ASML HOLDING NV (ASML) Q4 2020 Earnings Call Transcript

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ASML HOLDING NV (ASML 1.14%)
Q4 2020 Earnings Call
Jan 20, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. Welcome to the ASML 2020 Fourth Quarter and Full Year Financial Results Conference Call on January 20, 2021. [Operator Instructions]

I would now like to turn the conference call over to Mr. Skip Miller. Please go ahead, sir.

Skip Miller -- Vice President, Investor Relations

Thank you, operator. Welcome everyone. This is Skip Miller, Vice President of Investor Relations at ASML. Joining me today on the call is ASML's CEO, Peter Wennink; and our CFO, Roger Dassen.

The subject of today's call is ASML's 2020 fourth quarter and full year results. The length of this call will be 60 minutes and questions will be taken in the order that they are received. This call is also being broadcast live over the Internet at asml.com. A transcript of management's opening remarks and a replay of the call will be available on our website shortly following the conclusion of this call.

Before we begin, I'd like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of the Federal Securities laws. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation found on our website at asml.com and in ASML's Annual Report on Form 20-F and other documents as filed with the Securities and Exchange Commission.

With that, I'd like to turn the call over to Peter Wennink for a brief introduction.

Peter Wennink -- President and Chief Executive Officer

Thank you, Skip. Welcome everyone, and thank you for joining us for our fourth quarter and full year 2020 results conference call. And I do hope all of you and your families are healthy and safe. But before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the fourth quarter and full year 2020, as well as provide our view on the coming quarters. And Roger will start with the review of our fourth quarter and full year 2020 financial performance, with added comments on our short-term outlook. And I will complete the introduction with some additional comments on the current business environment and on our future business outlook. Roger, if you will?

Roger Dassen -- Executive Vice President and Chief Financial Officer

Thank you, Peter. Welcome everyone. I will first review the fourth quarter and full year financial accomplishments and then provide guidance on the first quarter of 2021. Net sales came in above guidance at EUR4.3 billion, primarily due to additional Deep UV system revenue and upgrade business opportunities. We shipped nine EUV systems and recognized EUR1.1 billion in revenue from eight systems this quarter. One system was shipped with a new configuration that needs to be qualified at customer site as the revenue will be recognized after site acceptance test in early 2021.

Net system sales of EUR3.2 billion was again more weighted toward Logic at 72% with the remaining 28% from Memory. The strength in Logic drives both Deep UV and EUV revenue and the recovery in Memory business is mainly driven by DRAM. Installed Base Management sales for the quarter came in at EUR1.1 billion above guidance, showing continued strength in our service and upgrade business. Gross margin for the quarter was 52% and was above guidance due to the additional Deep UV immersion and upgrade business. On operating expenses, R&D expenses came in at EUR556 million and SG&A expenses at EUR152 million, which was slightly above our guidance. Net income in Q4 was EUR1.4 billion, representing 31.7% of net sales and resulting in an EPS of EUR3.23.

Turning to the balance sheet. We ended the fourth quarter with cash, cash equivalents and short-term investments at a level of EUR7.4 billion, which is significantly higher due to customer down payments and early payments which materialized in 2020.

Moving to the order book. Q4 net system bookings came in at EUR4.2 billion, including EUR1.1 billion for EUV systems, net six, and the very strong Deep UV demand. Order intake was largely driven by Logic with 78% of bookings and Memory the remaining 22%.

For the full year, net sales grew 18% to EUR14 billion. EUV system sales in 2020 was EUR4.5 billion, which is about a 60% increase from last year. On EUV margins, we continue to drive profitability in both the systems as well as the service business. We achieved our 40% system gross margin in 2020 and delivered a positive margin on EUV service. We expect the upward trend for both systems' and services' gross margin to continue in future years. Installed Base Management sales was EUR3.7 billion, which is a 30% increase compared to previous year.

In 2020, we had a total booking of EUR11.3 billion, reflecting customers' strong demand for EUV and Deep UV technology. Deep UV booking value was at a record EUR7.3 billion with demand from both advanced as well as mature modern technologies.

Our R&D spending increased to EUR2.2 billion in 2020. While we continue to invest in Deep UV and Applications' product innovation, the increase was primarily driven by the acceleration of our EUV roadmap both low and High-NA. Overall, R&D investments as a percentage of 2020 sales was about 16%, SG&A was about 4% of sales.

Net income for the full year was EUR3.6 billion, resulting in 25.4% of net sales and an EPS of EUR8.49.

Improvements in working capital contributed to a free cash flow generation of EUR3.6 billion as we continue to invest capex in support of our roadmap and planned capacity ramp. Excess cash will be returned as per our policy.

With that, I would like to turn to our expectations for the first quarter of 2021. We expect Q1 total net sales of between EUR3.9 billion and EUR4.1 billion, which is a very strong start of the year and a reflection of the current market demand. We expect our Q1 Installed Base Management sales to be around EUR950 million. Gross margin for Q1 is expected to be between 50% and 51%. The expected R&D expenses for Q1 are EUR620 million and SG&A is expected to come in at EUR165 million, reflecting a continued investment in the future growth of the company. The higher R&D is to support roadmap plans to drive further innovation of our EUV, Deep UV and Apps products. The SG&A increase is driven by higher IT, security costs and general organizational growth. These quarterly run rates are a good indicator for the expected full year operating expenses. Our estimated 2021 annualized effective tax rate is expected to be between 14% and 15%.

Regarding our capital return, ASML paid total dividends of EUR1.1 billion in 2020, made up of the 2019 final dividend and 2020 interim dividend. ASML intends to declare a total dividend with respect to 2020 of EUR2.75 per ordinary share. Recognizing the interim dividend of EUR1.20 per ordinary share paid in November 20, this leads to a final dividend proposal to the General Meeting of EUR1.55 per ordinary share. This is a 15% increase compared to the 2019 dividend. The 2021 Annual General Meeting of Shareholders will take place on April 29, 2021 in Veldhoven.

Through December 31, 2020, ASML acquired 3.9 million shares under the 2020 through 2022 program for a total amount of EUR1.2 billion. Given our strong cash position and positive outlook, we expect to execute a significant share buyback in Q1 2021.

With that I'd like to turn the call back over to Peter.

Peter Wennink -- President and Chief Executive Officer

Thank you, Roger. As Roger has highlighted, we had a very strong quarter resulting in another solid year of growth in both sales and profitability, driven by strong Logic, recovering Memory demand and a significant step up in our Installed Base revenue. We were able to achieve an 18% top line growth and 37% growth in profitability despite some unique challenges with having to continue to run our business through the pandemic. I think this all thanks to our employees and partners who have done a remarkable job executing in this challenging environment. However, we continue to remain vigilant as this COVID-19 induced crisis is not behind us yet. Following a strong 2020, we currently expect another year of good growth in revenue and profitability in 2021.

In Logic, we expect another very healthy year driven by a further broadening of the application space, fueled by the global digital transition. Customers continue to see strong demand for advanced nodes, which includes the secular growth drivers such as 5G, AI and HPC. And in addition and also driven by the digital transformation, we are seeing a strengthening demand for the more mature nodes, across a wide variety of markets such as consumer, automotive and industrial. While we are still very early on in the year, we think that with these demand drivers on full throttle for advanced as well as mature nodes, we expect Logic revenue to be up at least 10% from an already very high number of EUR7.4 billion in 2020.

In Memory, customers have indicated that inventory levels continue to come down and expect a further tightening of supply throughout the year. As is the case with Logic, the digital transformation is also fueling memory demand across a broadening application space. Customers continue to see healthy demand in data centers with increasing memory content in consumer electronics. With customers indicating stronger bit growth this year for DRAM around 20% and for 3D-NAND around 30% to 35%, and taking into account lithography tool utilization already at high levels, we expect the recovery in lithography demand for memory to continue this -- through this year. Therefore, we expect Memory revenue to be up around 20% this year from EUR2.9 billion in 2020. Although DRAM primarily uses Deep UV technology today, we do expect our EUV shipments to DRAM customers to increase in the coming years.

On our Installed Base revenue -- sorry, Installed Base business, service revenue will continue to scale with the growing installed base. We expect an increase in contribution from EUV service revenue as these systems run more and more wafers in volume production. Customers will continue to utilize upgrades to increase capacity and improve imaging and overlay performance required on future nodes. With this continued growth in both service and upgrade business this year, we expect Installed Base revenue to be up around 10% this year from EUR3.7 billion in 2020.

All in all, we started the year with robust demand across the entire industry and across all geographical regions. This should bode well for a double-digit upside from our 2020 revenue numbers. We feel comfortable with the levels of potential growth expectation per business segment, but clearly see potential upside to these numbers where we can disregard any further impact of export control regulations resulting from the current geopolitical situation.

I would now like to update you on our products and businesses starting with EUV. EUV is making strong progress and continues to mature as we execute our roadmap and grow our Logic and DRAM business. As Roger mentioned, we shipped nine systems and recognized revenue on eight systems in Q4, bringing the total to 31 systems in 2020 with a revenue of EUR4.5 billion for the year. This translates to about 60% growth in EUV systems revenue, reflecting the expanding use of this technology in high volume manufacturing. Based on customers' growing EUV demand in advanced nodes, we currently expect the growth of around 30% over last year, translating to around EUR5.8 billion in EUV system revenue for 2021. We continue to improve the EUV manufacturing cycle time to enable a capacity in our factory to meet the growing EUV demand.

We will continue to drive the EUV 0.33NA product roadmap, which is aligned to our customers' node cadence. Our goal is to deliver value to our customers via performance improvements in imaging, overlay and productivity. As customers continue to shrink on future nodes, the performance improvements of our 0.33NA systems roadmap will also enable cost effective double patterning solutions before customers reach a point where they will require High-NA to reduce process complexity. We are aligning with customers on the roadmap timing of High-NA insertion in volume production, currently estimated to be in the 2025-2026 timeframe. To meet this timeline, we will start integration of the modules this year and plan to have first qualified system in 2022. We plan initial installation of the first systems at customer site in 2023 and plan to provide a more detailed update on our High-NA program during our Investor Day this year.

In our Deep UV business, we are focused on meeting our customers' increasing demand for all of our Deep UV products by maximizing factory capacity, reducing installation cycle time and optimizing performance of our systems in the field. As we mentioned earlier, the application space for Logic is expanding rapidly, which also has an effect on the demand for Deep UV products across our entire product offering. The demand has actually been stronger than we anticipated some years ago, which means that we have increased our investments in R&D to provide our customers with ever more powerful and productive litho machines to help them deal with the increasing demand and lower cost per chip challenges. Our Deep UV R&D plan, therefore, includes significant program to bring Deep UV to our -- from our XT platform onto the NXT platform, thereby seriously boosting productivity and lithographic performance such as CD and overlay.

In our Applications business, we had a record year for YieldStar shipments and shipped the first YieldStar 385 to a customer in Q4. The YieldStar 385 offers the latest overlay of focus metrology with enhanced throughput and accuracy to meet customers' future node requirements. We also shipped an additional two eScan1000 Multibeam systems in Q4, bringing the total number of shipments in 2020 to three. And with nine beams and high-speed stage technology, these systems provide up to 600% higher productivity than single beam systems.

In summary, 2020 was another great year, despite the challenges presented by the pandemic. For 2021, taking into account that we are coming off a higher 2020 revenue base, we still expect a year of double-digit growth. This is driven by strong demand in Logic and continued recovery in Memory with potential upside to these numbers where we can disregard any further impact of export control regulations. The build out of the digital infrastructure across multiple markets drives demand for both advanced as well as mature process nodes. This is expected to fuel demand across our entire product portfolio. Although there are, of course, still some near-term macro and geopolitical uncertainties, the long-term demand drivers only increase our confidence in our future growth outlook toward 2025.

And with that we would be happy to take your questions.

Skip Miller -- Vice President, Investor Relations

Thank you, Roger and Peter. The operator will instruct you momentarily on the protocol for the Q&A session. Beforehand, I would like to ask, kindly limit yourself to one question with one short follow-up if necessary. This will allow us to get to as many callers as possible. Now, operator, could we have your final instructions and then the first question please.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] The first question is from Mr. Joe Quatrochi. Please state your company name followed by your question.

Joe Quatrochi -- Wells Fargo -- Analyst

Yes. Thanks. It's Wells Fargo. I was hoping to get some color on your Memory business and the demand you're seeing there. I think last quarter you had talked about 30% growth for this year for Memory revenue, but you came in a little bit below that. So I guess did something change there? And then, how do we think about that follow through to that into 2021?

Roger Dassen -- Executive Vice President and Chief Financial Officer

Thanks, Joe. No, I don't think anything really materially changed there. In fact, the fact that we kind of missed the 30% was in essence the reallocation of a few tools from Memory into Logic that are really had to deal with, where do the tools go by the end of the quarter, so really as a spread over Q4 versus Q1. So not a systemic reason. The momentum that we saw building up in Memory in the course of last year, we think is continuing. And that has to do with the things that Peter talked about, we see the bit growth, the bit growth developments, the 20% for DRAM, 35% for NAND. And of course, that's driven by demand in data centers. It's driven by what we see in terms of Memory being designed and used in consumer electronics. So we see those underpinnings continue. We also see that the utilization of the lithography tools is at a very, very high level. So the demand -- momentum that we saw already in the second half of 2020, we believe will sustain into 2021. And that's the reason why we again forecast a 20% increase there for 2021.

Joe Quatrochi -- Wells Fargo -- Analyst

That's helpful. And then, as a quick follow-up, in the prepared remarks, you talked about some supply chain limitations potentially on the EUV side that you're seeing. I guess, does that change your expectations for producing 45 to 50 units or your capacity to do that number of units this year?

Peter Wennink -- President and Chief Executive Officer

I think our capacity, our capability internal in the Netherlands, in Veldhoven, to build 50 systems is there in terms of people and square meters. Now we have to build those systems out of modules, which we don't produce. It's in the supply chain. And it's just a reflection of what happened last year in Q2 and Q3 where -- as clearly our key foundry customer came back and said, listen, our key customer for N3 is now blacklisted. So we cannot ship. So we need to adjust our 2021 outlook for EUV systems. Which was followed by another customer and said, well, we're going to delay the roadmap, which also means that this will be pushed back one [Phonetic] year, which actually led to a situation where we actually reduced the number of planned system 2021 for EUV, because customer said these are the two reasons and they were two big customers.

So, what we did, we went to the supply chain and said, sorry, we need those lenses and lasers, very expensive pieces of equipment, we need them actually later. You need to realize that the integral lead time between the installation of an EUV tool and a start of a module production, that is 20 months. So when you at seven, eight months -- then finally customers come to the realization that is not as bad as they've thought and they want those machines, and we have an issue with getting the modules on time and that's the only issue. The only issue is just to resolve, it's a function of the fact that our customers changed their mind in Q2 and Q3 and then rechanged their mind back in Q4 and -- today. There is nothing we can do about it, which actually means that we're all prepared to do 50 units next year, as is in 2022. It will just shift to 2022. So it's -- there -- so as you could say it's supply chain limitations by design, because the customers told us, we don't need them, and then coming back and said, oops! we might have been wrong.

Joe Quatrochi -- Wells Fargo -- Analyst

That's helpful. Thank you.

Operator

Next question is from Mr. Alex Duval. Please state your company name followed by your question.

Alex Duval -- Goldman Sachs -- Analyst

Yes. Hi. It's Alex from Goldman Sachs. And congratulations on the very strong results. Quick question on the capex spending backdrop and how that feeds into your guidance. Obviously, TSMC is a very large capex spender. They guided over 30% capex growth this year. Yet, your guidance, although very strong is closer to 12% on revenues. Clearly, you also have other verticals. You also have other customers in the mix. But I wondered if you could give a little bit more color as to any areas where -- at the moment, you're being more prudent on your guidance, but where you could be a bit more positive over time and what you need to see to get more constructive?

Peter Wennink -- President and Chief Executive Officer

Yes. TSMC gave a range, $25 billion to $28 billion. Hey, great. We plan our business based on what they ask us. And as you know, TSMC has been asking us in 2020, on several occasions to ship very different numbers for 2021. So this is -- what I'm saying is, it's in constant flux. So what they are asking us and telling us that they would like from their point of view has a range and we need to be able to respond to that. So I don't think you can draw any direct conclusion from the TSMC capex numbers. Directionally, yes, but not in absolute terms.

Now having said that, I also said that I do believe that we see upsides to your calculated 12%. And as I've said, it's clearly there, but I think that upside that comes out of the Logic space in China. And of course, that will happen if the current export control regulations stay as is. Now, you could argue with me, so why do you -- why you're so conservative? Well, simply because what we've seen over the last two months in terms of regulations that we had to deal with and that basically were issued rather suddenly there is a level of conservatism at -- on our side. I said we're not going to add that upside yet to your 12%, because we've been -- I would got hurt, but I mean, we've been surprised on a regular basis by all these new regulations that do have an impact on our business. So nothing changes and stays as is. There is a significant upside to what we told you today. But then everything needs to say as is. And I think we've made it clear in our prepared remarks.

Alex Duval -- Goldman Sachs -- Analyst

All right. Many thanks.

Operator

Next question is from Mr. Mehdi Hosseini. Please state your company name followed by your question.

Mehdi Hosseini -- Susquehanna -- Analyst

Thank you. It's Mehdi Hosseini from Susquehanna International. Two questions. Peter, when you look in the longer term, looking at 3 nanometer transition, I understand opportunities in the near term. But I want to hear more about what you're thinking as we migrate to the second generation of N3? And I want to better understand how change of transistor architecture like Samsung migrate into gate-all-around? And also introduction of High-NA is going to impact your overall system shipment? And I'm putting this in the context of what happened in -- during 2014 through 2016, when we migrated from planar transistor to FinFET. And there were some slowdown. And I want to see if you see the same kind of pattern happening? And I have a follow-up.

Peter Wennink -- President and Chief Executive Officer

Yes. I'll follow-up all the four questions. So on the transistor architecture, yes, I think what we know today on the patenting side and especially, I would say, on the geometric side, I don't think it has a major impact. That's not what we expect. So whether it's the FinFET or gate-all-around, it is in the 3 nanometer realm and customers need that lithography capability. And it's an architectural choice as you pointed out. We don't think it has a major impact on our business.

The longer term 3 nanometer transition, I think you were probably referring to the transistor architecture change. We'll just have to see how that pans out. An architecture change, even when we had FinFET, you also know that wasn't completely flawless, because it is new. And if there is a slowdown, it's -- probably could be a slowdown because the technology is indeed new and that the ramp is potentially slower where it's a speculation at this moment in time.

From a, let's say, lithography point of view, there's not much difference. How does that impact High-NA system shipments? Well, High-NA is not slated for the entry node. It starts to be used at N2 and N2 plus -- I would say, N2 plus, and N1 and beyond. So for a 3 nanometer node, it doesn't have a major impact. There is no...

Mehdi Hosseini -- Susquehanna -- Analyst

I have a very short follow-up. China as a mix of your overall revenue has been going up 12% in '19, 17% in 2020. How do you see that trend in '21? And I understand this could be a source of upside, but what is your current projection?

Peter Wennink -- President and Chief Executive Officer

Yes. I think, what we see -- we see that trend keep going up. It has to do with the fact that there is a significant amount of investment planned in China, Memory and Logic. In our -- what we gave you in terms of growth for 2021, 10% Logic, 20% Memory, 10% Installed Base, our assumption there is that the indigenous Chinese business has about the same euro level. But it's a different type of customer. As we told you also three months ago that we expect 2021 the China business to grow, but largely in Memory, so it's in 3D NAND and in DRAM. Those are the big drivers. And that's in, what I would call -- what we gauge you to calculate and so many calculated to a 12% growth number.

On top of that there is a significant upside in Logic. And how big can that be? It's significant. But like I said, we are conservative company. We've experienced the unpredictability of the legislation over the last couple of months. We don't want to put that into your forecast right now, but when things don't change and stay as it is, there is some significant Logic upside in China.

Mehdi Hosseini -- Susquehanna -- Analyst

Thank you.

Operator

Next question is from Mr. C.J. Muse. Please state your company name followed by your question.

C.J. Muse -- Evercore ISI -- Analyst

Yes, hi. Thank you. Good morning, good afternoon. C.J. with Evercore ISI. First question on gross margins. You gave a pretty solid outlook for the March quarter. And as we move into the second half of the year, you're going to start shipping DUV tools, I would assume. The Installed Base would start to come upward and EUV [Technical Issues]. So how should we think about the trajectory of gross margins? And is 52% plus or minus doable for the full year now?

Roger Dassen -- Executive Vice President and Chief Financial Officer

Thank you, C.J. So you might recall in the last call, in the Q3 call that we had, we talked about a bandwidth for the year between 48% and 50%. We also reminded people at that stage that in comparison to 2019, we also started the year with a 1% negative as far as that is concerned on the High-NA. So that was one of the reasons why before doing your bridge between 2019 and 2020, you first need to dug that 1% out there. I think bearing that in mind, but also bearing in mind how sales seems to be firming up in this year, my expectation would be that we're going to see gross margin trend toward the upper limit of the bandwidth. So the bandwidth, the 48% to 50% that I gave in Q3, my current expectation based on the composition of sales would be that that's going to trend up toward the upper limit of that bandwidth.

C.J. Muse -- Evercore ISI -- Analyst

Okay. That's helpful. And then I guess a quick follow-up on a prior question around EUV supply constraints. It looks like implied planned revenue units is 40. Your backlog is 42. Curious if you think your supply chain can offer any upside to that 40? And then if not, what does that tell you around EUV tool demand in '22? And do you need to start thinking about having sufficient capacity above 50 units?

Peter Wennink -- President and Chief Executive Officer

Yes. Okay. Good question. Of course, we'll push the supply chain, and -- but don't expect miracles there. I mean, If you get -- at the end of the year, you get one or two tools extra, they're fine. But it is not going to give you five or 10 tools extra. It's simply not possible. So, what actually means is that the demand that we cannot fulfill this year, we will fulfill next year. And your point on the 50 capacity, I think it's sufficient. The 50 capacity has to do with the fact that although customers are buying units, they're buying basically wafer capacity. And don't forget we have a higher productivity tool coming out, the 3600D in the second half of this year, which has 15% higher productivity. So with 2022 only being Ds, you already get a 15% higher wafer capacity out there. So with the 50 that we feel comfortable with. Also from a supply chain point of view, we will be able to manage that for next year. And the 15% higher productivity on the tools compared to the C, you actually see that we have quite some -- we have ample opportunity to help our customers build wafer capacity. So I think it's enough.

C.J. Muse -- Evercore ISI -- Analyst

Thank you.

Operator

Next question is from Mr. Adithya Metuku. Please state your company name followed by your questions.

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Yes. Good afternoon, guys. It's Bank of America. So my first question is just on your IDM customers. There's been a lot of discussion around whether the foundries including something from them or whether they're not. I just wonder if you could give us some color on what you've factored in into your fiscal year '21 outlook from your IDM customers? And secondly -- I have a follow-up. So if you could -- if you can answer that, I'll come to the follow-up.

Peter Wennink -- President and Chief Executive Officer

Yes. We're not going to be specific on any customer as you can imagine because of the fact that we only have very few. So the issue is that when we look at 2021, two things are impacting our shipment scheduled to our leading-edge customers is, one is what you referred to is effectively -- has there been a transition from tools that we already planned for customer A potentially to customer B and C? I think, yes, that has happened. But on top of that I think there is the increased demand for advanced nodes. So it's the combination of the two that actually caters for maximizing the shipments out of our shipment capability. And it's the redistribution that has happened. So, yes, I think we are -- that's been sold out for this year. But perhaps with one or two upsides referring to the previous question. But I think no impact on this foreseen in our 2021 numbers.

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Understood. And just as a follow-up. Just on the metrology side, I just wondered if you could give us some color on how you're thinking about revenues in metrology in fiscal year '21?

Peter Wennink -- President and Chief Executive Officer

Yes. I think you're probably referring to the Multibeam tools, yes?

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Yes.

Peter Wennink -- President and Chief Executive Officer

Yes. I think those tools, three have been shift to R&D centers. They need to be qualified. So that is going to be the key decision points. So customers are putting them into their metrology architecture and basically needs to be qualified with -- there is no allowing to do by itself, but it's, of course, the software that actually drives the tools. So when that's done, we will recognize revenue. That's how it works. So it's this year for those three tools. Sorry?

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Understood. I just meant if you could give us some color around the growth in that bit given this Multibeam ship -- tools in our shipping if possible?

Peter Wennink -- President and Chief Executive Officer

So, what we are -- what we expect for 2021 is that we will have positive evaluations. And those positive evaluation will be followed by orders. So orders for HVM shipments. When that will happen? It's still a bit unclear, because it depends on where we get the sign offs. But we could be able to -- we expect sign off in the first half of 2021, so this year. Then we could see orders for shipment toward the end of 2022. But I think -- sorry, end of 2021. But I think that we would see an acceleration of that in the year 2022. So I think 2021 will be characterized by the qualification and the decision of the customers to put Multibeam tools in their metrology strategy, which then will probably lead to first shipments toward the end of this year, and then accelerating in 2022.

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Understood. Thank you.

Operator

Next question is from Mr. Sandeep Deshpande. Please state your company name followed by your question.

Sandeep Deshpande -- JP Morgan -- Analyst

Yes. Hi. JP Morgan. I'd like to just go back to that question on the Memory market. You had guided to 30% growth last year. You did around 20%. This year you're guiding to 20% growth. There is also the added -- there is going to be the shift to EUV based DRAM at some point end of this year or into '22. So how should we be looking at the overall Memory outlook for ASML here? Are we going to see an even more accelerated outlook because of what we saw last year in terms of what you reported? Or is this that it just goes along and it's just something shifted and that is why it has happened? And I have one quick follow-up on the EUV Memory.

Peter Wennink -- President and Chief Executive Officer

Yes. I think Memory outlook, it actually is developing the way that we expected and in the way that we told you. You may remember that since the middle of last year, we told you that we see utilization is going up and there will be a point where if we are at the theoretical maximum utilization that our customers will want more capacity, that's actually happening. So now on the -- and I think Roger explained that on 2020, the 30% growth, the only reason why the 30% is -- not 30%, but 20% is because some of those shipments that were earmarked Memory actually went to Logic. Why? Because Logic was on fire, and Memory was getting into fire in '20 and '21. So just the choice of the customers. They're shipping to A but shipping to B, because that's why we have more business. So this was the only reason which actually means that we are seeing Memory is coming in, especially DRAM. We need to distinguish with DRAM and 3D NAND. We don't see as strong as a recovery in 3D NAND. You could argue, because we're not that sensitive to it, but we simply don't see it. We see it in DRAM stronger. So this is really a DRAM game in 2021, whereby 20% bit growth, which is the expectation of today simply not -- it's a bit too much to be dealt with in the current Installed Base. That's why we see the orders coming in.

So yes, EUV will be used in DRAM, especially in 1-alpha, but that's going to be limited, as we also mentioned last time. This is not going to be a node on node, let's say, full transition from Deep UV to EUV. Don't forget that EUV has a -- doesn't have a maturity level of Deep UV. So there will be a part of the wafer capacity will be allocated to EUV with a limited number of layers, which will grow over time. We will see the first application of it end of the year and moving into 2022. So it's going to be a gradual adoption of EUV in DRAM.

Sandeep Deshpande -- JP Morgan -- Analyst

Thanks, Peter. I mean just following up on that DRAM and EUV, how do you -- you've had a very strong year last year in Deep UV and even this year looks very good in that technology. Do you expect this even as EUV ramps up in Memory etc in DRAM whenever it does, however slowly it does or however fast, does this level of this baseline effect of Deep UV remain as part of your revenues and that we just add on EUV over time as we've seen over the last couple of years?

Peter Wennink -- President and Chief Executive Officer

Yes. The number of EUV layers will be relatively limited as compared to Logic. So Deep UV will be the bulk of the layers and will stay bulk of the layers, meaning a better lithography performance and productivity. So this is why we have these expensive R&D programs in Deep UV. I think Deep UV, in general, will be a bigger part of our business going forward than we anticipated a few years ago. And it is not only Memory, it's like we said in the prepared remarks, it's very much also the mature markets, whereby 90 nanometer, 65, 45, 28 are all growing in terms of wafer capacity. For the simple reason that there are applications or devices for applications in that technology realm that are basically supporting IoT solutions. And that's a trend that we underestimated a couple of years ago. I think this has been a big driver for our Deep UV business. This was not only Memory, where it will stay strong, it is very much also the broadening application space in Deep UV.

Sandeep Deshpande -- JP Morgan -- Analyst

Thank you very much, Peter.

Peter Wennink -- President and Chief Executive Officer

Next question is from Mr. Pierre Ferragu. Please state your company name followed by your question.

Pierre Ferragu -- New Street Research -- Analyst

Hi. New Street Research. Thanks for taking my question. Peter, a question from you maybe like long side for looking whether it's looking back maybe two, three years ago. So TSMC is going to spend between $25 billion and $28 billion in capex this year and they expect to grow revenues in the back of that in mid-teens, which means to me, that that's a new normal for capex like it's probably going to be a number that keeps growing from here. And I can't imagine a world with that many leading edge Logic chip get into data centers, into PCs, into phones without volumes of DRAM following. And so that's very, very good in the long run for the industry.

Peter Wennink -- President and Chief Executive Officer

Yes.

Pierre Ferragu -- New Street Research -- Analyst

And my question is, first, like in 2025 -- so like two, three years ago, you gave us a 2025 outlook. It's a fairly wide margin. Did that kind of world in which TSMC spend so much in 2021 was a part of your range or does that exceed what you were looking? And then secondly, in -- and then, yes, of course, so my question behind that is your 2025 like kind of guide, do you think there is today a chance we grow in higher range of that range?

Peter Wennink -- President and Chief Executive Officer

You're basically asking me to give you a big review of our Capital Markets Day. But let's take it from a 30,000 feet level. Three years ago, what you're basically asking is, Peter, how do you think about the industry today as compared to three years ago? And my answer is, I more positive for all kinds of reasons. Because like I said, in an answer to a previous question, I did not expect Deep UV to be as strong as it is today and everything that we know talking to our customers will stay strong. That is a -- could call it a surprise, but that's something that we didn't understand well. We understand that better today.

There's another thing that we assumed, as you know, when we talk about -- as a base case or mid-market scenario starting from the 16 nanometer node, we say basically every node has 10% lower wafer capacity. So, minus 10%, minus 10%, minus 10%, so by the time that you are at 5%, you've had almost four times of minus 10% reduction of that wafer capacity needed for that node. That seems very conservative at this moment in time if we listen to our customers. Because as a customer like TSMC doesn't tell us that they are going to spend $25 billion to $28 billion, if they believe that their wafer capacity that they need for those nodes is going to be minus 10%, minus 10%, minus 10%, so they obviously have a -- now different view as to the size of that market. And I think we all understand drivers, perhaps not all, but we understand most of them. So I think all in all, I think there is a different basis for our assessment of where we can be in 2025, 2026 or 2027 for that matter. Yes. And I think it hasn't worsened. I think it has got -- it has gotten better.

Roger Dassen -- Executive Vice President and Chief Financial Officer

Definitely on the Logic side, right?

Peter Wennink -- President and Chief Executive Officer

Definitely on Logic. But also to Pierre's comment, Memory is a derivative of Logic. For Logic, we need all these application and Memory will follow. So yes. Do we have a more positive basic view as to the growth perspective of the industry? Yes, I think we have.

Pierre Ferragu -- New Street Research -- Analyst

Make sense. Thanks for the comments, and I look forward to the next CMD, of course.

Roger Dassen -- Executive Vice President and Chief Financial Officer

And we.

Peter Wennink -- President and Chief Executive Officer

And so do we.

Pierre Ferragu -- New Street Research -- Analyst

Thanks. Bye, guys.

Roger Dassen -- Executive Vice President and Chief Financial Officer

Bye.

Operator

Our next question is from Mr. Krish Sankar. Please state your company name followed by your question.

Krish Sankar -- Cowen -- Analyst

Yes. Hi. It's Krish from Cowen. Thanks for taking my question and congrats on the strong results. First question I have for you, Peter, I think you did answer this question in many ways. So sorry for beating it up again. The upside to calendar '21 numbers, is there a way you can simplify and say, do you think it comes from either Logic or Memory, do you think it comes from DUV or EUV? And then I have a follow-up.

Peter Wennink -- President and Chief Executive Officer

Yes. I think it comes from DUV in Logic.

Krish Sankar -- Cowen -- Analyst

Got it.

Peter Wennink -- President and Chief Executive Officer

That is a very short answer for Peter. That is what it is.

Krish Sankar -- Cowen -- Analyst

Short and sweet. Thanks, Peter. And then a follow-up for Roger. On the EUV service gross margins, two quarters ago in September, you turned positive. Is it fair to assume from here onwards those margins should start keep improving? Because all the 2019 tools coming off warranty keeps adding to the service gross margin?

Roger Dassen -- Executive Vice President and Chief Financial Officer

Yes. Krish, I think that's a fair assumption. So we -- indeed, we did turn positive during Q3. We were positive for the entire year. And as I mentioned also on the video, I believe that within about a four-year timeframe, we should see the EUV service margin sort of approach the corporate gross margin, and that's the trajectory that we're on. And it's a matter of, on the one hand, to your point seeing tools getting out of warranty, seeing tools produce more and more wafers sort of throughput going up and as a result of that the number of wafers and therefore the paper wafer going up for us. On the other hand, us being better able to control the cost. So that's the trajectory that we're on. That's the goal [Indecipherable] and we'll continue to develop toward that goal.

Krish Sankar -- Cowen -- Analyst

Got it. Thanks, Roger. Thanks, Peter.

Operator

Next question is from Mr. Aleksander Peterc. Please state your company name followed by your question.

Aleksander Peterc -- Societe Generale -- Analyst

Yes. Hi. Good afternoon. Thanks for taking the question. This is Alex from Societe Generale. I just have two. One is on, if you could comment a little bit on EUV average selling prices, which were quite firm over the past couple of quarters. So should we expect this firm as going forward as well in the first half? And I suppose you have an uptick in the second half with the new model shipping. So if you could maybe comment on that a little bit? And then just secondly, the R&D to sales is a bit higher than your longer term target. So what point in time -- where you think we should...

Roger Dassen -- Executive Vice President and Chief Financial Officer

R&D to sales.

Peter Wennink -- President and Chief Executive Officer

R&D to sales. Okay.

Aleksander Peterc -- Societe Generale -- Analyst

Yes. R&D intensity, is that going to decline maybe once High-NA is shipping or even before, just to sort of -- in what timeframe that could decline a little bit? Thanks.

Roger Dassen -- Executive Vice President and Chief Financial Officer

Yes. That's fine. So you are right. The ASP this quarter but also in Q3 was a little higher than what you typically have in your models. But it is, as we also explained on Q3, to a -- it is really driven by configuration, so what options are on the tool already when they leave the factory and specific customer requirements. So that's what drives it. And the composition that we have for the EUV sales both in Q3 and Q4 were kind of the richer configurations, as a result of which you saw the -- you saw the higher number in there. On a go forward basis for the 3600D, I think we mentioned there that you should look at mid-teens in terms of increase over the ASP for -- in comparison to the C model.

In terms of your question on R&D, you are right, I think R&D as a percentage of sales is comparable to where we were last year. Actually it's high 15%, approaching 16%. It's a little lower actually than what we had in 2019. As Peter and I already mentioned in the -- in earlier comments, there is so much opportunity that we see in the roadmap and this is both low NA, High-NA. But also -- Peter made reference to that, a number of developments that we're having in terms of Deep UV and the throughput, imaging and overlay potential that we see -- that we still see there, there is a lot of potential that we see. And that's why we keep the -- keep it a little bit higher than the 13% than some of you might have in your mind. That is still clearly the goal for 2025. So we're working our way toward that. But at this stage, we believe the company's value is increased by spending this amount. So I think the approaching 16% that we saw for this year and maybe also for next year would still be appropriate. But then from that point onwards gradually model it toward the 13% for 2025. I think that's the way I would do it.

Peter Wennink -- President and Chief Executive Officer

Yes. And you also need to remember that we do these R&D investments particularly for Deep UV where we have underestimated the size of that market. And also the need for Deep UV tools bringing them onto the NXT platform, which is quite a significant R&D program. But once we do that and we see a significant increase in Deep UV demand, which we think will last. Then we give our customers the capability to actually have a very productive tool with a lower cost per wafer competitiveness, which of course, the higher sales price. So these are investments -- and actually going back to an earlier question on the 2025 model where we're doing things today because we see upside to that model and especially in Deep UV for instance and to give you one example.

Aleksander Peterc -- Societe Generale -- Analyst

Thank you very much.

Operator

Next question is from Mr. David Mulholland. Please state your company name followed by your question.

David Mulholland -- UBS -- Analyst

Hi. It's David from UBS. I just wanted to come back on the change that happened in terms of your plans and your build through the supply chain for this year or for 2021, because my understanding previously was you were willing to essentially bear the cost on your own balance sheet if demand didn't end up breaching the 45 to 50. So I'd love to understand what changed? Because it seems like that's potentially not constraining the outlook for this year. And then secondly on cash flow, very strong quarter obviously in cash generation in Q4. Was there any -- was that all just pure cash coming in the door from customers or was there any sale of receivables like we saw a few years ago?

Peter Wennink -- President and Chief Executive Officer

Well, to answer your first question, David, as you -- you might have to go back to the conference call script, but we never said that we were going to commit ourselves in the supply chain to 45 to 50 units. We -- actually, we said we were not going to do that. We said we are taking -- it was a bit of a buffer above what our customers at that time, the end of Q3, said that they would need for 2021, which is a lower number than we're currently planning to ship. So we did take that buffer into consideration. Can we squeeze out another one or two? Probably. But we never indicated or we never meant to indicate that we would cover our customers for our full capacity. That's not what we said. And this is not what we did. So what we actually -- we're probably ending up somewhere in between, which is good, because if we wouldn't have done that, then there would not be a 30% increase in our Deep UV -- in our EUV planned revenue for this year. We are able to do that because we built this buffer capacity in the supply chain, but not everything.

Roger Dassen -- Executive Vice President and Chief Financial Officer

David, on the free cash, as we mentioned on the previous calls, this is the year where you see two effects in that regards. So on the one hand, you see the effect of extended payments that some customers were entitled to based on all the contracts and you see the effects under the newer contract of down payments that are coming in. And they balance out nicely. Although in Q4, we saw most of the effect of the down payments, and in the earlier quarters, you saw the effect of the standard payments. But for the year, it nicely equal out. So that's in fact what you see. So very, very strong free cash flow in Q4, making up for some of the things in the previous quarters. To your question, is there an anomaly in there, not really an anomaly. Just as we had in previous year, there was some customers choose a factoring solution for some of the payments and some of the down payments, but that...

Peter Wennink -- President and Chief Executive Officer

On their request.

Roger Dassen -- Executive Vice President and Chief Financial Officer

But that's at their discretion and their request, it doesn't impact us whatsoever. But that hasn't really changed, I would say, as a policy from last year. And I think the anomaly if you like that I just talked about, I think it's really something that we had in 2020. For 2021, I would expect a more regular buildup of the free cash flow also over the quarters.

David Mulholland -- UBS -- Analyst

That's great. Thanks very much.

Operator

Next question is from Janardan Menon. Go ahead please. State your company name followed by your question.

Janardan Menon -- Liberum -- Analyst

Hi. Good afternoon. It's Janardan from Liberum. I just wanted to go to your gross margin guidance where you said that you are likely to be hitting the high end of your 48% to 50% range. But since you're doing a midpoint of 50.5% in Q1 and you will have that 3600D shipping in the second half of the year, which is corporate average gross margin which presumably is close to 50%, I'm just wondering what is holding you back from getting to a north of 50% margin for the full year? Is there something specifically in Q2, which could lower that? And also I would put in the mix, presumably, you're DUV shipments are going to be quite strong this year. We should also have a positive effect on that.

Roger Dassen -- Executive Vice President and Chief Financial Officer

Well, first off, we shouldn't forget that there is a very strong improvement over gross margin if you compare it year-on-year, right. So let's not forget that. As I mentioned to you, of the 48.6%, you should start by deducting 1% to get to 47.6%, that's really the starting point for the year. So even if I say that we're approaching the 50%, I think that's a very strong improvement over last year. If you then say what is going to be different in the next quarter to a very large extent, it's mix, right. So in Q1, we have quite some immersion sales, and as you know, immersion has a very strong gross margin. We have more immersion sales in there, relatively speaking, we have relatively low EUV sales in there. So while you're right that the gross margin per tool in the second half on the 3600D is going to be a bit bigger.

I think it's also fair to say that in the second half, we'll see more EUV sales, relatively speaking, than you have in Q1. So in that way, it kind of creates an equilibrium there. I think it's also fair to say when I say approaching the upper limit, approaching the 50%, when Peter talks about potential, the potential over the 15.7%, I think it is fair to say that the potential that we see there, as Peter mentioned, is in Deep UV and in Logic. So that would lead to a further uplift of the gross margin. So the 50% that I was -- I think we're approaching is for the 15.7% indication that we gave or expectation that we articulated in terms of sales. If we're going to see sales uptick, I think there should also be an uptick in the gross margin percentage.

Peter Wennink -- President and Chief Executive Officer

Yes.

Janardan Menon -- Liberum -- Analyst

Understood. Can I just -- quickly follow-up on that. Just on the potential upside for this year that you talked about, you said it's all coming from -- if it does come, it's DUV and from Logic. Is that entirely the China sort of geopolitical upside that you're talking about or is there potential for upside outside of that? And normally when Memory prices are going up, in past cycles, we've seen that the Memory vendor, the DRAM vendors tend to increase their orders as well. If they were to come out with additional DUV orders, Deep UV orders, would you have the capacity to meet that demand? Do you have sufficient buffer there if that were to happen?

Peter Wennink -- President and Chief Executive Officer

Yes. I think we would be able to deal with some of the additional demand in Memory. And you are right. You've been around, Janardan, even longer than I am. So you know how that goes. So, yes, we will be able to do that. How much? It would be difficult this moment in time. It's January 20 we're talking about and we're trying to guess the entire year. So yes, I think we will be able to do that. The upside that we were referring to is Deep UV Logic, that is for the very large part is upside in China, which like I said, if we can ship under the current rules and that upside would materialize, which would have the impact on the top line and on the gross margin, as Roger mentioned. So yes, I think we will be able to do that. So there's some upside on Memory if they would come, and it would be Deep UV to your point.

Janardan Menon -- Liberum -- Analyst

Understood. Thank you very much.

Skip Miller -- Vice President, Investor Relations

All right. Okay. Thank you. We have run out of time. So if you were unable to get through on this call and still have questions, please feel free to contact ASML Investor Relations department with your questions. Before we sign off, I'd like to remind you that -- remind everyone that we are targeting to host our Investor Day on June 23rd this year in London. And we hope we can have a face to face meeting, but of course, this will depend on the progress against the virus. We will provide more details in due time. And we hope you will be able to join us. Now, on behalf of ASML, I would like to thank you all for joining us today. Operator, if you could formally conclude the call, I would appreciate it. Thank you.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Skip Miller -- Vice President, Investor Relations

Peter Wennink -- President and Chief Executive Officer

Roger Dassen -- Executive Vice President and Chief Financial Officer

Joe Quatrochi -- Wells Fargo -- Analyst

Alex Duval -- Goldman Sachs -- Analyst

Mehdi Hosseini -- Susquehanna -- Analyst

C.J. Muse -- Evercore ISI -- Analyst

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Sandeep Deshpande -- JP Morgan -- Analyst

Pierre Ferragu -- New Street Research -- Analyst

Krish Sankar -- Cowen -- Analyst

Aleksander Peterc -- Societe Generale -- Analyst

David Mulholland -- UBS -- Analyst

Janardan Menon -- Liberum -- Analyst

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