Bijlage bij beantwoording technische vragen (PvdD) - 2023 Annual Report based on IFRS (FINAL compressed)
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Operating in an international industry with a global value chain where strong incentives to compete and drive innovation are key, we work with and collaborate with governments on all levels (national, regional and local) to ensure our growth and objectives are clear and can be supported. Read more in our ASML Government & External Affairs Report at asml.com
How we engage With industry unions and associations • Member conferences and technical forums • Member consultation on standards • Brainport Eindhoven With governments and authorities • Dialogue with tax authorities • Relevant EU roundtable discussions • Compliance reporting • Proactive dialogue with government, authorities and municipalities With communities and other bodies • In the Veldhoven region, via regular dialogue at sixweekly intervals with local government representatives and local residents. In addition, we regularly hold information events, open house events, town halls and other opportunities for discussion, and also invite local input through the 'ASML Dichtbij' (ASML close by) section of our website. • At our site in Wilton in the US, we held information sessions during 2023 where local officials and neighbors could discuss our expansion plans • Quarterly surveys of a random sample of the 800,000 residents of the Brainport Eindhoven region • Regular discussion between the managers of our 17 community programs and various stakeholders and specialists • Through (social) media, conferences and other mass communication channels, we have an intensive communication plan to inform and engage with stakeholders around our communities
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ASML ANNUAL REPORT 2023
Q&A WITH THE CFO
STRATEGIC REPORT
CORPORATE GOVERNANCE
Robust results in a challenging macro environment In conversation with our Executive Vice President and Chief Financial Officer Roger Dassen
Q
Can you reflect on ASML's financial performance in 2023?
Roger: In short, we did what we said we expected to do at the beginning of the year. We delivered on our expectations in spite of the challenges. We have reported an excellent financial performance, with sales up by 30% and a gross margin of 50.0%. When you take the macro environment into account – inflation, high interest rates, falling GDPs, geopolitical tensions and a downturn in the semiconductor industry – this achievement was little short of remarkable. Diving into some further details, we showed a strong increase in net income compared to 2022. We were able to successfully place a bond amounting to €1.0 billion. In addition to this, we repurchased shares for a total consideration of €1.0 billion and paid dividends totaling €2.3 billion.
Free cash flow1 was low compared to previous years by design. In a challenging economic climate, we took the decision to help our customers navigate their liquidity issues by offering extended payment terms, while continuing to support our supply chain. Understanding and balancing the interests of all our stakeholders is one of our most important responsibilities, and in this instance helping our ecosystem partners through difficult times was the right thing to do. However, this inevitably meant delayed payments and therefore reduced cash flow.
We delivered on our expectations in spite of the challenges.” Roger Dassen Executive Vice President and Chief Financial Officer
1. Free cash flow is a non-GAAP measure and is defined (based on US GAAP figures) as net cash provided by operating activities (2023: €5,443.4 million and 2022: €8,486.8 million) minus purchase of property, plant and equipment (2023: €2,155.6 million and 2022: €1,281.8 million) and purchase of intangible assets (2023: €40.6 million and 2022: €37.5 million). We believe that free cash flow is an important liquidity metric for our investors, reflecting cash that is available for acquisitions, to repay debt and to return money to our shareholders by means of dividends and share buybacks. Purchase of property, plant and equipment and purchase of intangible assets are deducted from net cash provided by operating activities in calculating free cash flow because these payments are necessary to support the maintenance and investments in our assets to maintain the current asset base.
FINANCIALS
39
ASML ANNUAL REPORT 2023
Q&A WITH THE CFO CONTINUED
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIALS
Robust results in a challenging macro environment (continued) In conversation with our Executive Vice President and Chief Financial Officer Roger Dassen
were the main drivers Q What for that performance? Roger: Firstly, we had been significantly supply-constrained in both 2021 and 2022, and over the last 12 months we saw those constraints ease. The supply bottlenecks created by COVID-19 restrictions have now worked their way through the system. This meant that over 2021 and 2022, we built up a very significant backlog that we could start eating into in 2023.
We believe that the years ahead will see a significant uptick in the market.” Roger Dassen Executive Vice President and Chief Financial Officer
Secondly, although we have received significant orders from customers in China for a number of years, our fill rate has been less than 50%. This meant that, while some of our other customers were understandably taking their foot off the accelerator, we could take the opportunity to step up our China order fill rate this year.
Managing costs is always important, so
do you manage industry Q How during 2023 we focused on our selling, cyclicality?
other matters have Q What required focus during 2023?
Roger: Cyclicality is no stranger to this industry, obviously. Key is to focus on the longer term while managing short-term cost and working capital challenges. The secular trends remain very strong and we believe that the years ahead will see a significant uptick in the market – so while we address the downcycle, we also have to prepare for the upcycle that all the indicators say is around the corner.
Roger: Reporting requirements continue to put more pressure on our teams, particularly around ESG. For example, the Corporate Sustainability Reporting Directive (CSRD) comes into force for us over the financial year 2024 and involves reporting on many more data points. At ASML we are already fairly advanced in our ESG reporting. Nonetheless, several new disclosure requirements, including data points, have been introduced, and each of these require robust reporting, targets and strategies, not just for next year but also for the longer term. We have developed the appropriate action plans to close the approximately 900 gaps we identified, and we track our progress accurately and consistently. All of this means a lot of work, not just for the enabling functions, but for everybody in the business.
€27.6bn Total net sales
50.0% Gross margin
€3.3bn Returned to shareholder
general and administrative costs, and also looked after our cash. In addition, we slowed our hiring pace. In the last two years we had boosted our staff by around 10,000 FTEs. In 2023 we were able to put more resources and effort into making them feel welcome and training them in our values and how we work. We have also spent considerable time making sure that our organization is fit for purpose. From finance and tax to IT, HR and other areas, our enabling functions exist to support ASML’s growth. This means we must continually focus on working together and not in silos, collaborating and being totally aligned on end-to-end processes and solutions that meet customer needs instead of each department doing their own thing. We have looked at all our functions collectively from an overall business perspective, identifying challenges around issues such as the pre-building of tools next year. In addition, we have come together to have the right capacities and processes in the right places at the right times to meet those challenges.
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ASML ANNUAL REPORT 2023
Q&A WITH THE CFO CONTINUED
STRATEGIC REPORT
CORPORATE GOVERNANCE
Robust results in a challenging macro environment (continued) In conversation with our Executive Vice President and Chief Financial Officer Roger Dassen
Cybersecurity is another area that required serious focus. We face two different kinds of cyber and data security threats. We have external exposure, where outside forces try to penetrate our systems. This is continuous warfare – as we increase our defenses, so will our combatants – and we have done a lot of good work on that front. As well as making our lines of defense and detection capabilities as strong as possible, we have also continued to invest in how to counter and mitigate the impact of a successful penetration. Secondly, there is the internal exposure – how do we ensure that employees and others who have access to our systems keep data only in a safe environment, and do not export this data to private devices or places that are not secure.
Our response has been to change our way of working. For decades, ASML has thrived on the notion of open innovation, but now we have to conclude that this comes with risks that have to be mitigated, and we have to ensure that people only have access to information that they need. Although this is counter-cultural to an extent, everybody understands that security is vital to the company.
For 2024, we envisage a transition year with revenue broadly similar to 2023.” Roger Dassen Executive Vice President and Chief Financial Officer
the outlook for 2024 Q What’s and beyond? Roger: We believe that the market has now reached the lowest point of the dip, and although we cannot predict the exact nature of the slope ahead, the recovery is nascent. The longer-term trends are unmistakable – artificial intelligence, electrification and the energy transition are happening, and those factors are underlined by the large number of fabs that are set to open in the next couple of years. All of these new fabs will need our tools. Amid these very encouraging signs, we are looking at 2024 and 2025 as a whole and making output plans for the combined period. For 2024, we envisage a transition year with 2024 revenue to be similar to 2023. We will continue to be frugal, managing our costs and cash while not compromising on our capability and capacity for 2025, which we see as a potentially strong growth year. Our target capacity for 2025-2026 is 600 DUV and 90 EUV tools, and this is going to place pressure on our supply chain.
One of our major projects for 2024 is to work even more closely with our suppliers to help them build the capacity to support our growth. For the first time in our history, during 2024 we will pre-build and create our own inventory in order to prepare for the surge of demand that we expect in 2025. We are readying ourselves for the uptick – prebuilding tools, helping our new hires buy into our culture, working with suppliers and reshaping our functions, all while being fiscally prudent and managing any fallout from export restrictions. We face the future with confidence, sure in our technology and strategies, proud of our ability to be a force for good in the world and committed to meeting the increasing demands that all our stakeholders – from customers, suppliers and shareholders to governments and wider society – place upon us.
FINANCIALS
41
ASML ANNUAL REPORT 2023
FINANCIAL PERFORMANCE
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIALS
Performance KPIs
The figures in the table below are based on US GAAP, as ASML measures its performance and externally reports quarterly to stakeholders in accordance with US GAAP.
Sales
Profitability
Total net sales
Gross profit
% of total net sales
Cash and cash equivalents & short-term investments (year-end)
€27.6bn
€14.1bn
51.3%
€7.0bn
2022: €21.2bn
2022: €10.7bn
50.5%
2022: €7.4bn
Net system sales
Income from operations
€21.9bn
€9.0bn
32.8%
€5.4bn
2022: €15.4bn
2022: €6.5bn
30.7%
2022: €8.5bn
Net service and field option sales
Net income
€5.6bn
€7.8bn
28.4%
€3.2bn
2022: €5.7bn
2022: €5.6bn
26.6%
2022: €7.2bn
Sales of lithography systems (in units)1
Earnings per share
449
€19.91
2022: 345
2022: €14.14
Liquidity
Net cash provided by operating activities
Free cash flow2
EUV systems recognized (in units)
53 2022: 40
1. Lithography systems do not include metrology and inspection systems. 2. Free cash flow is a non-GAAP measure and is defined as net cash provided by operating activities (2023: €5,443.4 million and 2022: €8,486.8 million) minus purchase of property, plant and equipment (2023: €2,155.6 million and 2022: €1,281.8 million) and purchase of intangible assets (2023: €40.6 million and 2022: €37.5 million). We believe that free cash flow is an important liquidity metric for our investors, reflecting cash that is available for acquisitions, to repay debt and to return money to our shareholders by means of dividends and share buybacks. Purchase of property, plant and equipment and purchase of intangible assets are deducted from net cash provided by operating activities in calculating free cash flow because these payments are necessary to support the maintenance and investments in our assets to maintain the current asset base.
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ASML ANNUAL REPORT 2023
FINANCIAL PERFORMANCE CONTINUED
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIALS
Performance KPIs (continued)
A reconciliation of net income in accordance with US GAAP and EU-IFRS is set forth below:
Operating results of 2023 compared to 2022 Year ended December 31 (€, in millions)
Year ended December 31 (€, in millions)
Net income in accordance with US GAAP Capitalization of development expenditures and related amortization, net of tax Income tax on intercompany profit elimination, share-based payments and uncertain tax positions Short-term incentive accrual Net income in accordance with EU-IFRS
2022
2023
5,624.2
7,839.0
499.4
553.9
96.5 175.7
(102.0) (175.7)
6,395.8
8,115.2
The Consolidated Financial Statements included in this Annual Report are based on EU-IFRS, therefore, the results of operations analysis set out in the remainder of this section is based on EU-IFRS.
2022
%1
2023
%1
% Change
Net system sales Net service and field option sales Total net sales
15,430.3 72.9 5,743.1 27.1 21,173.4 100.0
21,938.6 79.6 5,619.9 20.4 27,558.5 100.0
42.2 (2.1) 30.2
Cost of system sales Cost of service and field option sales Total cost of sales
(7,843.3) (37.0) (2,817.4) (13.3) (10,660.7) (50.3)
(10,439.1) (37.9) (3,345.0) (12.1) (13,784.1) (50.0)
33.1 18.7 29.3
Gross profit
10,512.7
13,774.4
50.0
31.0
Research and development costs Selling, general and administrative costs Operating income
(2,282.1) (10.8) (909.6) (4.3) 7,321.0 34.6
(3,113.1) (11.3) (1,149.4) (4.2) 9,511.9 34.5
36.4 26.4 29.9
Finance income Finance costs Income before income taxes
16.2 0.1 (60.8) (0.3) 7,276.4 34.4
193.9 0.7 (152.7) (0.6) 9,553.1 34.7
1,096.9 151.2 31.3
Income tax expense Income after income taxes
(1,018.6) (4.8) 6,257.8 29.6
(1,629.2) (5.9) 7,923.9 28.8
59.9 26.6
Profit (loss) related to investments in associates Net income
138.0 6,395.8
191.3 8,115.2
38.6 26.9
49.7
0.7 30.2
0.7 29.4
Increase (decrease) on previous year
30.2% Net sales
42.2% Net system sales
Revenue growth from Logic and Memory markets
(2.1)%
(in millions)
Net service and field option sales
1. As a percentage of total net sales.
Total net sales and gross profit We achieved another record year in 2023, with total net sales increasing by €6,385.1 million, or 30.2%, reflecting an increase in net system sales of 42.2%, partially offset by a decrease in net service and field option sales of 2.1% compared to 2022.
Despite lower overall lithography tool utilization in 2023, we saw strong demand in the Logic markets in support of the digital transformation (5G, AI, VR, intelligent cloud solutions, and simulation and visualization applications). Logic is the largest consumer of our most advanced NXE systems and also benefited from a catch-up in the backlog of DUV orders to Chinese customers. The revenue growth in the Memory market was less pronounced due to historically low lithography tool utilization levels. The latter and lower demand for productivity enhancement packages negatively impacted net service and field option sales.
2023 2022
€15,984.7
€5,953.9 €5,619.9 €27,558
€9,977.6 €5,452.7 €5,743.1 €21,173 Logic
Memory
Service and field options
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ASML ANNUAL REPORT 2023
FINANCIAL PERFORMANCE CONTINUED
STRATEGIC REPORT
CORPORATE GOVERNANCE
Performance KPIs (continued)
Increase in net sales driven by growth in NXE and DUV immersion (in millions)
Gross profit (in millions) €13,774
€3,781 €2,079
2022
NXE
€616
€27,559 €(124)
Net sales
€21,173
€157
ArFi
ArF dry
€(123)
KrF & Metrology Service I-line and and inspection field options
€10,513 49.7%
50.0%
2022
2023
2023
The increase in total net sales was primarily driven by higher sales volumes for NXE and DUV immersion systems as supply caught up with demand. In addition there was increased DUV demand from China that was previously unfulfilled due to supply constraints. Also the timing of revenue recognition for DUV immersion fast shipments is considered to be proven. We recognized revenue for 53 EUV systems in 2023 compared with 40 EUV systems in 2022. Our system sales across our DUV technologies increased from 305 units in 2022 to 396 units in 2023. The decrease in net service and field option sales was mainly driven by lower field upgrade sales due to lower lithography tool utilization levels at our customers, and customers delaying productivity enhancement packages due to uncertainty around the timing of the market recovery. This decrease is partially offset by higher service sales, which continue to scale as a result of the growing installed base of systems.
Gross profit increased as a result of higher NXE and DUV immersion sales volumes and improved profitability. The gross margin increased from 49.7% in 2022 to 50.0% in 2023. This increase is mainly due to: • a larger share of DUV immersion system sales • lower inflationary effect on our business partially offset by lower field upgrade sales. Research and development costs (in millions) €3,113 €2,282 10.8%
11.3%
2022
2023 R&D costs
% of net sales
R&D investments of €3,980.7 million (2022: €3,253.5 million), are mainly comprised of R&D costs net of credits (including net development costs not eligible for capitalization) of €3,113.1 million (2022: €2,282.1 million) and capitalization of development expenditures of €945.4 million (2022: €893.4 million). The increase in investments in R&D investments across each of our EUV, DUV and Applications programs, all support our holistic lithography solutions. In 2023, R&D investments mainly related to: • Investments in the development of the NXE:3800E system and further improving availability and productivity of our EUV installed base systems. • Investments in our next generation EUV 0.55 NA (High NA) systems, to support future nodes for both Logic and DRAM customers. • The introduction of our immersion system NXT:1980Fi and the dry system XT:400M. Continued developments for the next generation of scanners include NXT:2150i and NXT:870B. In parallel, there were multiple developments for productivity packages and new service models, focusing on increasing 'good wafers per day' in our customers' installed base. • Continued investment in e-beam inspection, e-beam metrology and Yieldstar optical metrology. In addition, securing our multibeam inspection roadmap and continuously expanding our investment in the holistic software applications space.
€3.1 billion R&D costs
36.4% Increase in R&D costs on previous year
FINANCIALS
44
ASML ANNUAL REPORT 2023
FINANCIAL PERFORMANCE CONTINUED
STRATEGIC REPORT
Performance KPIs (continued)
Selling, general and administrative costs
Net income
SG&A costs increased by 26.4% from 2022 to 2023 largely due to an increase in the number of employees and increased wage per FTE.
Net income in 2023 amounted to €8,115.2 million, or 29.4% of total net sales, representing €20.61 basic net income per ordinary share, compared with net income in 2022 of €6,395.8 million, or 30.2% of total net sales, representing €16.08 basic net income per ordinary share. The increase in basic net income per ordinary share is mainly due to the higher net income, but also partially driven by a decrease in the weighted average number of outstanding shares resulting from our share buyback program.
€1,149 €910 4.3%
4.2%
2022
2023
SG&A costs (€, in millions)
% of net sales
€20.61 €16.08
Income taxes
398
The effective tax rate (ETR) increased to 17.1% in 2023, compared with 14.0% in 2022. The higher rate is mainly driven by an increase in our provision for uncertain tax positions, a reduction in US Foreign Derived Intangible Income (FDII) deduction and a decrease in deferred tax assets on intercompany eliminations. €1,629 €1,019
17.1%
14.0%
2022 Income tax expense (€, in millions)
2023 ETR %
Read more in Consolidated Financial Statements - Notes to the Consolidated Financial Statements - Note 21 Income taxes
394
2022 EPS (basic)
2023 Weighted avg. # of shares (in millions)
CORPORATE GOVERNANCE
FINANCIALS
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ASML ANNUAL REPORT 2023
FINANCIAL PERFORMANCE CONTINUED
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIALS
Performance KPIs (continued)
Cash flow analysis We continue to invest heavily in our next-generation technologies in order to secure future growth opportunities which require a significant cash investment in net working capital, capital expenditures and R&D. We also continued our efforts to return cash to our shareholders through our dividends and share buyback program. Year ended December 31 (€, in millions)
Net cash provided by (used in) operating activities The decrease in net cash provided by operating activities of €2.9 billion compared with 2022 is mainly due to an increase in inventory and a decrease in contract liabilities, as a result of extended payment terms granted to our customers. This is partially offset by an increase in net income of €1.7 billion. Net cash provided by (used in) investing activities The increase in net cash used in investing activities of €1.7 billion compared to 2022 is mainly due to our continuous cash investment in capital expenditures, which increased by €0.9 billion. Additionally, our loans issued increased by €0.3 billion, and the net cash inflow from the purchase and maturity of short-term investments was €0.4 billion lower.
2022
2023
Cash and cash equivalents, beginning of period
6,951.8
7,268.3
Net cash provided by (used in) operating activities Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities Effect of changes in exchange rates on cash Net increase (decrease) in cash and cash equivalents
9,434.9 (1,922.0) (7,193.3) (3.1) 316.5
6,536.2 (3,634.6) (3,151.4) (13.8) (263.6)
Net cash provided by (used in) financing activities The decrease in net cash used in financing activities of €4.0 billion compared to 2022, is mainly due to a decrease in shares purchased through our share buyback program, which decreased by €3.6 billion. Other drivers are the temporary decrease of our total paid dividends of €0.2 billion due to a change from bi-annual to quarterly dividend payments. Additionally, in 2023, we had net proceeds from issuances of notes of €1.0 billion (2022: €0.5 billion) and we repaid an amount of €0.8 billion (2022: €0.5 billion) for a previously issued note that became due.
Cash and cash equivalents, end of period Short-term investments, end of period Cash and cash equivalents and short-term investments
7,268.3 107.7 7,376.0
7,004.7 5.4 7,010.1
As of December 31, 2023, ASML has sufficient capital for the company’s present requirements.
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ASML ANNUAL REPORT 2023
FINANCIAL PERFORMANCE CONTINUED
Long-term growth opportunities
Trend information The semiconductor industry continues to work through the bottom of the cycle. To prepare for the recovery, we are looking at the combined demand for 2024 and 2025. We view 2024 to be a transition year in preparation for the expected strong demand in 2025. We continue to make investments this year both in capacity ramp and technology to be ready for the turn in the cycle. Although our customers are still not certain about the shape of the semiconductor market recovery in 2024, there are some positive signs. Industry end-market inventory levels continue to improve and litho tool utilization levels are beginning to show improvement. Our strong order intake in the fourth quarter of 2023 (€9.2 billion) clearly supports future demand. In spite of the positive signs, we maintain our conservative view for the total year and expect 2024 revenue to be similar to 2023. We also expect 2024 to be an important year to prepare for significant growth that we expect for 2025. We expect 2024 revenue to be similar to 2023. We expect slightly lower Logic revenue in 2024 versus 2023 as customers digest capacity and utilization levels improve.
For Memory, we currently expect revenue growth in 2024 versus 2023, primarily driven by DRAM technology node transitions in support of advanced memory devices. For EUV, we are expecting revenue growth in 2024. Relative to 2023, we are expecting to recognize revenue for a similar number of systems, however with a higher average selling price from the NXE:3800E systems. In addition, we expect the first revenue from High NA EUV systems in 2024. We expect our non-EUV business to be down in 2024, primarily driven by lower immersion system sales, relative to 2023. Our net service and field option sales is expected to be at a similar level of revenue as last year. Total net sales for the first quarter of 2024 is guided between €5.0 billion and €5.5 billion. The trends discussed above are subject to risks and uncertainties. Read more in Forward-looking statements
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIALS
47
ASML ANNUAL REPORT 2023
FINANCIAL PERFORMANCE CONTINUED
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIALS
Long-term growth opportunities (continued)
Outlook 2025 and 2030 This decade is all about distributed computing, bringing the cloud closer to devices at the edge. Through connectivity, computing power will be available to all of us ‘on device’, enabling a connected world. These global megatrends in the electronics industry, supported by a highly profitable and fiercely innovative ecosystem, are expected to continue to fuel growth across the semiconductor market. This translates into increased wafer demand at both advanced and mature nodes. The continued push of countries around the globe for technological sovereignty is expected to drive increased capital intensity. This means that the industry is expected to make significant investments in wafer capacity, with increasing spend on lithography. The semiconductor end markets, such as automotive, data centers, industrial and consumer electronics, are expected to grow, and we expect the total semiconductor market to grow around 9%1 year-on-year through 2030, fueling the strong growth of our business based on an increased mix of EUV, while the demand for DUV is expected to increase across all wavelengths. To achieve this, we and our supply chain partners are actively adding and improving capacity to meet future customer demand. At our November 2022 Investor Day, also known as Capital Markets Day (CMD), we presented our long-term growth opportunity for 2025 as well as 2030.
We plan to update our view in our next Investor Day planned for November 14, 2024.
Based on the different market scenarios, we believe we have an opportunity to reach annual sales of between approximately €30 billion and €40 billion in 2025, with a gross margin between approximately 54% and 56%. Looking further ahead, for 2030 we believe we have an opportunity to reach annual sales of between approximately €44 billion and €60 billion, with a gross margin between approximately 56% and 60%.
Long-term models as presented at CMD2022
Market
High
The anticipated growth in the future is largely market driven in both advanced and mature markets, technology (e.g., the energy transition, AI and die sizes) and geopolitical and competition-driven growth. Our sales potential is primarily based on assumed organic growth. We continuously review our product roadmap and have, from time to time, made focused acquisitions or equity investments to enhance the industrial synergy of our product offering. Based on such reviews and the assessment of clear potential product and value synergies, we may also evaluate and pursue focused merger and acquisition activities in the future. Within this growth ambition, we expect to continue to return significant amounts of cash to our shareholders through a combination of growing dividends and share buybacks. Read more in Our business strategy
System units
Total sales opportunity (in €bn) CMD 2022 CMD 2022 Units ASML Units ASML 2025 2030
EUV High NA 0.55
5
30
EUV Low NA 0.33
80
80
ArFi (immersion)
105
115
Dry
385
425
Total
575
650
Low
CMD 2022 Sales 2025
CMD 2022 Sales 2030
Systems (Lithography & M&I1)
32
47
Installed Base Management2
8
13
40
60
CMD 2022 Sales
CMD 2022 Sales
2025
2030
Systems (Lithography & M&I1)
23
33
Installed Base Management2
7
11
30
44
Total
CMD 2022 CMD 2022 Units ASML Units ASML 2025
2030
EUV High NA 0.55
5
15
EUV Low NA 0.33
65
65
ArFi (immersion)
75
85
Dry
180
250
Total
325
415
Total
1. M&I: Metrology and inspection. 2. Installed Base Management equals our net service and field option sales. 1. Source: Based on external market research firms
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ASML ANNUAL REPORT 2023
RISK
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIALS
How we manage risk We use a robust enterprise risk management (ERM) framework to embed risk management into our daily business activities and strategic planning.
Enterprise risk management ASML's ERM framework is designed to enable a welldefined governance structure and a robust ERM process. The Risk and Business Assurance function drives the ERM process and associated activities across ASML. We follow a systematic approach to identify, manage and monitor risks in pursuit of our business objectives by setting standards and enabling management to maintain and continuously improve our governance, risk management, internal control and compliance. The framework enables us to identify opportunities to achieve our objectives and enable longterm sustainable growth.
ERM is a continuous process. Its related activities are periodically repeated to identify and address risks in a timely fashion, and ensure outcomes are relevant for effective decision-making. Our Head of Risk and Business Assurance reports to the CFO and Audit Committee and is responsible for leading the development and maintenance of the ERM framework and the implementation of the ERM process. We have adopted the ISO 31000:2018 standard as the basis for our ERM activities. In addition, the Head of Risk and Business Assurance is responsible for leading the security function and for developing and maintaining the compliance process.
Risk management governance structure
Supervisory Board Request to investigate specific risk topics
Audit Committee
• Bi-annual risk review
• Assertion on control effectiveness
• Risk topics feedback
• Quarterly progress reporting
Board of Management
Corporate Risk Committee (CRC) Risk oversight
Disclosure Committee Internal Control Committee
• Risk appetite • Risk management policy
The purpose of risk management is to maximize the probability of achieving business objectives responsibly.” Geert Beullens Head of Risk and Business Assurance
• CRC sub committees (governance)
• Risk assessment results • Risk response progress • Incidents
Risk owners
• Control effectiveness
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ASML ANNUAL REPORT 2023
RISK CONTINUED
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIALS
How we manage risk (continued)
Supervisory Board and Audit Committee The Supervisory Board (SB) provides independent oversight of management’s response on critical risk areas. The SBs Audit Committee provides independent oversight of the ERM process and timely follow-up of priority actions based on quarterly progress updates.
Disclosure Committee The Disclosure Committee assists the Board of Management in overseeing ASML’s disclosure activities and compliance with applicable disclosure requirements arising under Dutch and US law, applicable stock exchange regulations and other regulatory requirements.
Board of Management The Board of Management is responsible for managing internal and external risks related to our business activities and for ensuring we comply with applicable laws and regulations.
Internal Control Committee The Internal Control Committee, which includes members of the Disclosure Committee, advises the Disclosure Committee and the CEO and CFO in their assessment of our internal control over financial reporting and related disclosures, under section 404 of the Sarbanes Oxley Act. The Chair of the Internal Control Committee updates the Audit Committee, the CEO and CFO on the progress of this assessment. The Chair also includes this update in the Internal Control Committee’s report to the Audit Committee.
Corporate Risk Committee The Corporate Risk Committee (CRC) is the central risk oversight body that reviews, manages and controls risks in the ASML risk universe, including security. It also approves the risk appetite, risk management policies and risk mitigation strategies. The CRC is chaired by the CFO and comprises senior management representatives across ASML, including the CEO, COO and CSPO.
Risk owners Risk owners monitor the development of risks across the ASML risk universe and drive risk response across ASML according to requirements that are defined by the CRC.
ASML's risk management process provides direction for adequate risk and control measures for key risks.”
ASML risk universe The ASML risk universe is a consolidated overview of the risks that may have a material adverse impact on our ability to achieve our business objectives. The risk universe was updated in 2023 and consists of 32 risk categories grouped into six risk types. The risk universe allows us to have a consistent approach to risk assessments across ASML.
We take into account a broad range of internal and external information sources such as macroeconomic and industry trends, relevant guidelines and legislation, and stakeholders’ needs and expectations in all areas. The risk universe is reviewed, updated and approved annually, or more frequently when there are significant internal and/or relevant external developments.
ASML risk universe
Strategy and products • Industry cycle risk • Geopolitical risk • Climate change risk
• Business model risk • Merger and acquisition risk
• Competition risk • Innovation risk • Product stewardship risk
• Product roadmap execution risk • Intellectual property rights risk
Finance and reporting
Partners
People
Operations
• Business planning risk • Financial risk • Shareholder activism risk • Disclosure/external reporting risk • Tax and customs risk
• Customer dependency risk • Product/service quality risk • Supplier strategy and performance risk • Supply chain disruption risk
• Knowledge management risk • Organizational effectiveness risk • Human resource risk
• Product industrialization risk • Process effectiveness and efficiency risk • Environment, health and safety risk • Continuity of own operation risk • Security risk • Information technology risk • Manufacturing and install risk
Roel Verstegen Risk manager
Legal and compliance • Contractual liability risk
• Violation of laws and regulations risk
• Violation of internal policies risk
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How we manage risk (continued)
Enterprise risk management process The ERM process provides a holistic approach combining both top-down (company-level) and bottomup (organization- and process-level) perspectives. This helps us to identify, evaluate and manage risks at the right level. We continuously seek to improve our ERM process based on learnings, developments and best practices.
The results of periodic risk assessments and the potential impact of external trends and emerging risks are captured in the ASML risk landscape. As we operate in a dynamic environment, risk exposures are subject to change. The ASML risk landscape is reviewed and updated by the CRC each quarter. Risk assessments are carried out to assess all risk events in ASML's risk universe. We define strategies to address relevant risks and take these into account when we define our corporate priorities. Our risk responses aim to mitigate risks to the level defined by the risk appetite.
Risk appetite Our risk appetite describes the level of risk we are willing to accept to achieve our objectives. It depends on the nature of the specific risk and is divided into five levels: Averse, Prudent, Moderate, High and Extensive. Our approach is geared toward mitigating risks to the level defined in our risk appetite.
Risk management process Risk assessment
Risk appetite levels
Risk response Risk type
Top-down risk assessment Corporate Risk Committee/Risk owners/Emerging risks
Coordination and follow-up Risk owners
Risk identification Risk analysis
Risk appetite
Risk landscape
Risk evaluation Bottom-up risk assessment Country/Sector
Partners People Operations
Risk treatment Execution Action owners
Strategy and products
Finance and reporting Legal and compliance
Averse
Prudent
Moderate
High
Extensive
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How we manage risk (continued)
The table below shows the main risks related to our strategy and includes examples of our responses:
Grow our holistic lithography business Risk development
Geopolitical tensions Geopolitical tensions and the strive for technological sovereignty may lead to a decoupled ecosystem and – in longer term – overcapacity. Additional export restrictions have been imposed during 2023. There is a risk that future trade restrictions (e.g. raw materials, technology, systems, investments) further limit our ability to source parts and/or sell and service systems to certain customers.
Uncertain global economy Global economic conditions lead to uncertainty for semiconductor demand and therefore demand for our products. We have experienced order push-outs. The macroeconomic weakness continues into 2024 and duration is uncertain.
Pressure on innovation in ecosystem ASML’s strengths are based on the innovation power in our ecosystem and the ability to protect our IP. There is a risk that we are not able to deliver on our technology roadmap. In addition, there is significant pressure on know-how and IP protection for ASML and its open innovation partners. We and our partners experience cyberattacks and other security threats.
Growth challenges The increasing demand in recent years is an opportunity for us that also brings challenges. While we are now facing uncertainty in customer demand outlook, we face challenges to increase production capacity in our end-to-end supply chain to meet future demand. This is amplified by supply chain constraints. In addition, hiring, onboarding and retaining our workforce in the competitive market is challenging. Our ability to attract people also depends on the government to accommodate them, e.g. by income tax policies and investments in appropriate infrastructure.
Risk trend
Risk universe reference
Risk response
• Geopolitical • Competition • Supply chain disruption • Continuity of own operations • Business model
• Violation of laws and regulations • Security • IP rights • HR
• Active engagement with authorities and governments • Scenario planning • Collaborate with peers in global advocacy • Optimize industrial footprint • Apply for export licenses • Comply with applicable regulations
• Industry cycle • Business model • Financial
• Competition • Supply chain disruption
• Cost control • Maintain flexibility • Scenario planning
• Innovation • Product roadmap • Supplier strategy and performance
• IP rights • Competition • Security
• Open innovation – sharing risk and reward • Intellectual property portfolio management • Patents and relevant technical publications monitoring • Substantial investments in security • Awareness and training programs • Cyber defense capabilities
• Manufacturing and install • Supplier strategy and performance • HR
• Product industrialization • Process effectiveness • Product/service quality
• Increase of manufacturing capabilities • Cycle time reduction • Fast shipments • Supplier move rate support • Secure unique supply chain capabilities • Onboarding, retention and well-being program • Shorten time to knowledge
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How we manage risk (continued)
Deliver on our ESG sustainability commitments Risk development
Strengthening ESG regulations and increasing stakeholder expectations Stakeholders are increasingly focused on our contribution to society and expect us to minimize the environmental and social impact of our products throughout all life-cycle stages. There is a risk that we fail in achieving our ESG objectives. In addition, we are faced with increasing regulations and disclosure requirements (e.g. CSRD).
Climate change fueling extreme weather Climate change contributes to increasing severity and frequency of extreme weather events (such as cyclones, flood, fire stress, drought, excessive heat and precipitation, rising sea levels) that can impact continuity of our operations and/or our supply chain.
Risk trend
Risk universe reference • Product stewardship • EHS • Climate change
• Continuity of own operations • Supply chain disruption
• Human resource • Violation of laws and regulations
Risk response • Stakeholder engagement and disclosures • Deployment of ESG strategy in ASML & value chain • Non-financial reporting in accordance with the Global Reporting Initiative (GRI) • Preparing for CSRD reporting requirements • Deployment of business continuity plans • Include extreme weather aspects in building upgrades and new designs
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Risk factors Many risks have the potential to impact our business. It is important to understand the nature of these risks. We assess risks by using the ASML risk universe which comprises six risk types (Strategy and products, Finance and reporting, Partners, People, Operations, Legal and compliance). The risk factors in this section are classified under these six risk types. Any of these risks and the related events or circumstances described therein may have a material adverse effect on our business, financial condition, results of operations and reputation. These risks are not the only ones that we face. Some risks may not yet be known to us, and certain risks that we do not currently believe to be material could become material in the future. Many risks may be intensified by global events such as interstate conflicts, geopolitical tensions, inflation, industry downturn, global measures (including new regulations) taken in response to these events and/or any worsening of the associated global business and economic conditions.
1. Strategy and products Our future success depends on our ability to respond timely to commercial and technological developments in the semiconductor industry
The success of new product introductions is uncertain and depends on our ability to successfully execute our R&D programs
Risk category: Business model, Innovation
Risk category: Product roadmap execution, Innovation
Our success in developing new and enhancing existing technologies, products and services, depends on a variety of factors. These include the success of our and our suppliers’ R&D programs and the timely, cost-effective and successful completion of product development and design relative to competitors. Our business will suffer if the technologies we pursue to assist our customers in producing smaller and more energy-efficient chips are not as effective as, or are more costly than, those developed by competitors. Our business will also suffer if our customers do not adopt technologies that we develop, or if they adopt new technological architectures that are less focused on lithography products. The success of our EUV 0.55 NA (High NA) technology, which we believe is critical for keeping pace with Moore’s Law, depends on continuing technical advances by us and our suppliers. We invest considerable financial resources to develop and introduce new and enhanced technologies, products and service offerings. If we are unsuccessful in developing (or if our customers do not adopt) these technologies, products and service offerings such as EUV 0.55 NA and multibeam inspection, or if alternative technologies or processes are successfully introduced by others, our competitive position and business may suffer.
We make significant investments in developing new products and product enhancements and we may be unable to recoup some or all of these investments. We may incur impairment charges on capitalized technology including prototypes or incur costs related to inventory obsolescence, as a result of technological changes. Such costs may increase as the complexity of technology increases. Due to the highly complex nature and costs of our systems, including newer technologies, our customers may purchase existing technology systems rather than new leading-edge systems, or they may delay their investment in new technology systems to the extent that such investment is not economical or required, given their product cycles. Global economic conditions affect our customers’ investment decisions and lead to uncertainties in the timing around the introduction of and demand for new leading-edge systems. Some of our customers have experienced and may continue to experience delays in implementing their product roadmaps. This increases the risk of slowing down the overall transition period (or cadence) for the introduction of new nodes, and therefore new systems. We also depend on our suppliers to maintain their development roadmaps to enable us to introduce new technologies in a timely manner.
If they are unable to keep pace, whether due to technological factors, lack of financial resources or otherwise, we may not meet our development roadmaps.
As our lithography systems and applications have become increasingly complex, the cost and time to develop new products and technologies have increased and we expect this trend to continue. In particular, developing new technology, such as EUV 0.55 NA (High NA) and multibeam, requires significant R&D investments by us and our suppliers. Our suppliers may not be able or willing to invest the resources necessary to continue the (co-) development of new technologies to the extent that such investments are necessary. This has resulted and may continue to result in ASML contributing funds to such R&D programs or limiting the R&D investments that we can undertake. Furthermore, if our R&D programs are not successful in developing the desired new technology on time or at all, we may be unsuccessful in introducing new products and unable to recoup our R&D investments. In case of high levels of customer demand, we may prioritize our resources toward increasing production over R&D programs.
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Risk factors (continued)
1. Strategy and products (continued) We face intense competition
The semiconductor industry can be cyclical and we may be adversely affected by any downturn
We derive most of our revenues from the sale of a relatively small number of products
Risk category: Competition
Risk category: Industry cycle risk
Risk category: Business model
The semiconductor equipment industry is highly competitive. Our competitiveness depends on our ability to develop new and enhanced lithography equipment, related applications and services that bring value to our customers and are competitively priced and introduced on a timely basis – as well as our ability to protect and defend our intellectual property, trade secrets or other proprietary information.
The semiconductor industry has historically been cyclical. As a supplier to the global semiconductor industry, we are subject to the industry’s business cycles. The timing, duration and volatility are difficult to predict and can have a significant impact on semiconductor manufacturers including ASML. Newer entrants to the industry, including Chinese semiconductor manufacturers, could increase the risk of cyclicality in the future. Certain key end-market customers – Logic and Memory – exhibit different levels of cyclicality and different business cycles. Cyclicality may be worsened by the geopolitical situation if countries increase semiconductor capacity for higher levels of self-sufficiency, thereby creating global overcapacity.
We compete primarily with Canon and Nikon in respect of DUV systems. Both Canon and Nikon have substantial financial resources and broad patent portfolios. Each continues to offer products that compete directly with our DUV systems, which may impact our sales or business. In addition, adverse market conditions, long-term overcapacity or a decrease in the value of the Japanese yen in relation to the euro could increase price-based competition, resulting in lower prices and lower sales and margins. We also face competition from new competitors with substantial financial resources, as well as from competitors driven by the ambition of self-sufficiency in the geopolitical context. Furthermore, we face competition from alternative technological solutions or semiconductor manufacturing processes. We also compete with providers of applications that support or enhance complex patterning solutions, such as Applied Materials Inc. and KLA-Tencor Corporation. These applications effectively compete with our Applications offering, which is a significant part of our business.
Sales of our lithography systems, services and other holistic lithography products depend in large part on the level of capital expenditures by semiconductor manufacturers. These in turn are influenced by industry cycles, the drive for technological sovereignty and a range of competitive and market factors, including semiconductor industry conditions and prospects. The timing and magnitude of capital expenditures of our customers also impact the available production capacity of the industry to produce chips, which can lead to imbalances in the supply and demand of chips. Reductions or delays in capital expenditures by our customers, or incorrect assumptions by us about our customers’ capital expenditures, could adversely impact our business.
In addition, industry trends that are positively impacting our business, such as increasing capital expenditures by our customers, may not continue. We have experienced changes in timing of orders from certain customers, and while we currently have significant backlog and therefore such timing changes have not impacted sales, we are subject to uncertainty in future customer demand. The current global economic environment, including inflation and high interest rates, contribute to this uncertainty. Our ability to maintain profitability in an industry downturn will depend substantially on whether we are able to lower our costs to break-even level. If sales decrease significantly as a result of an industry downturn and we are unable to adjust our costs over the same period, and if down payments need to be returned, our net income may decline significantly or we may suffer losses. As we have significantly increased our organization in terms of employees, infrastructure, manufacturing capacity and other areas, we may not be able to adjust our costs adequately in a timely manner in the event of an industry downturn. An uncertain global economy frequently leads to reduced consumer and business spending, and could cause our customers to decrease, cancel or delay their orders.
High interest rates and volatility in financial markets could make it more difficult for our customers to raise capital, whether debt or equity, to finance their purchases of equipment, including the products we sell. The foregoing could lead to reduced demand, which may adversely affect our product sales and revenues and may harm our business and operating results. If we are unable to adapt appropriately and in a timely manner to changes resulting from difficult macroeconomic conditions, our business, financial condition or results of operations may be materially and adversely affected.
We derive most of our revenues from the sale of a relatively small number of lithography systems (449 units in 2023 and 345 units in 2022). As a result, the timing of shipments, including any delays, and recognition of system sales for a particular reporting period from a small number of systems, with an increase in sales prices, may have a material adverse effect on our business, financial condition and results of operations in that period. In recent years, we have used fast shipments for some customers, which allows us to deliver systems more quickly to customers by having some final testing and formal acceptance carried out on customer sites instead of at our own facilities. In general, this leads to a delay of revenue recognition for those shipments until formal customer acceptance, which can impact comparability of our results of operations from quarter to quarter. In addition, we may not be able to increase installed base revenues to the extent we planned, as, for example, customers may perform more of these services themselves, find other third-party suppliers to provide them or we may be limited by national security restrictions.
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Risk factors (continued)
1. Strategy and products (continued) Failure to adequately protect intellectual property could harm our business
Defending against intellectual property claims brought by others could harm our business
Risk category: Intellectual property rights
Risk category: Intellectual property rights
We rely on intellectual property (IP) rights such as patents and copyrights to protect our proprietary technology. However, we face the risk that such protective measures could prove inadequate and we could suffer material harm because, among other matters: • IP laws may not sufficiently support our proprietary rights or may change adversely in the future. • Our agreements (e.g. confidentiality, licensing) with our customers, employees and technology development partners and others to protect our IP may not be sufficient or may be breached or terminated. • Patent rights may not be granted or interpreted as we expect; • Patent rights will expire, which may result in key technology becoming widely available that may harm our competitive position. • The steps we take to prevent misappropriation or infringement of our proprietary rights may not be successful. • IP rights and trade secrets are difficult to enforce in countries where the application and enforcement of the laws governing such rights may not have reached the same level compared with other jurisdictions where we operate. • Third parties may be able to develop or obtain patents for our own or for similar competing technology.
Legal proceedings may be necessary to enforce our IP rights and the validity and scope may be challenged by others. Any such proceedings may result in substantial costs and diversion of management resources, and, if unfavorable decisions are made, could result in significant costs or have a significant impact on our business. We have experienced and may in the future experience misappropriation attacks by third parties or our employees, including theft of intellectual property. Such incidents may result in third parties or others, without authorization, obtaining, copying, using or disclosing our intellectual property, despite our efforts to protect them.
In the course of our business, we have been and are subject to claims by third parties alleging that our products or processes infringe upon their IP. If successful, such claims could limit or prohibit us from developing our technology, manufacturing and selling our products. Our customers or suppliers may also be subject to claims of infringement from third parties, including patent holder companies, alleging that our products used by such customers in the manufacturing of semiconductor products and/or the processes relating to the use of our products infringe on one or more patents issued to such third parties. If such claims are successful, we could be required to indemnify our customers for some or all of any losses incurred or damages assessed against them as a result of such infringement.
We may incur substantial licensing or settlement costs to settle claims or to potentially strengthen or expand our IP rights or limit our exposure to IP claims of third parties. Patent litigation is complex and may extend for a protracted period of time, giving rise to the potential for substantial costs and diverting the attention of key management and technical personnel. Potential adverse outcomes from patent litigation may include payment of significant monetary damages, injunctive relief prohibiting our manufacturing, exporting or selling of products, reputational damage and/or settlement involving significant costs to be paid by us.
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Risk factors (continued)
1. Strategy and products (continued) We are exposed to economic, geopolitical and other developments in our international operations
We may be unable to make desirable acquisitions or to integrate successfully any businesses we acquire
Risk category: Geopolitical
Risk category: Mergers and acquisitions
Geopolitical tensions may result in export control restrictions, trade sanctions, tariffs and more generally international trade regulations which may impact our ability to deliver our systems, technology, and services. Our ability to deliver technology in certain countries such as China has been and continues to be impacted by our ability to obtain required licenses and approvals. Our business involves the sale of systems and services to customers in a number of countries, including China, and includes technologies that may be the subject of increased export regulations or policies. We are required under Dutch regulations and other applicable legislation to obtain licenses for the export of certain technologies. In some cases, such licenses have not been granted or renewed. For example, at the end of 2023, the Dutch government partially revoked a license for shipment of NXT:2050i and NXT:2100i systems, impacting a small number of customers in China. Following recent changes in the Dutch regulations, advanced DUV-immersion is also now subject to license requirement. The US government has enacted trade measures, including national security regulations and restrictions on conducting business with certain Chinese entities, restricting our ability to provide certain products and services to such entities without a license.
The list of Chinese entities impacted by export control restrictions has increased since 2022, with the recently updated additional export controls on semiconductor manufacturing items imposing license requirements on the sale / transfer of US origin items as well as on the support by US persons on non-US origin items destined for certain fabs in China working on advanced node ICs. The list of restricted customers and the scope of the restrictions are subject to change. These and further developments in multilateral and bilateral treaties, national regulation, and trade, national security and investment policies and practices have affected and may further affect our business, and the businesses of our suppliers and customers. For example, the ability to obtain US licenses to authorize employees
with foreign nationalities to work in programs that include controlled US items has been reduced over the last couple of years. Such developments, including the drive for technological sovereignty, could also lead to long-term changes in global trade, competition and technology supply chains, which could adversely affect our business and growth prospects. Customers in China represented 26.3% of our 2023 total net sales. The semiconductor industry makes use of (raw) materials that are controlled by certain countries. In the current geopolitical context, we see an increasing risk exposure that these materials may become unavailable or restricted, which could impact our suppliers, our customers and ASML. Interstate conflicts and/or nationalization of ASML assets can also impact our business. For example, some of our facilities and supply chain and customers are located in Taiwan. Customers in Taiwan represented 29.3% of our 2023 total net sales and 38.2% of our 2022 total net sales. Taiwan has a unique international political status. Changes in relations between Taiwan and China, Taiwanese government policies and other factors affecting Taiwan’s political, economic or social environment could, for example, impact our ability to service our customers in Taiwan. Furthermore, certain of our facilities as well as our supply chain and customers are located in South Korea.