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Let's bring you that conversation live with the CEO of ASML.
Christoph Fouke, speaking to Bloomberg's Tom Giles. We can listen in now.
After that surprise cuts to the outlook from asmling around the world. But last week you had to do some expectation resetting in terms of bookings, in terms of your outlook for twenty twenty five and how long the chip recovery will extend, you said on the call today. Without AI, the market would be very sad if you asked me. That definitely spread some sadness in the market, in the
stock price. Could you give us a sense when you talked about the new expectations, you focused on a couple of things, some of your customers, customers like Samsung and Intel, but also China, And so I'm wondering if you could give us a sense of unbalanced how much of your resetting expectations was related to changes in China versus weakness in some of the large customers that I mentioned.
Yeah, So I think last week we said a few things, and I think the first thing we said was that we still CAI as a huge opportunity for the industry, and we still see even upside on the short term. So I think AI has been with us now for a couple of years. It's created a lot of excitement, and like all our peers in the industry, I do believe that AI will bring a tremendous opportunity for this industry.
So that's the first thing we have said. So I said on the long term.
AI is going to build up a real strong opportunity for the industry.
Now on the short term.
I think you're aware of that not everyone is surfing yet on the AI web. I think some company have been doing extremely well, of course, and Vidia comes to mind TSMC because they are providing the first one, the product, the second one the process that is going to manufacture the product. So they're very strong. I think you see, and I'm sure you will see that in the weeks to come, a very very strong demand. Now, what we also said is that not every semiconductor manufacturer is involving AI.
Some of them are doing chiaps for more traditional application mobile, PC, automotive, and that part of the market is not recovering as quickly as we hoped, and it does recover, so we see progress and people are reporting that, but it's slower maybe than a lot.
Of us expected.
And I would say that concern quite a few companies. All the companies in fact that today are not directly benefiting from.
The AI boost. That's a bit the split of the market we see today at least.
Does that mean that we shouldn't expect a full recovery until twenty twenty six.
Well, that's always very difficult to say, because you know, there's something we watch every quarter. You know, last week's people were maybe a bit disappointed that we didn't give more heads up, but that's something we just keep watching. And you know, in the last three months, for example, we have seen that people we are starting to push the break.
When do they start to push.
The accelerator again, we don't know, because you know, when you become cautious, its usually takes a bit of time before you look at the longer term again. But you know, long term we see gross, We see tremendous opportunity, which means that at some point of time this has to come. Twenty twenty five, by the way, we still see as a grocer for the industry for SML, the gross is not as high as I think a lot of people
expected by Dan but still a gross here. We also expect twenty six to be a gross here, but it's too early to know to quantify that in very high accuracy or very high precision.
Got it.
I want to talk a little bit about China.
At one stage they accounted for almost half of total revenue. What you shared with the market was that we have to think about China in its more historical perspective, where it accounted for something more like twenty percent of total revenue for you as a company, I'd like to get a sense from you of how much of that changing viewpoint on China is coming from weakness internally versus limits on what Chinese manufacturers can buy given export controls.
Yeah, so maybe first a step back. If you look at China. You know we just talked about AI, AI is very advanced to me conduct term manufacturing advanced chips. China for a few years now is focusing on what we call mainstream semiconductor. So semiconductor we used to.
Talk about IoT.
You know, all those chips that you have in all the product making those products smarter. That the type of chips China is basically manufacturing today.
One part of.
The reason for that is, of course the restriction that have been applied on EUV as you know, which have prevented China to move to very advanced node. So the focus of China is on mainstream semiconductor. The demand for that has boomed in twenty twenty one twenty two. As a resource, the demand we had in China in twenty
twenty one twenty two has boomed as well. And twenty one twenty two was the time, if you recall, where the demand was extremely high and amer was struggling to deliver tools to everyone.
Therefore we couldn't.
Deliver a large part of the demand in China. Backlog in China grew twenty twenty three. The rest of markets often we got tools we could ship to China, same in twenty twenty four. So the level of business we had with China twenty three twenty four was more of a resource of the non deliver capacity in twenty two twenty one than anything else. And we've always explained that, you know, our quarter at fifty percent of the business in China, almost fifty percent.
This was not normal.
This was a peak resulting from basically a lack of delivery before. The normal business in China is around twenty twenty five percent, and that's the normal demand related to mainstreams. Tom Conductor and I think we're going to go back to those number over time.
But there is something artificial about the way we think about China as a purchaser of equipment like asmls in the sense that many countries around the worlds principally have have have been exerting export controls on the country. Are those controls going to become even more stringent? For example, China is not able to buy your most advanced machines. Is it possible that those restrictions could extend to the DUV level, which is used for more mainstream products.
Yeah.
So if you go back to the root cause, or the the prime motivation of export controlly to us to prevent China to have access to advanced technology, EWE is not in China. By not having you in China, we pretty much stop the ability of China to go beyond the five maybe free anometer note may be able to do a few chips. You may see some of that in the press because of course everyone is watching very carefully. But fundamentally, by not having ev we have placed China.
The regulation have placed China I would say ten to fifteen years behind. When it comes to advanced technology. We always talk about China. We usually forget to mention the fact that while those restrictions have applied on China and V a lot of work has been done with other player and industry Intel, TSMC, Samsung on the most advanced IV technology as we know it today, et.
Cetera, et cetera.
So there's been a lot of work down every single day to continue to widen if you want this technology gap and EVIE is a key element to be able to do advanced technology, you know. I think Intel has proven to the world a few years ago that without ev life was getting impossible. That's also true for China. So this limit part of the activity there.
Based on your interaction, it's the Prime Minister of the Netherlands with the Foreign Ministry, is it your expectation that the restrictions will become even more limiting on China's ability to purchase machinery like asmls.
Well, if you look at the geopolitic landscape, I think it's clear that the United States will continue to apply
pressure on their life for more restriction. Now the question the discussion we have with the Dutch Prime Minister, I would say, the European political leader, because at the end of the day, we are a technology champion company, right, so these other people we have this discussion with, and the question is what is right for the Netherlands, what is right for Europe and as a result, what is
right for SML. So what restriction makes sense when it comes to national security which has been the prime argument, and where does it right because, like I said, a lot of the focus in China today is on mainstream semiconductor and this is very different from you know AI.
So that's the discussion we have. Is think the pressure will.
Continue to be there because you know, if you look at the landscape, that's what it is. But I think that the discussion will get more sophisticated over time, the stake will become higher, and I think that country like the Netherlands, all of Europe where again we belong to, will also more and more start to discuss what makes sense for US?
Does it make sense for the European Union to be to work in such close concert with the US in making it difficult for China to get access to these machines at what stage and do you find yourself wishing that the Dutch government and maybe the EU government would push back harder on some of the restrictions that the US would like you to impose.
Well, I think you know, as a European citizen right Dutch, I would say residents, not citizens, as you know. I like to know that they do what is right for Europe and for the Netherland. I think that's the most important things we have always said in SML.
We don't make the law. I'm not a politician. I don't know half of.
What they know, of course, and they may be good reason to restrict and if there is a good reason to do so, and our government believe that, then we will go with it.
Of course.
I think what's very important is to have the discussion with them so that they understand what we do, maybe understand the industry bit better, and they are better equipped to really decide what is good again overhaul the for your European countries and for the Netherlands.
Done your interaction with your customers in China and globally, is it your perception that the motivations for export controls are truly about national security interests and regional security interests versus economic competition. In other words, how much do you think this is about keeping China from becoming economically more competitive with the rest of the world versus these are legitimate security threats.
Yeah, so Tom, I could almost turn you back to question right. You almost have a rectory question I see in here, and what you see happening is more and more people asking themselves this exact question. And if you look at the press, I think there is a real debate happening. That's one of the debate easy treaty about national security. We know that there is, of course a strong economic competition between the US, Europe, China.
We see it everywhere.
People question how much of that as a play in the decision. The other debate you start to see, which is I think is also related is does it help us or does it hurt us? I think a lot of companies in the US that start to also question is that a good thing for us? And I think that's the key debate to have, because, like I said, I think at the end of the day, we need our governments to do the right thing for their people,
and I think those debate are far more. I say that active far more lively than they were two years ago, and I think it's very good.
I think it's very good.
Because most probably these bring us to what I would call a more rational discussion and a more balanced set of decision moving forward. So I think we can only welcome debate in such complicated issues.
Thank you. I want to talk a little bit more. Let's bring things a little bit more local to the Netherlands.
Where ASML has discussed with the Dutch cabinet it wants to operate successfully in the country. Your predecessor Wennex said, if the Netherlands shuts down and we cannot get immigrants or foreign students, then fine, you should accept the consequences. Now, the Dutch government, to its credit, has set up a task force said it will spend billions of euros in
the Einhoven region to keep ASML at home. My question is is that enough, particularly in a world where there is a coalition led by a far right lawmaker that's looking to implement the strictest ever anti immigration policies. The cabinets working on areas to restrict labor migration. You are dependent on labor from not just domestic but around the world. How concerned are you about the forces at work bringing this anti immigrant rhetoric and policy to the Dutch government.
Yeah so here also, maybe if you take a bit of airs step back, think that this is almost an issue for Europe. What you describe as it's happening in Netherlands, it's happening in many countries.
As we speak. It's happening in the US, it's happening in the US.
And what we try to do again in our discussion with our government, every government wants to have company like ASML in Europe, in the Netherlands, right, anyone wants that.
The more the better.
But to be able to have company like this, you need a few things. You need to have access to capital, access to people, access to energy, you need to have a place to build your factory. All those conditions have to be there. And if you want to compete with other country China, the US, whatever, not only you need to have those conditions, but those conditions has to be as good as possible so that you can be competitive. Because this industry is extremely competitive and no one should
ever take any success for granted. Right, of course, the story of SML is great, but it's only great after forty years of very hard walk and this is you know, something you have to preserve, so we need all those conditions to be there. I think, you know, the Drage report was also a good way to summarize what the entire industry in Europe think and our government have to work on that. And you know, of course there's a bit of you know, immigration is a bit of a topic.
Of the day because that's a way to get people attention.
And I think what we have said is we have built our company with one hundred more than one of the nationalities. So bringing tenants from everywhere has been an absolute condition for success and this has to continue. The good news is that you said, I think people are listening. Okay, maybe when you know, you get down to business, people are more reasonable that maybe when they run a campaign or try to get elected.
Does it make sense for ASML to consider locating or relocating some operations outside of the Netherlands as at least a contingency measure to ensure that you have access to those ingredients that you mentioned that over forty years have made ASML a great company.
So the treashold to do that is pretty high for us because we are developing extremely sophisticated machines. Technology in fact is a combination of many many technologies that we have to bring together. Our supply chain is eighty percent of it around the Netherland, Germany, in Netherland, France, Italy very close our engineer our R and D is now, of course almost fully in the Netherlands. We have RNDY center also in the US, but I would say the
large part of it is in the Netherlands. And one very important things because of the complexity of our tools, we want to keep our research developments very close to our manufacturing center.
Because what you may not.
Realize is every two years we make a new step on our machines, so we have to improve them every couple of years like our customer. And it's meant that every two years we build new machine and we have to teach our manufacturing people very quickly to be able to build a new machine. So there's been a long lasting principle in ICML that we want to keep R and D and manufacturing together, and we like to do that in the Netherlands because this is where we are.
So the threashold to change that ethic is very high and I would say new things like geopolitics give us even more reason to stay in the Netherlands so that we can build this very strong relationship with Dutch government, with the European countries around us to also get the support of those government activity.
So it's not really being considered now to maybe locate some operations elsewhere.
We have operation elsewhere further, but we will only grow dose operation based on the activity we have in the different countries. But we don't at all consider to move a large part of our operation outside of the Netland, not at all.
European Union has a multi tens of billions of dollars plan to expand local manufacturing capacity, with a goal of doubling output from the region to twenty percent of the global market by twenty thirty In your estimation, is this a realistic expectation and what are some of the hurdles that the region needs to overcome. This is the idea of increasing the region's capacity to be a bigger producer of global of chips to the global market.
Yeah, so I think it's very simple.
If you want to achieve this kind of target, you have to build capacity. If we look at, for example, where we ship our system today, most of our systems, eighty percent of our system are still being shipped to Asia, so Asia remains at least for quite.
A few years.
I would say that the key manufacturing place for semiconductor. To get to thirty percent share of the output, you have to take more than thirty percent of the tool that are going to be shipped. We don't see that yet, so I think that mostly the progress is not as fast as some people hope. I think you have also heard, of course, some major delay right in some of the factory in the US. So this is pointing to most
probably a slower execution. But you know, you only can start to believe the target would be achieved when the capacity build is exceeding thirty percent of the total worldwide capacity, which is not the case yet.
In our introduction, Caroline reminded us that we have an election in the US in a couple of weeks.
You might have heard about.
It, do you.
It's very close so far in the polls.
Would you expect conditions for the global chip making world to become better under one candidate versus the other in the US?
Well, you know there's a lot of yeah, of course, like anyone else. You know, I followed the election in the US and you can see a lot of polarization. I think in the debates there's one topic that still is I would say shared by both side in the US. It's China. That's one I think one m of agreement. So we don't expect major changes there. We expect the pressure on export called hol in China to remain. To tell you exactly how this will play out, I really don't know.
To be an SSEC.
Do you think it'll be ratcheted up? Do you think that pressure will be you talked about it's going to remain. Do you expect it to be ratcheted up?
I think you know. I told you the pressure will be there after. I don't know. It's speculation.
If you know one a candidate may may want to do more than the other. I don't know, but like I said that most probably will not come.
Without a debate.
And I think that you know, this is what we've seen happening now for for a few months.
But we'll see.
At Bloomberg Tech, we like to talk about new products.
You've got a new one coming out high NAUV. We showed an image of it earlier three hundred and eighty million dollars one of our sizes and the scopes. It's the it's the size of a bus or a size of a small Amsterdam flat. Some of Amasmhal's customers have raised concerns about the price tag.
One SVP and.
A major customer said, I like the high naeuv's capability, I don't like the sticker price. What's your what are you concerned that the price tag could affect demand for it? And I'm asking this as someone who has about one hundred percent market sharing it, so I understand no.
So you know, I had the question many many times in the last few months, and I always gave the simple answer. We never build a product in SML with the idea that the new product would be more expensive than the previous one. Of course the price is higher, but the price of all our product has been higher over time, and the reason for that is that the
value they bring is even higher. So I think the reason why we make ANA is basically to enable Summer to look at new design, so to create more flexibility to look at the ability to go down another two, three, four nodes, which for this industry at the end of the day is the highest value we can ever generate.
You know, someone customer to me.
You know, AI can happen today because we have this free and anometer node. We couldn't do AI with a previous note because this would have been too expensive, This would have been too much energy consumption. And in fact, for AI to really span out in all applications like we all dream of, there will be a need of another two free notes to make sure that the cause goes down, to make sure that the energic consumption goes down.
I NA is going to contribute to that. You know, what we dream of in CML for the next five ten years is going to contribute to that. And the value of i NA is to continue to enable more slow to go with of course nowadays a bunch of other technology, but this is huge value.
You know.
It's also discussing with Caroline to say, you know AI is coming. It came, you know, like it's a big bang, right, and we know that as long as we continue to drive the industry, there will be another big bang at some point which no one can even start to dream off.
But this has been the story of this industry and this is what INNA is going to contribute to all right, so customer will adopt INNA when the value of it is right, and they will continue to use all the other lithography product of course, at the same time, my.
Last question for you before I let you go, we saw during the pandemic the what can happen when we lose control over the supply chain. Do you feel like it's it would be necessary for ASML to somehow use its cash pile to do more to gain control over the supply chain, have a little bit more power and decision making, whether that would be making acquisitions or increasing stake in one of your suppliers such as seis.
Yeah.
So it's a very good question, by the way, because we said the market is going to be a bit less than we expected in twenty five. At the same time, we are continuing to build the capability we were missing in twenty twenty two. So that part SML has not stop because it takes time to do that, and we have, of course had those discussions with our suppliers. Most of our suppliers are partners. Zeice is a true partner. They understand our industry how much as we do. We call
a relationship with Zice two company one business. I mean, the business is the same and we still have a bit our different ways to do things.
What I'm trying to say is that.
For most of our supplier we have a very strong alignment to make sure that we can meet the supply challenge of the industry.
Only in very.
Rare exception we are acquiring some of the suppliers. The reason for that is usally, if they cannot scale fast enough, if they cannot invest to the level we need them to invest. Ak Seimer was a good example of that when Simer had to develop UV this was just too much too quickly. Therefore we brought them in. We have
another few examples, but that's the exception. We try to keep the supply chain separated because this allows us, if the deliver as we need to be a lot more agile on our product and with our customers.
So the model is very powerful.
We believe Christoph, thanks for being with us today. Please join me in thanking Hey Smlco.
Christoph fin qu