Good day, and thank you for standing by. Welcome to the ASM International Q4 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Victor Bareño. Please go ahead.
Thank you, operator. Welcome, everyone. We're joined here today by our CEO, Benjamin Loh, and our CFO, Paul Verhagen. ASMI issued its Q4 2021 results yesterday evening at 6:00 P.M. Central European Time. For those of you who have not yet seen the press release, it is available on our website, asm.com, together with our latest investor presentation. As always, we remind you that this conference call may contain information relating to ASMI's future business and results, in addition to historical information. For more information on the risk factors related to such forward-looking statements, please refer to our company's press releases, reports, and financial statements, which are available on our website. With that, I'll turn the call over to Benjamin Loh, President and CEO of ASMI.
Thank you, Victor, and thanks to everyone for attending our Q4 2021 results conference call. I hope you and your families are all healthy and safe. Let me start with some highlights. With record high sales and bookings, ASMI delivered again a strong performance in the Q4, despite continued challenging supply chain conditions. For the full year, our sales increased by 34% at constant currencies, the fifth consecutive year of double-digit growth. During the year, we further strengthened ASM's position as we continue to invest in the growth of the company. The impact of the pandemic made 2021 an unprecedented year for each of us. I'm proud of our employees, and I want to thank them for their relentless commitment and for everyone's contribution to the strong results in 2021. Next, I'll briefly update you on two announcements.
Earlier this month, we announced that Hichem M'Saad was nominated by the Supervisory Board as a third member of the Management Board, subject to shareholder approval at the upcoming AGM in May. His role as CTO includes responsibility for all products and technology. As most of you probably know, Hichem M'Saad is currently our Executive VP of Global Products, and he has been the driving force behind many of our successful products in the last few years. We also announced that we set up an executive committee that will consist of the Management Board members and four other key executives. The strengthening of our governance structure follows the strong expansion of ASM in the last years and prepares our company for continued strong growth expected for the coming years. The agenda for the rest of today's call is as follows. Paul will review our Q4 and full year financial results.
I will then continue with a discussion of the market trends and the outlook, followed by the Q&A. With that, handing over to you, Paul.
Thank you, Benjamin. In the Q4 of 2021, our revenue increased to EUR 491 million. At constant currencies, this was up 11% from Q3 and 40% from the Q4 of 2020. Revenue came in towards the higher end of our Q4 guidance of EUR 470 million-EUR 500 million, despite tough supply chain conditions during the quarter. By customer segments, revenue was led by Logic, which increased substantially compared to Q3, followed by Foundry and then Memory. Combined, Logic/Foundry revenue was at a record high level in Q4. Equipment sales in Q4 increased 43% year-on-year at constant currencies, led by record high ALD sales. Growth in our spares and services business showed a solid increase of 26% year-on-year, also at constant currencies.
In the Q4, gross margin was 47%, slightly down from 47.2% in the Q3 and up from 45.2% in the Q4 of 2020. SG&A expenses were up 13% sequentially and 31% year-on-year. The increase is explained by a number of factors, including increased headcounts to support growth, related recruitment campaign costs, and higher variable expenses. Net R&D expenses increased 28% sequentially and 31% year-on-year, mainly due to expansion of some lab facilities, higher headcounts, and an increasing number of R&D projects to support growth. As a reminder, we indicated already in our Q3 earnings call that investments in SG&A, and especially R&D in the first half were below our target and that we had to step up spending.
In Q4, the operating profit was positively impacted by EUR 4 million in other income, which is related to a gain on the disposal of property. In total, operating results increased nearly 70% year-on-year to EUR 131 million in Q4. Below the operating line, results include a currency translation gain of EUR 7 million compared to EUR 13 million in the Q3 , and a loss of EUR 16 million in Q4 of 2020. As we discussed at earlier occasions, we hold the largest part of our cash in US dollars, and the currency translation differences are included in our results. Let's now have a closer look at ASMPT. Normalized results from investments which reflect our share of the net earnings from ASMPT amounted to EUR 26 million in Q4, about similar to EUR 28 million in Q3 and EUR 27 million in Q4 2020.
ASMPT reported quarterly sales of $796 million, up 44% year-on-year, and above ASMPT's guidance. Q4 bookings amounted to $674 million, up 25% year-on-year. For the full year 2021, ASMPT sales increased by 49% to $2.8 billion. Now turning back to ASMI's consolidated operations. Our new orders in the Q4 increased strongly to EUR 645 million, up 70% year-on-year. By customer segment, bookings were led by Foundry, which strongly increased compared to the Q3 to a new record high level. Second largest was Logic, somewhat down versus the record high in Q3, but still very strong. Memory was third, with bookings substantially up from Q3 and mainly driven by DRAM. Let's now have a look at the full year results. At slightly over EUR 1.7 billion, net sales in 2021 increased 30% as reported and 34% at constant currencies.
Equipment sales grew by 38% at constant currencies, led by strong growth in our ALD product line, which continued to account for more than half of our equipment revenue, and also by very strong growth in EPI. Spares and services increased by 18% at constant currencies, driven by an increased contribution from our new outcome-based services. In terms of customer segments, revenue for the full year was led by the Foundry segment, followed by Memory and then Logic. Revenue in the combined Logic Foundry segment showed a strong increase and continued to account for the larger part of our sales. Sales in the Memory segment also showed a solid increase in 2021, led by DRAM. Noteworthy was also the performance in the smaller Analog Power and Wafer Maker segments. Although a smaller part of the total, sales increased very strongly in 2021.
Gross margin increased from 47% in 2020 to 47.9% in 2021, well within the midterm target range of 46%-50% that we provided at our Investor Day last year. For the full year, SG&A expenses increased by 20% in absolute terms and decreased as a percentage of revenue from 11.9% - 11% in 2020, to 11%, 11.0% to be precise in 2021, benefiting from operating leverage. The absolute increase was, as just mentioned, in part driven by investments across the board to further strengthen and professionalize the organization to be able to manage the continued strong top-line growth. In 2022, we expect continued investments in SG&A, and as communicated during the Investor Day, looking out to 2025, we expect SG&A to gradually decrease towards a high single-digit percentage of sales. Gross R&D expenses for the full year increased by 20%.
Due to an increase in capitalization and decrease in impairments, the net R&D increased at a more modest pace of 9%. As a percentage of sales, net R&D decreased from 10.5% in 2020 to 8.7% in 2021. As just mentioned, the increase in R&D spending was below our targets and is lagging behind top-line growth. In 2022, we aim for an acceleration in R&D spending. In the midterm, we still expect net R&D to be in the range of high single digit to low teens percentage of sales. Operating profit for the year increased strongly by 50%, with the operating margin improving from 24.6%- 28.4%. Effective tax rate for the full year increased from 14.6% - 17.2%, in line with our earlier forecast of a high teens percentage. We continue to expect that the tax will further increase to a low 20s percentage in the coming years.
An important reason for this increase in the tax rate is the full utilization of earlier net operating losses, of which we benefited in prior years. Normalized net earnings increased by 70% to EUR 507 million, so slightly north of EUR 500 m illion . Now turning to the balance sheet. We ended the quarter with a solid cash position of EUR 492 million, down from EUR 525 million at the end of Q3, but up from EUR 435 million at the end of 2020. For the full year, free cash flow more than doubled to EUR 266 million compared to EUR 120 million in 2020. The key driver behind the increase was a strong increase in profitability. This was in part offset by the increase in cash spent on taxes of EUR 152 million in 2021.
This increase in tax payment is driven by a combination of factors. As just explained, the tax rate has increased and combined with a strong improvement in profitability, which resulted in higher taxes paid. Also in 2021, we paid cash taxes in the Netherlands for both 2019 and 2020, as well as the estimated preliminary tax for 2021. This is explained by the fact that we only moved to a tax paying position in the Netherlands in 2019, and the Dutch government offered the possibility to postpone tax payments in 2020 due to COVID uncertainty. To working capital.
The days of working capital increased from 55 at the end of Q3 to 58 at the end of Q4, but decreased compared to 63 days at the end of Q4 2020. Within working capital, accounts receivables went up, which is mainly explained by the fact that sales in the Q4 was heavily back-end loaded, mainly due to supply chain constraints within that quarter. CapEx came in at EUR 79 million and was for a larger part related to the expansion and upgrading of R&D labs, as we already mentioned in previous quarters. These investments will continue in 2022. Due to COVID, some investments were delayed and will carry over into 2022.
Therefore, CapEx in 2022 will likely be towards the higher end of the range of EUR 60 million-EUR 100 million that we target for annual CapEx. In terms of shareholder remuneration, we returned EUR 237 million cash in 2021, of which EUR 140 million in share buybacks and EUR 97 million through dividends. We will propose a dividend of EUR 2.50 per share to be paid over 2021, up 25% from previous year's dividends. In addition, with our press release last evening, we announced a new EUR 100 million share buyback program. With that, I hand the call back over to Benjamin.
Thank you, Paul. Let's now look in more details at the trends in our markets. 2021 was a strong year for our industry. The pandemic accelerated digitalization trends and the continuing build-out of IT infrastructure, for which semiconductors provide key building blocks. Combined with a rebound in the global economy, the semiconductor market increased by 24%, exceeding a level of $500 billion for the first time. The WFE, Wafer Fab Equipment market, increased by a mid- to high-30s% last year. The Logic/Foundry segment showed a strong increase and continued to be the key driver for our sales. Our customers added substantial capacity in the leading edge nodes to address increasing demand in areas such as 5G smartphones and high-end computing.
We also saw the first meaningful bookings in the second half of 2021 for the upcoming node transition, which for most of our key Logic/Foundry customers, is expected to go into high volume manufacturing in the second half of 2022 and into 2023. Our memory sales also expanded last year, supported by healthy spending trends and further growth in our high-k applications in the DRAM segment. The growth in WFE spending on the trailing edge nodes was also worth noting in 2021. While we derive the largest part of our sales from the leading nodes, we have a number of solid positions in niche markets in the trailing edge, particularly in the power Analog Power and Wafer Maker segments. Analog Power demand, which has relatively higher exposure to the automotive and industrial markets, rebounded strongly in 2021, following the drop in 2020.
Following the record high level in Q3, our bookings in Analog Power remained very strong in Q4, which supports an expected solid revenue increase in this segment in the first half of 2022. The surge in semiconductor and equipment demand has been outstripping supply, and coupled with the impact of COVID, created shortages and constraints. Looking at our manufacturing capacity, we are in a relatively good spot, as we already discussed in previous quarters, as we have the advantage of our new and expanded manufacturing facility in Singapore that we completed at the end of 2020. Using the first manufacturing floor, we have been steadily increasing headcount and ramping output in the course of last year. We have also started work on our second manufacturing floor, as announced previously, and we still expect this to be production ready early 2023.
In terms of the supply chain, conditions remained challenging in the Q4, as we already projected in our last earnings call. The lockdown-related restrictions in Southeast Asia that still impacted our suppliers in Q3, eased in Q4. At the same time, supply became tighter for certain chips and electrical components, and not only for our direct suppliers, but also deeper into the supply chain. In Q4, supply chain constraints again impacted our business, but we were still able to achieve record shipments with sales towards the higher end of our guidance. This was thanks to, again, an excellent job of our global operations team in close collaboration with our suppliers and customers. We expect the supply chain situation to remain tight in the first half of the year.
We stay focused on meeting our customers' requirements and on mitigating supply chain risks, for instance, by early ordering and by the qualification of additional suppliers. We expect our sales to further increase in both Q1 and Q2. In terms of products, 2021 was again a successful year for our ALD business. We booked very strong growth and believe we have at least maintained our leading market share. We made strong progress in R&D engagements for future nodes. EPI also showed very strong growth, thanks to increasing adoption in the advanced CMOS market and the rebound in the analog power segments. An important achievement in 2021 was the second customer win for our Intrepid ES tool in the advanced CMOS market for a gate-all-around application. We also launched the new Intrepid ESA last year, addressing 300 millimeter EPI applications in the analog, power, and wafer maker markets.
Traction is strong, and we expect this to be another solid driver for our EPI sales starting in 2022. In PECVD and vertical furnaces, our strategy is to invest selectively. Our high productivity, 200 mm vertical furnace, the A400 DUO, that we introduced in 2019, was very successful in 2021, including several new customer wins in China. Our Spares & Services business also delivered a strong performance, with sales up 18%, as already mentioned by Paul. Key driver is the new outcome-based services that we have been developing over the last couple of years, which create value for our customers by reducing costs and increasing the uptime of our equipment. In 2021, we booked multiple contracts for our Complete Kit Management and spares as a service offerings. Next, I would like to highlight our progress in ESG. In 2021, we accelerated our focus on sustainability.
We announced our net-zero 2035 target last September, and as a first step, we transitioned most of our key sites to renewable energy in 2021. People is another key focus area for us in sustainability. In 2021, we continued to prioritize health and safety. We launched our core values, We Care, We Innovate, We Deliver, and we took further action towards a diverse and inclusive workplace. Moving on to the outlook, ASM has started the year on a strong footing with record high order backlog. WFE spending is expected to increase this year with a mid- to high-teens %, and we expect to outperform WFE in 2022. The strongest growth in WFE this year is expected for the logic/foundry segments, which is also underpinned by our customers' recent CapEx announcements.
Next, to further expansion of capacity for the current leading-edge nodes, we expect spending to increase for the upcoming Logic/Foundry nodes as well. In this transition, we expect a strong double-digit increase in the number of ALD layers, which will drive further share of wallet gains for ASM. We also expect to further strengthen our position in the Memory market this year. Previously, we talked about new ALD applications that we expect to move into production starting in 2022 and 2023. One of these applications that we also discussed in our Investor Day is ALD gap-fill. We have developed strong technology to fill high aspect ratio gaps in a seamless way. In 3D NAND, this is becoming an important requirement with the transition to higher stacks. We have been making good progress and expect a first sales contribution in 2022 and increasing adoption as we progress.
Longer term prospects also remain strong. Data-intensive end market applications such as artificial intelligence and cloud computing will require faster and more power-efficient semiconductors. We have a strong position in advanced deposition technologies that help our customers address the challenges of increased device complexity, 3D structures, and new materials. The transition to gate-all-around is a key example and is expected to drive a $1.2 billion increase in the combined SAM or serviceable available market for our ALD and EPI products by 2025. Supported by the traction in our R&D engagements, we feel confident about the growth forecast that we have provided in our Investor Day, with the ALD market expected to increase at a CAGR of 16%-20% in the midterm and EPI at a CAGR of 13%-18%. In short, prospects are bright and ASM remains well-positioned.
Now let us look at the guidance that we have issued as part of our Q4 press release. Looking at the first half of the year of 2022, supply chain conditions are expected to remain tight. For Q1 on a currency comparable level, we expect revenue of between EUR 500 million-EUR 530 million, with a further steady increase in Q2 revenue compared to Q1. Based on the current visibility, we expect revenue in the second half of 2022 to be higher than the level in the first half. With that, we have finished our introduction. Let's now move on to the Q&A.
Thank you, Benjamin. We'd like to ask you to please limit your questions to not more than two at a time, so that everyone has the opportunity to ask a question. Operator, we are now ready for the first question.
Thank you. As a reminder, if you wish to ask a question, you will need to press star one on your telephone. To remove your questions, please press the pound or hash key. The first question comes from the line of Didier Scemama from Bank of America. Please go ahead.
Yeah. Good afternoon, gentlemen, and thank you for taking my question. I've got a couple of quite boring questions, frankly. Can you maybe, Paul, help us understand the underlying OPEX trajectory, and certainly starting in Q4 could you know give us the underlying R&D and SG&A, excluding the bonus payments, and perhaps be a bit more granular as to what you think is the appropriate level of aggregated OPEX, perhaps for calendar year 2022. Then, maybe secondly, on the top line, you clearly are very confident on the growth trajectory of the business in 2022. I think it's understandably the case given the CapEx announcement of your customers.
I just wondered, there is a wide gap between the 40% CapEx growth guided by two of your key customers and the sort of WFE growth you're talking about. I just wondered if you could help us understand what calendar year 2022 revenue growth could look like for ASMI, if you expect specifically to materially outperform WFE or just be in line. Thank you.
Okay. I'll take the first question. I think Benjamin will take-
I'll take the second one.
On OPEX, maybe first looking at the Q4. I think first look at the combined OPEX, R&D and SG&A. I think as we communicated, it is important to understand that we have stepped up investments, which is needed to support continued growth. Also this year, of course, you've seen a significant growth, so I think that's in itself logical. We see increases both in SG&A and R&D. The key drivers for that in SG&A are actually across the board. We have stepped up investments in multiple areas, increased headcount. Of course, costs for recruitment have increased sharply given the war for talent that is ongoing.
We had also indeed an increase, you referred to it already, in variable expenses. As you know, we accrue for that during the year, but at year-end there's always the final reconciliation based on the actual results. That also was, let's say, an incidental that is included in these numbers. For R&D, I think as I said already, it's important to understand that of course also there we have headcount growth. We have R&D facilities, labs in particular, that we have been expanding. We're not done yet, and so some are further along than others. That will continue into 2022. Of course, the number of R&D projects given everything that's coming is also increasing.
Adding that all up gave the numbers that you've seen. In addition, it's important to note that there was also, let's say, a reclass, not large, of a few million EUR from SG&A to R&D. If that reclass would not have happened, and again, this is just a few million, but it's still, I think for transparency purpose good to mention, the SG&A cost would have even a little bit higher among others due to these incidental, like further expense that I just mentioned. R&D would have been slightly lower. Looking into next year, if you look at the R&D costs, let's say, before the reclass, so that would have been a few million EUR lower than what you see in the press release.
I expect the Q1 to be somewhat lower. Typically, we see some level of seasonality in the R&D expenses. At the same time, I expect Q4 of 2022 to be higher than Q4 2021. You will see a gradual increase throughout the year above the level where we're now. We are at 8.7% for the year. We think that's a little bit too low, so we will target, of course, to further invest in R&D. For SG&A, if you look at the Q4 run rate and then go a few million lower, I think that's where we will start the year with and then gradually also increase it somewhat, also again to support the growth.
Hopefully this gives you enough insight to basically model the OPEX going forward.
Didier, I will answer the question regarding the top line and perhaps, you know, what you have alluded to, an apparent gap between WFE and the CapEx announce. I think again, this year we started the year very in a very encouraging way with some of our customers announcing a big CapEx increase, some as high as 30%-40%. You know, when we look at some of the data research companies, you know, as far as WFE growth this year, I would say they are still probably in the mid-teens, you know, maybe very low, let's say twenties kind of range.
I think the consensus is more in the mid-teens range, and that's roughly where we are, low to high teens. You know, in terms of, I would say, you know, what could be our revenue for the full year 2022. Of course, it's still too early. It's also compounded by complications from, you know, lack of visibility in some parts of the supply chain. We of course would hope that supply chains recover, you know, faster, earlier so that we can, you know, deliver more. There is still a fact that some of these areas lack visibility, so it's kind of hard to judge.
I think this year we have, you know, tried to give more color, you know, to the financial community and hence, first of all, because we are announcing our Q4 results late and during this earnings, we always try to give a color on what is gonna happen, not just for Q1, but a little bit on Q2 as well. Two other things that we have added into our guidance is, you know, to give guidance that we do think that the second half is going to be stronger than the first half. At the same time, we have also added guidance that we do expect to outperform WFE growth this year.
We cannot quantify, you know, at this moment what 2022 will really look like given a little bit of the complexity. We are actually quite confident that it will be a strong year of growth, again, for ASM in 2022.
Brilliant. Just maybe one quick. Is the normal seasonality pull with Q3 slightly down versus Q2, would you say?
You're referring to OPEX or?
No, no, top line.
No, I would not say that. What we see basically what Benjamin said, the market is good. There is major investments announced from our customers. If anything, we should see continued growth. That's also what we guided for, EUR 500 million-EUR 530 million with further growth in Q2 and then in H2 versus H1. What makes it more difficult to be more precise is, as Benjamin already explained, the limited visibility in certain parts of the supply chain.
No, I think you've been incredibly transparent, especially given the supply challenges, so I really appreciate it. Thank you very much.
Thank you, Didier. Can we please have the next question, operator?
Thank you. It's from the line of Adithya Metuku from Credit Suisse. Please go ahead.
Yeah. Good afternoon, guys. Thank you for taking my questions. Two, please. Just to follow up on the previous question. So when you look at operating margins within your internal plans for 2022, do you expect operating margins to be at least flat in 2022 versus 2021? That's the first question. Secondly, now there's been some updates on the 3D DRAM roadmaps from your customers. You know, one of your peers presented a roadmap showing 3D DRAM again happening in 2026 timeframe. One of your customers presented a roadmap showing it happening in late 2020s.
I just wonder whether you've gained any additional clarity in the quarter, in the Q4 of last year as you went through post your Investor Day on the timelines for 3D DRAM. Any color you can provide there would be super helpful. Thank you.
Okay. Let me take the first one, and then Ben will take the second one. On the gross margin, there's a lot of moving parts, as you know.
Sorry. Sorry, Paul, I didn't mean gross margin. I meant operating margin expansion.
Oh, okay. Operating margin, also good. There's even more moving parts in the operating margin. Of course, we've not guided on that. But what I can say is that we have, of course, guided during Investor Day for our gross margin. We have also guided for the operating margin, as you refer to. I just have given you, hopefully, a good enough granularity on OpEx, so SG&A and R&D. Hopefully that was sufficient for you to properly model, let's say the ongoing investments to support growth. That's one element. Two, the other element of course is also for us, it's pretty hard still to judge what the top line will do. We are confident that it will be strong.
We're confident that it will be a year of growth, strong growth again, but due to limited visibility in certain parts of the supply chain, it's still a little bit difficult to judge what the top line will do. Of course, that will also have an impact, in particular on the operating margin somewhat. Having said that, we expect to stay within at least our guidance as we have guided that during Investor Day. Unfortunately, much more than that, I cannot give you at this moment.
Adi, on the 3D DRAM you know question. I think we are seeing you know, perhaps increasing you know, discussions, maybe articles, you know, on 3D DRAM. And of course, on our part, we are engaged with a couple of DRAM customers trying to figure out what exactly you know is the technology going to be, what they need, how can we help them. I think the, if I could say, you know, maybe, in a simple summary, I think the current status is most of our customers are you know, looking at this, trying to figure out what is the best way to do this, how can this be done?
Given that this is a major inflection, you know, our view is that, you know, any kind of major, let's say, volume production, this is going to be from 2026 onwards, so it's still quite some time out. Nevertheless, I think, because of it being a major inflection, we are starting early, and we are already talking to some of the DRAM customers.
Understood. Thank you very much.
Thank you. Next question comes from the line of Sandeep Deshpande from JP Morgan. Please go ahead.
Thanks for letting me on. Two questions, if I may. Firstly, I mean, in response to an earlier question, you talked about outperforming the market. One of the big trends this year, Benjamin, is this, you know, the growth in lagging edge. In the lagging edge, ASM wasn't a major player. Are you saying that the spending on lagging edge is much, growth is much lower than the spending on leading edge in 2022, which is why you will continue to outperform the market? The second question I have is regarding, you know, the implementation of ALD in, next generation leading edge processes. I mean, do those shipments for high volume for gate-all-around applications start second half of this year, or is this still further out as such? Thank you.
Sandeep, thanks a lot. On the first question, if you look at, for example, what has been announced by, you know, the leading foundry at a record high CapEx, they also specifically mentioned that 70% to about 80% of their CapEx is going into the 7 nanometer , 5 nanometer , and 3 nanometer. As you know, Sandeep, you know, the leading edge is actually where we have our biggest strength. We are actually confident based on what we know that, you know, a large part of the WFE this year, especially in the logic foundry area, is still going into advanced nodes.
Especially also in the memory part of it, you know, a lot of the I would say investments that potentially will be done this year and next year will be at the next node. That's why we have always, you know, given the, you know, the guidance that we do expect some of our more advanced memory applications that we have been working on with our customers the last couple of years, that we will see adoption, you know, sometime in 2022 to 2023. That's not to say that the trailing edge, you know, investment is going to be small. In fact, I think it will continue.
You know, for us, even though we don't have, let's say, a lot of play in the trailing edge, as we mentioned earlier, we do have good positions in some niche markets with our vertical furnace that we are seeing actually very significant growth. At the same time, when you look at the EPI, you know, you could say that we play in the trailing edge because we, you know, play not only in the advanced CMOS, but we also play in the power analog wafer manufacturers' segment. That is one of the reasons why we are quite confident that the overall, you know, we see a very good growth potential for us.
The second part of your question, Sandeep, I think was, you know, next generation, you know, logic/foundry nodes, are we seeing, you know, high volume shipments? I think this depends on what you call next generation. I mean, if you look at 3 nanometer shipments already started, I would say second half of last year. It's continuing. 3 nanometer is still being ramped this year. If you look at perhaps, you know, potentially the first, let's say gate-all-around, you know, that goes into high volume manufacturing, I think this year you'll probably see some of this at the end of the year, but it's going to be low volume as they ramp up their, let's say, process and yield.
Overall, I think, you know, besides the capacity ramp at the leading nodes this year, we're gonna see a lot of, let's say buys, in terms of development for the next generation technology. All in all, this is adding up to, you know, I would say, a pretty nice and healthy demand for us for the whole of 2022.
Thank you, Benjamin.
Thank you. Next question from the line of Janardhan Vennam from Jefferies. Please go ahead.
Hi, good afternoon, and thanks for taking my question. When I look at your order trends and revenue trends, for the last, say eight quarters, until around Q2 of this year, your orders and revenues were, you know, reasonably similar, in magnitude. Now your revenues have been starting to lag your order profile. With that, in the last quarter, for instance, it's come down to about 76% of your order trend is what your revenues were with, whereas it was about 100% for a long time. Your backlog, obviously, as a result, is showing very sharp increases, including 151% in the last quarter.
I'm just wondering, is this entirely because of supply constraints, or is there something else happening in the nature? Are you getting much more extended lead time orders, which is driving this trend? How do you see, you know, that trend progress in coming quarters? Will you continue to see that divergence between orders and revenues? You know, once supply constraints go away, will we get a catch-up on the revenues with your order trends? That's my first question. My second question is just talking about something like, say a future technology introduction, like let's say, you know, one of your customers has introduced gate-all-around already. You know, the others will probably introduce it in 2024.
How long before that for such a critical technology will you know that you've already got the design win? Are we talking about, you know, one year? Does it happen two years before? Does it happen even before that? What are the kind of engagements that you have in the run up to that you know that you've definitely secured the win and you will get that volume in future?
Sure, Janardan. Maybe to answer the first question, I think you know that's a very I would say correct observation that you see our revenue lagging our orders. I would say that you know of course we do see because of the slightly longer lead times that we have today caused by the supply chain constraint we do see some earlier ordering. You know the volume is not like you know it's moving the needle but we do see some of that. I think by and large a big part of this divergence as you call it between the orders and the revenue or revenue lagging orders is really due to the supply chain constraints.
In other words, if we had, let's say, ideally in an ideal world, no supply chain constraints, we probably would not have such a high order backlog as well. We would be able to deliver, I would say, probably, we don't quantify it, because we haven't done it, a fair bit more than what we have done in Q4 and probably also going into Q1. On your second question regarding the introduction of a new technology, I can only say from a generic point of view, usually from the time the process is frozen, probably until when they really go into high volume manufacturing, it's probably 18 months, because, you know, they first have to order the equipment and then the equipment moves in.
They have to fine-tune the equipment. They have to do the pilot runs and so on. It's actually, as much as, I would say, you know, 12, maybe up to 18 months before high volume manufacturing starts where, you know, generally all the equipment is already decided.
Understood. If I understand your first answer correct, if you had no supply chain constraints, and if orders stay at these levels, you would be shipping closer to EUR 600 million-EUR 650 million of revenues per quarter?
You know, like I said, we do not quantify that, but I know for sure I will have less white hair, and definitely that, you know, we will be able to do more than, you know, for example, what we did in Q4 and what we have guided in Q1.
Understood. Thank you very much.
Thank you. Next question comes from the line of Robert Sanders from Deutsche Bank. Please go ahead.
Yeah, maybe just picking up on the last question. You know, your backlog is currently about five months of sales. Do you expect that it sounds like you're saying that some of the orders are a function of the long lead time. Do you expect that backlog to continue to grow as we move through this year, given supply constraints are still there? Or do you think that over time through this year, as supply constraints ease, people will start to order it within the smaller lead time and you'll start to see kind of orders coming in below sales?
Because presumably if you revert back from a five-month backlog to a three-month backlog, your order book-to-bill will have to come under one, you know, at some point, presumably by the end of this year, early next year.
Hi, Rob. Thanks a lot. I think it's a function of two, I would say elements. One is, of course, you know, the supply chain constraint. If this eases, of course, this is gonna impact, you know, the lead time. If we can go back to, you know, the, let's say, normal lead time or shorter lead time as we have been doing for a long time, I think, you know, we will be able to bring the backlog down. The other variable and element is. It also depends on, let's say, the strength of the order intake.
At this moment, you know, we see that orders are actually going to continue to be healthy. Just, you know, looking at what some of our customers are planning in terms of investments this year, we think that, you know, this year, order intake is still going to continue to be healthy over the course of the year.
Got it. You're not gonna guide orders, though, going forward, right? That's what you've said. We will only get a view after you've already seen the orders. Is that correct?
Yes. We have decided to stop guiding orders partially because of the volatility. You know, but we will report it. I think on our next earnings, you know, when we do the Q1 earnings, we will be reporting, you know, the order intake as well, besides the revenue.
Got it. Thanks a lot.
Thank you, Rob. Can we get to the next question please, operator?
Thank you. It comes from the line of Timm Schulze-Melander from Redburn. Please go ahead.
Yeah, hi there. Thank you for taking my questions. Just had a quick couple, please. First one, if you could just share what sort of lead times you're quoting now for ALD and EPI tools and kind of how that compares to normal, which I think you referenced in the last answer. And then the second one, just on the aftermarket business, could you maybe just talk us through a little bit about what you saw in Q4 compared to Q3, and how we should think about that developing sequentially through 2022? Thank you.
Sure, Tim. On the lead time, you know, it varies of course by products, and I think your specific question was what is the lead times now for ALD and EPI. Even within those product lines it varies quite a lot. I would just generally say that our lead times are longer than what we have been used to, and what we have been used to was probably in the region of four months. So now it's longer than that. On the aftermarket, the spares and service business, we had a fairly significant jump in Q4. And that's probably you know one of the reasons for your question. You know, the service revenue you know fluctuates from quarter- to- quarter.
I think in Q4 we had a good one, which ended with a fairly nice growth for us. Going forward, you know, we do expect that, you know, this year, in 2021 we grew our spares and service revenue by about 18%. We do expect that going forward into 2022, we will continue to grow at a healthy pace, especially as, you know, our outcome-based services, what we call Complete Kit Management and spares as a service, gain even further traction. We had good progress in 2021, and we do expect that 2022, we will have even further traction on those products.
Great. Could I just ask maybe one quick follow-up just on the eval tools balance? Obviously, a mixture of eval tools coming off the balance sheet as they're sold and new ones being installed at customer locations. Just given where we are at the Logic/Foundry, you've referenced a lot about 3 nanometer and moving into high volume. You know, should we expect eval tool balance maybe to play at a lower rate of order intake through 2022 as a consequence of that node transition? A comment there would be helpful. Thank you.
Okay, thanks for the question. Looking at 2022, if you compare it to where we ended the year in 2021, we actually expect the eval tools to grow. Also, the balances value will grow, but also the shipment into customers will grow. There's a lot going on, as you already mentioned yourself, and Benjamin mentioned a few times. We do expect a further growth of shipments of eval tools into 2022. On the sales and the turns, that's maybe a little bit more difficult to guide yet. There will also be sales, of course, of tools that are currently with customers. That's too early actually to guide you on that one.
Yeah, at least what I can tell you is that the incoming tools are expected to further increase.
Thank you, Tim. Operator, can we move on to the next question, please?
Thank you. It comes from the line of Stéphane Houri from Oddo BHF. Please go ahead.
Yes, hello.
Good afternoon. First question would be on the gross margin, because the evolution of the gross margin in 2021 has been a bit, let's say unusual, starting very high and staying high, but slightly below the level of the start of the year. How do you see gross margin evolving throughout the year? And maybe also a comment on the average for the year. Thank you.
Yeah. Thank you, Stéphane, for the question. Indeed, gross margin, I think the highest was 49.5% in Q1. I think the lowest was 47.0%. Quite some fluctuations. As already mentioned a few times in prior calls, there is a lot of moving parts in the gross margin. But the most important one is mix of applications. Going forward, we will see most likely similar fluctuations. Some quarters somewhat higher, some quarters somewhat lower. For now, I prefer, and I hope you appreciate, not to guide on the full-year margin development. It's a little bit too early for that.
Of course, for sure the target is, as I mentioned earlier, to stay in our range of 4% to 6% to 50%. Ongoing fluctuations will continue to be part of our business. Rest assured that we will try to manage the margin, of course, in the best possible manner and stay within our guidance.
Okay. Just a quick follow-up on the epitaxy business. Can you share with us what is the size of this business currently, and if you see this business outperforming the average growth for the company this year? Thank you.
Stéphane, I will take that. I think we, as we mentioned last year, I think we saw a very big growth in the epitaxy, let's say, business. A large part of that, of course, was also driven by the recovery in the power analog wafer maker market. I think that growth will continue this year into 2022 as well, not just in those segments, but also in the advanced CMOS. You know, in terms of quantifying the market, we haven't done that yet.
You know, we probably will want to wait until you know, April when we see some of the market research companies you know, publish you know, market size and stuff like that, to see whether we are on the right track. You know, the market did grow fairly significantly last year. I think, you know, going forward, if you look at the different types of applications that are going to use epi, you know, we cannot say for sure that it is going to outgrow, let's say the standard WFE, let's say growth rate, but it will grow at a very high rate.
Our projection, of course, as we mentioned in our Investor Day, is from 13%-18% CAGR until 2025.
Thank you very much. Thank you. Next question comes from the line of Marc Hesselink from ING. Please go ahead.
Yes. Thank you. First question is on the R&D, extra spending. What kind of horizon will you see the impact of that? I'm asking because in the past, yeah, you spent a lot less, but you already had a very positive impact on your addressable market and the growth of the company. The quite significant step up that you're making, and which you also guided for at the Capital Markets Day. Yeah, what will that drive? When will we see the impact of it? Is that one year from now? Is it a five-year horizon? Or, and I guess it's a split between it, but how can you split that up?
The second question is on the new management structure. Can you maybe explain a bit why that happened now? Is the size of the company you've got to a certain stage that you had to change the organization? Or will you see other reasons and you expect to see a significant benefits from this change structure? Thank you.
Yeah. Let me take the first one on R&D cost. Yeah, what we're doing is actually we continue, of course, to step up investments. We continue to recruit people, headcount. In addition, what we have seen in the second half of the year, actually towards the end of the year, is an adjustment in compensation and benefits, simply because of the war for talent. We are not the only ones who are doing that. Competition is doing the same. It's very much possible that a similar thing will happen in 2022. That will be one driver, of course, simply to retain people, and given the war for talent, compensation will disproportionately increase for engineers. That's one element.
Two, headcount, as I said. Three, we've increased facilities, and of course, increased balance sheet values. Depreciation will increase of course, the facilities that we have. The number of tools within the facilities will increase, and that we also will depreciate, of course, that's also another increase. The number of projects will increase, so consumables will be higher that we use, of course, when we develop and test the products. There is a number of things that's going on. We think it will be relatively gradual, but of course, in a quarter where you make an adjustment, for instance, in compensation, or in a quarter where you adjust the variable expense because you have accrued based on a certain expectation, and you need to either go higher or lower.
Yeah, you can see a little bit of, let's say, breaks of the trend as you would expect them. Yeah, basically, it is a continuous investment and if it would be up to us, it would be a nice linear line, but unfortunately, that's not the case. Some quarters we will attract more people than other quarters. I mean, it will move a little bit, but it will be a continuous increase. As I said, Q1 is expected to start below Q4 of this year, but thereafter, we expect it to grow, actually higher than Q4 of this year, towards the end of the year.
Mark, on the management structure, you are very correct that, you know, it's a direct consequence of, you know, the company having grown. Just if you look at, for example, where we ended in 2021 compared to, maybe, five years ago, we basically, you know, became 3x bigger. Even just comparing us to, three years ago, you know, we basically more than doubled. The increasing size and complexity of the company, you know, it was time we felt that, we have somebody else join us in the Management Board, and that comes in the form of, Hichem M'Saad.
There's also another good reason why, you know, specifically we have nominated Hichem to join the board. If you look at our Investor Day, where, you know, the strategy that we really have is growth through innovation. You know, even though Hichem is going to carry the title of CTO, basically, he is responsible for not just R&D, but he's responsible still for all the products and all the engineering within the company. With that all focusing all falling under his umbrella, we are actually confident that, for one, we will have better speed to provide the leading-edge equipment that we have been providing to our customers over the last couple of years.
At the same time, you know, better or let's say do an even better job aligning, let's say our efforts to the roadmaps of the customers, because the technology inflections and changes are coming at us, you know, fast and furious. Also this is, you know, one of the reasons why we continue to step up our spending in R&D.
Okay, thank you.
Thank you. Next question is from the line of Tammy Qiu from Berenberg. Please go ahead.
Hi, guys. Thank you for squeezing me in. A quick one on supply chain costs. Basically, over the past quarter, we'll be hearing, and this quarter as well, we'll be hearing pretty much all the semi equipment guys talking about supply chain shortage. Some of the reasons were mentioned, including, for example, component shortage at their suppliers and logistics issues. Just want to know from your side, from our understanding, 70% of your supply chain is in Asia, and you are mainly Asian-based. Can you help us understand what exactly is in shortage? Also, at the same time, I have a question on the 3D NAND design win you got for ALD. How do you think of your position in every single 3D NAND player?
Do you get design win for every single of them, or is it selectively? Thank you.
Tammy, you know, thanks a lot for the two questions. I don't have an exact, you know, let's say, proportion of our supply chain that is in Asia. I would say that a fairly large part of our supply chain is, in fact, in the Southeast Asian region. Whether, you know, the parts of the components are manufactured by, for example, U.S. or European customers, a lot of them, they do have, you know, factories in that area. In terms of what exactly is the shortage that we are seeing. You know, previously we had, you know, COVID, let's say, workforce restrictions, you know, I would say probably in Q2, Q3, you know, getting better into Q4.
You know, we got hit now starting from, I would say, the end of Q3 with what I would call component shortages, and this is primarily in semiconductor chips. It's not just, you know, let's say with our direct suppliers, but it's also with, you know, suppliers further deeper into the supply chain. I think that is right now anything that requires you know semiconductor chips or that is associated with semiconductor chips. I think that is where we see the biggest, let's say, shortage today.
I think if I could clarify with you, your question on 3D NAND was, you know, how, what applications do we play in, or what was your question regarding 3D NAND?
It's like, you know, high-k metal gate, for example. You are very strong in all the memory players. I wonder, for this application for 3D NAND, are you in all three or are you in some of them? Thank you.
Okay. I like this question a lot, Tammy, because I think you are very perceptive. You know, we did in the prepared remarks mention about you know, making a lot of progress in gap fill ALD for high aspect ratio structures. It's actually maybe nice to perhaps update everybody. We have been working on those for quite some time, and as we have always said, we do expect some of these applications to move into high volume manufacturing, you know, maybe end of this year, early next year. We have, in fact, very good traction with some of the customers on the gap fill applications. So much so that we do believe that some of this will be adopted for high volume manufacturing.
We cannot go into more specific details, but at this moment, we are very, let's say, encouraged and very confident of our opportunities in gap fill applications for 3D NAND.
Thank you.
Thank you, Tammy. We have time for two more callers. Operator, can we have the next one, please?
Thank you. Next question is from the line of Michael Roeg from Degroof Petercam. Please go ahead.
Yes, good afternoon, gentlemen. Thanks for still squeezing me in. Two questions. First one for Paul. Sorry to come back on the gross margin, but based on the guidance for the full year, it looks as if your sales are gonna grow by about 20% or maybe even more. That's gonna boost your utilization, and that is generally always good for a gross margin, even for an assembly company like yourself, where operating leverage is less than with manufacturing. Everything else equal, what would 20% higher sales do for a gross margin of your company?
Okay, I can take that. It would do something indeed, you're right. Not a lot, to be honest. I mentioned that also during the Investor Day, given that the vast majority of our cost of goods sold is actually purchased material and subcomponents and systems. The relative fixed cost is not very high, but it would help. That's definitely a plus. On the other hand, of course, there's a lot of moving parts in the gross margin, as I mentioned, it makes it the most important one. You see, of course, commodity prices increasing, energy prices increasing. There's also a few offsetting movements. Now we add it all together.
Our focus is on managing a proper margin, managing value for our customer, and of course, managing also at the same time, our own margin. Our focus will be to make sure that we stay within the guided range. Of course, where possible, we'll try to improve it. Yeah, it's too early, Marc Hesselink, to guide for that.
Okay, fair. My second question, well, you already mentioned it yourself, there's a lot of cost inflation. Have you raised prices last year? Will you be raising prices this year to offset inflation?
That, of course, again, the focus for us is managing our margin, and that can be done through multiple things. On one hand, it's indeed the mix and pricing, sales pricing. On the other hand is, of course, managing your suppliers and becoming more efficient in our assembly and of course do value engineering on our products to actually make them less expensive. That combination of things we will do. Where possible, yes, we will increase sales prices, but that's not possible everywhere, of course. Where possible, we will do some value engineering of current products, which of course is an ongoing process. We have also cost reduction opportunities with certain suppliers. Not everything is going up, but certain parts are going up.
Yeah, we're trying to manage that whole mix and ultimately deliver a product that, again, satisfies our margin and creates value for our customers.
Good. Okay. Thank you.
Thank you, Michael. We still have a few callers in the queue, but, we are running out of time, unfortunately. We have time for one more question. Operator, can we please have the last question?
It comes from the line of Nigel van Putten from Kempen & Co. Please go ahead.
Great. Thanks, guys, for letting me ask a question. I have one. One of your competitors last week said they see sequential growth accelerating as the year progresses. Now, if I marry that with your comments today about healthy order intake throughout the year, also talking about upcoming inflections in 3D NAND gap fill and gate-all-around, would it be fair that under the assumption of supply chain concerns gradually easing, you could see a similar pattern?
Nigel, thanks for the question. Just to confirm, your question was whether we see, for example, sequential growth accelerating.
Yeah. I think you kind of already said that there is gonna be sequential growth quarter-over-quarter throughout the year. Yeah, I'm just trying. On top of that, could it accelerate under given assumptions?
I think you know the best way to answer your question, Nigel, is when we look at, for example, a potential demand based on you know the plans and CapEx announcements of you know our customers. We do see that this year you know we're going to have still growth, for example, in terms of CapEx, which is going to lead to I would say a nice let's say order intake for us. Secondly, you know, this is maybe a little bit repeating on what was an answer to Sandip from JP Morgan.
You see also a fairly substantial still, especially in the Logic/Foundry area, investments in advanced nodes, and that's going to also be good for us as it plays to our strength. I think, you know, we will have to see as the year goes on. You know, let's say our outlook at this moment is generally positive that, you know, despite the supply chain constraints, you know, we will be able to do a little bit more in the Q2 compared to the Q1 .
Even with, you know, lack of visibility or limited visibility in some areas of the supply chain, we do expect that in the second half things will get a little bit better and hence also why we are already putting out in our statement that the second half will be higher than the first half.
Thank you.
Thank you. I will now hand back over to Benjamin Loh for final remarks.
Thank you, operator. I would like to thank everybody for your attendance today, also on behalf of Paul and Victor. We do look forward to seeing many of you in our upcoming virtual investor roadshows and conferences. Thank you again. Stay safe, and goodbye.
Thank you. If you didn't have the chance to ask your question, please reach out to us after the call. Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect.