at least for now, it still encourages using the €7.5 billion figure.
When it comes to non-mainland China and non-EUV business, the company thinks the 50% you mentioned is a bit high. The company believes this is higher than the numbers in the model when the company was having discussions. So 50% is a bit high. The company believes the growth rate of this business is similar to that of the EUV business, so the growth rate is about 40%.
Q This number hasn't changed, right?
A No, this number hasn't changed. This is consistent with the analysis provided by the company after the third quarter.
Q The company knows that this is exactly the answer it wants to hear because Gartner's market definition does not represent the company's customers. It represents the company's customers, namely IDM companies and fabless companies, which are the customers of the company's foundry clients.
A Yes.
Q However, if the company looks at these 7 end markets, the company's feeling is that the difference between vendor sales and manufacturer sales is a huge gap for the entire market, and this gap is largest in smartphones and data centers because the position of IDM companies is smallest in these areas. So the company has adjusted all scenarios, with the data center scenario adjusted upwards and most other market scenarios adjusted downwards, which looks good visually. But from the manufacturer's perspective, the company does not know if there has actually been any change.
A To be honest, the company thinks you have lost focus a bit. You are looking at a slide that no one is looking at. So the company suggests we have further discussions on this topic after the meeting.
Q The company is surprised by the Gartner data that the company has been showing, as this data does not represent the actual situation of equipment customers.
A Yes, the company appreciates this point, but the company believes we have the right follow-up actions.
Q So, regarding the company's decision to no longer report orders quarterly, would a 12-month rolling order number help smooth out these order fluctuations?
A To be honest, the company believes the annual backlog orders are already very close to this number, right? Because if you have backlog orders and quarterly sales figures, the company thinks it doesn't take much effort to recalculate. So the company believes through—yes Q Company will only see this once a year, right?
A Yes, the company will. Yes, yes. And the company believes, as previously explained, that this is an important data point and good enough for the company. Well.
Q The company will set this topic aside. Then there will be more questions about these slides, which will be raised in the next quarter and beyond, as the company has more questions regarding these issues.
A Okay. The company appreciates that. Thank you.
Q Follow-up question about high numerical aperture. Christophe mentioned when answering the previous question that the company will know the insertion time for high numerical aperture within 12 to 18 months. But regarding the company's backlog orders, the company believes it has already prepared some high numerical aperture equipment for shipments in 2026 within the backlog orders.
So, how does the company combine this information? The company will know by the end of the year or next year whether customers will use this equipment in production, but the company may have already been building this equipment for customers. So, is there a risk that customers will tell the company at the end of the year, "Actually, we won't put this equipment into production next year," and that these orders in the backlog may not actually happen in 2026?
A In our backlog orders, there are indeed quite a few tools that are not EXE:5000, EXE:5000 is basically a tool for R&D. In fact, our customers have already pre-ordered some 5200 series tools, which are intended for mass production. This means that the planning logic for product deployment has existed for a long time.
It started with the R&D phase, and then, I think it is necessary to plan a reasonable timing for product deployment. So, those tools in the backlog orders will indeed support this. I think the small number of tools we provide for each customer is basically enough to kick off the relevant work. This is usually what we refer to as the initial node import. Of course, after that, when we consider new orders for High-NA (high numerical aperture technology for extreme ultraviolet lithography), it is likely that there will be a larger-scale import at a later node, which will be somewhat later in timing. But the logic you described was actually determined by the customers with us a few years ago, and I believe they are still following this logic now.
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