Good afternoon, this is the Chorus Call conference operator. Welcome and thank you for joining the ASM International third quarter 2025 earnings call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Victor Bareño, Head of Investor Relations. Please go ahead, sir.
Thank you, operator. Good afternoon and welcome everyone to our 2025 Q3 earnings call. I'm joined here today by our CEO Hichem M’Saad and our CFO Paul Verhagen. ASM issued its third quarter 2025 results yesterday at 6:00 P.M. Central European Time. The press release is available on our.
Website with our latest investor presentation. We remind you, as always, that this.
Earnings call may contain information related to ASM 's future business and results in addition to historical information.
For more information on risk factors related to such forward-looking statements, please refer.
To our company's press releases and financial statements, which are available on our website. Please note that the profitability measures mentioned in this call today will be primarily based on adjusted non-IFRS figures.
The reported results as well as the reconciliation between reported and adjusted results.
Please refer to the quarterly results press release, and with that, I'll now hand.
The call over to Hichem M’Saad, CEO of ASM .
Thank you, Victor, and thanks to everyone for attending our third quarter 2025 conference call. First off, I'd like to thank all our investors and stakeholders who joined us for Investor Day last month. It was great to see so many of you. For today's call, we'll be following the usual agenda. Paul will begin with an overview of our second quarter financial results. Next, I'll discuss the market trends and outlook, followed by the Q&A session. I will now turn it over to you, Paul.
Thanks, Hichem, and thanks, everybody, for joining our call today. Let me start with revenue. The revenue in the third quarter of 2025 amounted to EUR 800 million, up 8% year on year at constant currency. Compared to the second quarter, sales were flat at constant currency. This was at the high end of a guided range of flat to down 5%. Equipment sales increased 10% year on year at constant currency and were led by ALD, followed by Epi. Spares and services sales were up 2% at constant currency year on year. Growth in spares and services was lower than in the past few quarters, and this is explained by the accelerated above-trend demand in China in the second half of last year. Growth in our outcome-based services continues to be healthy. In terms of customer segments, revenue is led by logic/ foundry, followed by memory and then power/analog/wafer .
Logic /foundry continued to account for the majority of sales. Advanced logic/f oundry sales, for the largest part 2 nm related, were up substantially compared to the third quarter of last year and approximately similar to Q2. Mature logic/ foundry sales, mostly in China, were up year on year and down from the second quarter. Memory sales decreased compared to Q3 of last year and were roughly similar to Q2 of this year. ALD sales for advanced HBM-related DRAM applications represented a larger part of our memory sales. The year on year decrease was mainly explained by some lumpy and relatively high sales and orders from memory customers in China in Q2 and Q3 of last year. As we also discussed in previous quarters, sales in the power/analog/wafer segments were up slightly but still at relatively low levels, reflecting the continued downturn in these markets.
Gross margin in the third quarter remains strong at 51.9%, roughly similar to Q2 and up from 49.4% in the third quarter of last year, and again supported by a positive mix. As mentioned in the press release, we expect a less favorable mix in the fourth quarter, which should bring the gross margin to around 51% for the full year. One of the mix factors was revenue from China, which decreased both year on year and compared to Q2, but still represented a solid level in Q3. We still expect China sales in the second half to be lower than the first half, with a more substantial drop in Q4. As discussed in the last quarter, our forecast for the gross margin excludes the impact from potential new U.S. tariffs. Our industry is currently still exempted, but it remains unclear what any new tariffs will be.
We have several contingency standards in place to help mitigate potential direct impacts, including the option of expanding localized manufacturing in the U.S. SG&A expenses were 10% lower year on year. This reflects lower variable spend and our continued cost focus for the full year. SG&A is still expected to be somewhat below prior year. Gross R&D was up 10% in Q3, reflecting ongoing increases in our R&D programs. This increase plus the inclusion of a EUR 4 million impairment was partially offset by a relatively higher increase in capitalized development expenses, leading to an increase of 3% in net R&D expense at 30.9%. The operating margin continues to be strong, supported by the solid gross margin and the year on year decrease in SG&A below the operating line.
Financial results included a currency translation gain of EUR 11 million, and this compares to a currency loss of EUR 60 million in the second quarter and the loss of EUR 48 million in the third quarter of last year. As a reminder, we hold the largest part of our cash in U.S. dollars. Let's quickly switch to ASMPT. Our share in income from investments, reflecting our stake of approximately 25% in ASMPT, amounted to a loss of EUR 7 million in the third quarter, which was explained by one-off restriction costs taken by ASMPT in the quarter. Our net results in Q3 also include an impairment reversal of EUR 181 million driven by a recovery in the market valuation of our stake in ASMPT in the quarter. With that, the impairment charge of EUR 250 million that was recognized in Q1 of this year has now been fully reversed. Let's go back to ASM now.
Order intake: our new orders amounted to EUR 637 million, a decrease of 7% compared to the second quarter and a decrease of 17% compared to the third quarter of last year at constant currency. We have the Q2 results we already indicated. Book to bill would be below 1x in Q3 as an expected rebound in advanced logic/ foundry orders would be offset by a sharp drop in China orders following a very strong first half of the year. In our update last month, we indicated advanced logic/ foundry orders would still be up but not as strongly as previously expected due to very mixed trends per customer, and also that power/analog/wafer orders came in somewhat lower than expected. Looking at the breakdown by customer segments, logic/ foundry was the larger segment followed by memory and then power/analog/wafer .
Logic/ foundry orders decreased slightly year on year and compared to Q2. As just mentioned, a solid increase in advanced logic/ foundry compared to Q2 was offset by a sharp drop in mature logic/ foundry orders, mostly in China. Memory orders dropped compared to last year and were relatively steady compared to Q2, and the largest part of memory orders was for advanced DRAM applications. Let's turn now to the balance sheet. ASM 's financial position remains in good shape. We ended the quarter with EUR 1.1 billion in cash, up from EUR 1 billion at the end of June. Days of working capital dropped to 37 days at the end of September, down from 43 days at the end of June. This level is relatively low and also below the longer-term target range.
As previously explained, this is due to a relatively high level of contract liabilities for a large part in China, which is expected to gradually normalize over time. CapEx amounted to EUR 38 million in the third quarter due to phasing of investments for our new Arizona facility. CapEx in the fourth quarter will be higher, and for the full year we still expect CapEx of EUR 200 million- EUR 250 million. During the quarter, we also paid EUR 100 million in earnouts related to the acquisition of LPE in 2022. In total, free cash flow amounted to EUR 139 million in Q3. Excluding the earnouts, the free cash flow amounts to a stronger level of EUR 239 million in Q3 and EUR 628 million in the first nine months. During the third quarter, we spent EUR 109 million on share buybacks as part of our EUR 150 million program that was completed on July 25th.
Lastly, let me recap the 2030 financial targets we shared during last month's Investor Day. Growth prospects for ASM remain strong on the back of rising ALD and Epi intensity in the logic/ foundry and DRAM markets, new opportunities in France's PECVD , and advanced packaging, and continued double-digit growth in spares and services. We expect our revenue to grow to more than EUR 5.7 billion by 2030, and this represents a CAGR of at least 12% from 2024 through 2030, twice the rate expected for the WFE equipment market. We raised our gross margin target to a range of 47% - 51%, and as part of this, we discussed a number of initiatives that will drive efficiency and productivity improvements. One of the key initiatives I'd like to highlight again is the successful launch of our new ERP and PLM systems.
We went live three months ago, and the transition was executed smoothly without any disruption to operations. This milestone lays a solid foundation for future efficiency improvements, including the rollout of real-time analytics and other digital transformation efforts. We will remain disciplined regarding operating expenses. Combined with the operating leverage effects, we expect SG&A to drop to less than 7% of revenue by 2030. We intend to increase R&D investment. This is our lifeline as our opportunities continue expanding in the next nodes. The target is to keep net R&D in a low double-digit percentage range of revenue. This will all lead to solid operating margins of 28% - 32% in the coming years and from 2030 onwards of more than 30%.
In terms of CapEx, we expect an annual level of EUR 150 million - EUR 200 million during years of infrastructure expansion and EUR 100 million - EUR 200 million in years without such an investment. Combined with improving profitability, we project free cash flow to increase to more than EUR 1 billion by 2030. During Investor Day, we also reiterated our capital allocation policy. Number one priority remains investing in the growth of our company. That includes R&D and infrastructure investments and also M&A in case of attractive opportunities. In addition, a strong financial position remains important with at least EUR 800 million in cash as we remain committed to our dividend policy and to return excess cash in the form of share buybacks. With that, I'll turn the call back over to Hichem.
Thank you, Paul. Let's now continue with a review of the market and business trends, starting with the end market conditions. The overall picture continued to be mixed, similar to the previous quarters, in various parts of the semiconductor market. The recovery continues to be held back by uncertainties around the economic outlook and geopolitics. It's clear that AI remains the bright spot across multiple sectors and markets. Adoption of AI is being accelerated as a key driver of innovation and productivity gains. This surging demand has been highlighted by recent strategic partnerships and announcements from industry leaders aimed at expanding AI data center capacity. In terms of wafer fab equipment, the growth in AI is expected to drive significant and structural growth in the advanced logic/ foundry and DRAM markets. These strengths play to ASM's strength.
If we first look at our advanced logic/ foundry business, overall demand continues to be healthy even though trends by customer have been very mixed. As already mentioned, these mixed trends had some impact on Q3 bookings and will also impact sales in the second half. For the full year, we still expect a very strong increase in our gate-all-around related sales. The 2 nm transition continues to be a strong driver for our company. In the Investor Day last month, we reconfirmed the $400 million SAM increase in the move from FinFET to first generation gate-all-around. We also reconfirmed that in this transition we at least maintained our ALD market share and expanded our share of Epi layer account from 22% to 33%. Our customers continue to report strong demand for 2 nm for both AI and smartphones.
We expect this to support continued investment in 2 nm capacity expansions in 2026, including new sub-nodes such as backside power distribution. At the same time, customers continue to progress steadily in the development of the upcoming 1.4 nm node. In the second half of 2026, we expect the first 1.4 nm pilot line investment, followed by the start of volume production in 2027 and 2028. As also shared in our Investor Day, we expect a SAM increase of $450 million to $500 million in the 1.4 nm transition. Based on the intensity and breadth of our R&D engagement, we expect again to at least maintain our market share in the transition to the next 1.4 nm node. We expect new ALD layers in backside power, in MIMCAP, and metal ALD layers in the middle end of line.
However, the biggest area of increasing ALD intensity continues to be in the transistor area, the front end of line. This is the heart of the chip where the overall device performance is defined by functional materials such as the high-κ dielectric dipole layers for multi VT and work function layers. As a percentage of total ALD layers, we expect the number of layers in front end of line to increase from 50% in the 2 nm node to 60% in the 1.4 nm node. This is an area where our company holds strong market share position. Let's now review the memory business. High Bandwidth Memory (HBM) related DRAM continues to be the main driver. Fueled by strong demand for AI data centers, customers are expanding manufacturing capacity for the most advanced DRAM devices for HBM applications.
These devices require ALD high-κ metal gate technology in which ASM has a leading position. Looking at the year-on-year performance, despite the good momentum in high end DRAM, it's important to note that our memory sales last year included elevated sales from Chinese customers which are not repeated this year. As a result, we still expect our memory sales to be lower than last year at less than 20% of overall equipment. The outlook for 3D NAND, which is the smaller part of our memory business, has been improving somewhat and we continue to be well placed with our ALD gap- fill solution with key customers. We expect DRAM investment to further increase in 2026. In the next couple of years, we expect a further gradual increase in the number of ALD layers in advanced DRAM.
In the press release, we highlighted new wins in Epi and ALD, dipole and work function related layers in DRAM HBM, for most expected to ramp in 2026 and 2027. Starting in 2028, we anticipate a significant increase in our SAM in DRAM driven by two major technology transitions, the move to 4F^2 architecture and the adoption of FinFET in the periphery. In 4F^2 , the channel structures become vertical, introducing a more complex 3D architecture. This shift will require additional ALD layers for gap- fill oxides and metals and will also increase the role of Epi as an enabling technology. Shortly thereafter, the transition from planar to FinFET in the periphery will further increase demand for logic-like ALD and Epi layers. At our Investor Day, we quantified the FEM expansion in DRAM at $400 million to $450 million as a result of this multi-node transition.
In addition, this presents a compelling opportunity for ASM to grow our ALD shares in the DRAM market and to accelerate the expansion of our memory business. Next, the power/analog/wafer segment continued to experience weak market conditions. While there were early signs of end market recovery at the end of Q2, it became evident over the past three months that investment level in this segment will not rebound in the second half of the year. Assuming no adverse economic development, we expect spending in these markets starting from a low base to gradually improve over the course of 2026. Thanks to innovative products that we launched in recent years, we are well positioned to benefit from this recovery. One example is our Epi Intrepid ESA tool, which has helped us secure several new customers and positions in 300 mm power and wafer applications.
It's important to note that our outlook for a gradual recovery excludes the silicon carbide market where market conditions remain more challenging. Looking at China, revenue was still at a solid level in Q3, but bookings dropped significantly and as Paul already mentioned, this was the main reason for the sequential drop in our overall bookings. China bookings were still strong and very much concentrated in the first half of the year. On top of this, we incurred some additional impact from the export restrictions that were announced earlier this month. The impact on total annualized sales is expected to be around 1%- 2% negative with a stronger drop in Q4 sales. We project sales from China to be lower in the second half compared to the first half.
Equipment sales from China will also be lower in the full year of 2025 and expected to account for approximately 30% as a percentage of total ASM revenue. Looking forward, we expect a gradual normalization in China demand in 2026 and subsequent years. In line with our previous view, this follows on a number of years of very strong spending, particularly in the mature logic/ foundry segment. For 2026, the contribution from China is projected to remain meaningful, although sales are to decline by double digits. Before moving to the guidance, I'd like to repeat a few more of the takeaways and strategic priority we shared in our Investor Day. ALD and Epi remain key growth markets for our company.
We project a CAGR of 9% - 13% for both markets in the period of 2024 through 2030, which is clearly ahead of the 6% growth expected for the WFE market. This growth is driven by increasing complexity and increasing ALD and FE layers to address challenges related to more 3D structures and new materials in these nodes, both in larger foundry and DRAM. Advanced packaging is emerging as a key midterm growth driver for ASM, with a market projected to grow at an attractive CAGR of 15% through 2030. Although it currently represents a smaller portion of our business, upcoming generations of advanced packaging featuring finer pitches will demand more sophisticated solutions well aligned with our strength in chemistry, innovation, and surface preparation. We've recently secured new ALD wins for TSV liner applications and we are currently pursuing initiatives aimed at doubling our served available market by 2030.
In the Investor Day, we also introduced growth targets for our spares and s ervices business. For the periods of 2024 to 2030, we expect a continued strong CAGR of more than 12%. The main engine of this growth is our outcome-based services, which we target to account for more than 50% of our spares and s ervices sales by 2030. These innovative services deliver guaranteed outcomes to our customers such as improved tool performance and availability. One example is our new dry cleaning solution for refurbishing critical tool parts. Compared to conventional cleaning technologies, this approach improves defectivity performance and extends parts lifetimes, thereby reducing costs for our customers. It also contributes significantly to sustainability with a 67% reduction in CO2 emission versus traditional wet cleaning methods. Another example is the use of automation in services.
By developing robots to place replacement parts in reactors, we achieved far greater precision than manual placement. This enables customers to operate our tools with action level precision, essential as geometry shrinks and nodes become more complex. Last but not least, we remain focused on driving operational excellence, maintaining a flexible footprint, and as Paul also emphasized, delivering improved financial performance. Let's now have a look at the guidance as outlined in our press release. For Q4 2025, we expect revenue to be in the range of EUR 630 million - EUR 660 million. For the full year 2025, we continue to expect revenue growth at close to 10% at constant currencies despite the projected slow start in 2026. We expect ASM revenues to grow in 2026.
In terms of orders, we expect the trend to bottom out in Q4 at a slightly higher level than Q3, and looking at next year, we project quarterly orders to pick up again as 2026 progresses. With that, we have finished our introduction. Let's now move on to the Q and A.
We'd like to ask you to please.
Limit your questions to not more than two at a time, so that as many participants as possible have a chance.
To ask a question.
Operator, we are ready for the first question.
Thank you. This is the Chorus Call conference. Operator, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Didier Scemama , Bank of America. Please go ahead.
Yes, good afternoon gentlemen. Thank you for taking my question. Maybe a first question for Hichem. Can you maybe give us a little bit more color as to what's already in your backlog? Because we've seen over the course of the last few weeks a significant improvement in the picture for CapEx for logic chips, but also HBM, but also commodity DRAM.
We've seen one of your customers this morning talking about a substantial increase in CapEx next year. Is that already in your backlog or is that yet to come and does that give us confidence that your book is to materially improve from here? I've got a follow up. Thank you.
Didier. I'm going to have Paul answer this question. Okay?
Yeah, Didier, thanks for the question. You've seen a backlog which came down further on the back of book to bill below 1x, size 0.8x. What's in the backlog? As you know, we have a relatively short-term backlog. If you compare it to, say, one of our companies here in the southern part of the Netherlands, three to six months typically. We also said that we expect a relatively soft start of 2026. Not everything that you are referring to is already in a backlog. Of course, some elements are. I'm not going in detail what is precisely in or out, but given the relatively low bookings that we had, which we also guided for after with the Investor Day, you can imagine that not all of that is in the backlog at this stage.
Okay, got it. I think in the last 12 months or so, commodity DRAM and commodity NAND, which historically are a reasonably small part of your revenues, have been very, very low in terms of capital investments. If we were to see greenfield capacity addition for 3D NAND, but also investments in DDR5, do you think that could become a meaningful driver in 2026 or is your participation in those markets fairly de minimis? Yeah, I can take this question. I think that as DRAM devices will improve, increase, there's more and more ALD layers and with that we expect an increase in our business from that point of view. I think you said 25% is memory. Is it like a really small sliver of your revenues today that's in basically ex-HBM?
Most of the revenue right now is actually in HBM DRAM. Okay.
Okay.
That's what it is.
Yeah.
Thank you so much.
Thank you, Didier.
The next question is from Tammy Qiu, Berenberg. Please go ahead.
Hi, thank you for taking my question. The first question is on GAA. I remember earlier this year you were saying that GAA order would be up quarter on quarter in 2025. Now we have a little bit of timing-related issues. Going to 2026, would you say that GAA would be still growing year on year versus 2025 level? How should we be thinking about this pattern from an order perspective?
We see that 2026 is going to grow in GAA versus 2025. I think in 2026 there's going to be two things happening. First, 2 nm production will continue in gate-all-around. We also see the 1.4 nm node starting pilot production in the second half of the year.
The other thing that we see happening is that there is going to be more customers at 2 nm technology nodes in 2026 versus 2025, which is also driving some new business, especially in the U.S.
Okay, thank you. Also, 1.5 nm—sorry, 1.4 nm. You mentioned the first batch of order for pilot line should be starting to be seen in. Is that coming from all the customers or is this only from one customer? When would you expect the volume kind of ramp-up phase for 1.4nm that produce in?
To answer your question, right now for the 1.4 nm in our numbers, what we looked at is one customer in 1.4 nm in the second half of 2026. We hope that there's going to be another customer in 2026. That will be also better business for us in 2026.
Sorry, the volume ramp-up time frame.
The volume ramp up is going to be very small. It's a pilot production in the second half of 2026. That's what we put in. The 2 nm node, as we mentioned, is a very long node. 2 nm is going to continue in 2026, also 2027. It's a very long node. As you know, the 2 nm node has sub nodes with different structure, like different structure, like MIMCAP , like backside power distribution, and so on and so forth. For 1.4 nm, I think the big production, the start will be 2027 and 2028.
Thank you, Hichem.
Thank you.
The next question is from Robert Sanders, Deutsche Bank. Please go ahead.
Yeah, hi. Maybe a question on the gross margin. You're looking for a double digit decline year on year in 2026.
When I plug in a kind of estimate for China gross margin, that means that the consensus gross margin looks too high by quite a big margin. Is there anything that could mean that the gross margin is not well down next year? As I think about next year. Thanks.
I'm not sure I understand the question, Rob. You say a double-digit decline in gross margin .
In China.
You put in your release a double-digit decline in China sales.
Okay.
Yes, okay, fine.
I look at the consensus and the consensus is pretty optimistic on gross margin for next year despite the China mix being a headwind. I was just wondering if there's any reason why the gross margin ex China would improve. Thank you.
Improve compared to what?
Calendar 2025. Thanks.
I think I have to disappoint you because I don't see it improve compared to 2025, to be very honest. In 2025 we have a few things that are very important. One, we have a pretty still strong level of China sales over the full year, with H2 below H1, Q4 below Q3, etc. If you look at the full year, there is still a pretty strong level of China sales, and we expect to meet a double-digit decline next year, which, everything else equal, will have impact. Two, we have a very strong product mix, especially with, of course, 2 nm ramping. You have a lot of leading edge products and, relatively speaking, lower, let's call mature products, power/analog/wafer , etc.
Next year, when we also expect, of course, still continued growth in leading edges, as I just explained, we also expect growth in, let's say, the power/analog/wafer . Relatively speaking, the rate of that segment will increase a little bit. That doesn't mean that every product in that segment has a lower margin than leading edge product, but on average I think it's fair to say that leading edge we can demand higher margins than in that segment. If you add it all together, lower China sales and a slightly different mix, relatively speaking, you very likely get to a lower margin than in 2025. How much lower? I'm not going to tell you.
At the end of the day, it all depends on customer mixture and product mixture. I think that, as Paul has mentioned, we have made some efficiency in our business, our cost structure in such a way that we fundamentally improved our gross margin from previous years. We're going to see what's going to happen in 2026, but we are very happy with what we achieved this year.
For us.
For 2025, this is a record for ASM, really record. That's an indication of first our position in the market, our competitiveness, but also in our cost control and better operation efficiency, and we will continue to really drive that in the future. We're not stopping right now.
Maybe to add, Rob, that's of course also the reason why we have increased our margin guidance during the Investor Day from 46% - 50% to 47% - 51%. Overall, indeed we see improvements based on everything that is also just once more emphasized.
Got it.
Thank you.
Thanks, Rob.
The next question is from François Bouvignies , UBS. Please go ahead.
Thank you very much. My first question, Hichem, is from your new wins in APN, ALD, dipole, and what function that you talked about in the DRAM, HBM. Can you just provide more details on that design wins? Did it happen in the quarter? Was it competitive? You said in your remark that it was for 2026, 2027 time frame, which I thought it would be more like 2027. Is it earlier than you expected, maybe, these wins, and how many layers are we talking about? I know it's many questions within that, but basically giving more color on this Epi and ALD dipole design wins you had this quarter.
Yeah, I'm very excited about the wins that we have made in both Epi and ALD in the last quarter.
This is really work we've been doing with our customer for the past couple of years, and we've been able to become POR for this business, and with starting HVM, high volume manufacturing, in 2026 and beyond. As I mentioned, we are really working with many customers and on more and more layers and products. I think what we have seen right now in the industry is really a pull-in, in a way, in some of the high performance. I think the market is becoming super hot from that point of view, and we see that the customer, our customer, really wants to have a higher performance. With a higher performance, we see some of the things have been a little bit pulled in.
I think the majority of the business, a bigger business for us, really would happen when the move of DRAM to FinFET, I think that would be great. We see many of the memory customers also very much using advanced packaging, and we're working with many of those right now on some of advanced packaging at least. I think we see that 2027 and 2028, where things will become much more positive from that point of view. 2026 will be the start, and 2027, 2028.
How many layers did you win specifically for that this quarter?
Many layers. To be honest with you, we have many customers right now, we are actually working with all the DRAM customers, and you will hear in the next few quarters more and more wins as those materialize.
That's great, thank you. Maybe China, I mean China, you forecast double-digit percentage growth.
It seems that everybody is seeing the same thing. Double-digit decline, sorry, percentage next year for China business. Lam is seeing the same. ASML is seeing the same. How do you build your forecast? Out of interest, because my understanding is China is quite low in terms of visibility right now. You had some restrictions that only impact 1%- 2% of your sales. Obviously, the more bigger of your China business. You know, how do you build this forecast out of interest? It's very difficult to know where China is going to be next year. When I look at the Litho imports are cruising significantly in the second half of the year versus H1 this year, I would think that you should see decent share from a deposition and etching point of view. You know, just wanted to understand how you forecast China.
Let me take that question, François. The very short answer is customer intel. We have people on the ground. We try to get as much as we can, insights into the plans our various customers have into new fabs that are being built or not being built. Every year we have an idea. You're correct, there is limited visibility, that's also true for next year. There's no change from that point of view. Still, based on the number of new fabs that you think might start, based on input in that respect that we get from customers, we had one year it's maybe higher than the other year. That's an important input for us. Last year we had that input for this year where actually at the beginning of the year, we were maybe a little bit prudent.
Looking back now, China did a little bit better than we anticipated, but not to the extent that it was better than the year before. For next year, it could be slightly higher, slightly lower than what we currently think. In any case, what we see based on all the intel that we have is what we guided and what we said in the press release. That is, let's say, the best guidance we can give you. Based indeed on the limited visibility we have. It's still supported by as much as possible customer intel that we can get.
Makes sense. Thanks a lot.
Thank you.
The next question is from Jakob Bluestone, BNP Paribas Exane. Please go ahead.
Hi, good afternoon. Thanks for taking the question. I had a slightly similar question actually. I mean, you say that you expect the order trend to bottom out in Q4 at a slightly higher level than in Q3 and then sort of gradual recovery through 2026 and I guess just interested in the sort of broader business. Where do you get the confidence from that?
Is that what you're starting to hear from your customers, or was that just
From the various announcements that have been made, just to get a sense of how concrete is your confidence on that trajectory that you've laid.
Out for the improvement in orders?
Like what Paul has mentioned earlier, we are very close to our customers, especially we are extremely close to our larger customers since we're working with all of the top logic company, Leading Edge, in Leading Edge logic and foundry. That's the information we get from them. I think they have their investment plan for 2026 and based on that, we are talking to them and we know what kind of business we're going to achieve from them. We feel confident from that point of view. Okay?
Understood. If I can just ask a quick follow up as well. Just on lead times, can you comment on whether the lead times, particularly for advanced logic, are changing or have they stayed the same?
With lead times for us as a company, we always said that our lead times used to be six months, but as I mentioned during the Investor Day, actually we have made a significant improvement. Improvement whereby we can reduce our lead time to about three months right now. We have made significant efficiency in our business processes, in our manufacturing and operation in such a way that we can be very fast and really be able to meet customer expectations.
Understood, thank you.
Thank you, Jakob.
The next question is from Nigel van Putten, Morgan Stanley. Please go ahead.
Hi, good afternoon. I guess another question on your sense of growth into 2026. What are the areas you are seeing the biggest certainty and uncertainty in terms of materiality both on positive and negative?
My guess is that the advanced foundry is pretty predictable and a strong positive into next year and it seems to be that maybe more advanced logic and also power/analog/wafer are maybe a little bit more uncertain. Am I in the right ballpark here? Do you think that you could still grow if these two areas do not show growth next year? That's my first question. Thanks.
Yes.
I think you're directionally correct, Nigel. I think where we, as said, where we have, let's say, the.
Most.
Reliable, maybe too strong, but we work with forecast with customers and especially if the larger customers and especially if the leading edge logic/ foundry , the quality of the forecast that we get is better, I would say, than with quite a few other customers. That's one. There we have, I think, most confidence. That does not necessarily mean that things cannot change and things will always change for sure, etc. Will always happen, will happen next year. I know that's the area where we have most confidence. I think in DRAM, given everything that is happening there, if you read all the market intel, there is capacity shortage. I would say demand is higher than supply. I think we're relatively confident on what we can achieve there. There we have quite some visibility. We just talked about China. We do believe China will come down.
As we said, there is limited visibility, but it's not that we steer completely in the dark. We have still reasonable customer intel, but not as good as what we have from the logic/ foundry customers. For the power/analog/wafer , I would say it's maybe most uncertain. That market is now 7/4 and by the end of the year 8/4 in a cyclical downturn. It is more based on the fact that at a certain moment in time that market should also start to see a turning point. There we do not yet see that in orders coming in, but we do expect that to come in and partially also based on, I guess, on customer intel. That, I would say, is maybe the most uncertain one. We would expect that to happen somewhere in the course of next year.
Got it. I'm going to use my follow up.
To still maybe press a little bit on sort of the dynamics, you've also pointed out this quarter that there is still quite a bit of difference between one and the other. Maybe just for your forecast, are you sort of assuming multiple customers to grow next year in a material way, or is that not your base assumption at the moment?
Yeah.
What is basically, if you talk leading edge, four customers at this moment, I think two of them, and I leave it up to you to guess which one, we are reasonably confident that they will grow. One of that is still uncertain, and it's not an unimportant one, but yeah, we'll see what will happen there. We have of course a certain view baked into these predictions that we have given, but at least two and maybe three.
Yeah, I think if I add something to what Paul has mentioned, I mean we see customer concentration has increased in the recent quarter for advanced logic/ foundry , and we think it will continue in 2026.
That's good.
Thank you.
Thanks, Nigel.
The next question is from Stephane Houri , ODDO BHF. Please go ahead.
Yes, hello, good afternoon. Actually, I have a question about 2027. I know you just gave a sense of guidance for 2026 with a very low point apparently. It means that there's a need for an acceleration in the second half, but overall we should expect probably a growth, a kind of low growth next year or mid single digit growth, I don't know. It means that to reach your 2027 target, you need to have a double digit growth in 2027 at least. What are the pieces of the puzzle we should look at to understand if you're in the good trajectory or not? Thank you.
Fair would you say, Stephane? I think firing in all cylinders is the right description here. As I think he already said in the beginning of the call, end of this year or middle of the second half this year we expect pilot investments in pilot for 1.4 nm and then going into HVM in 2027. That's a big driver. You've seen the SAM increase that goes with it too. Of course, we would expect memory to continue to be good on the back of, in particular, AI which now, by the way, is driving both HBM but also, let's say, conventional more high performance DRAM in particular, which should be good by 2027.
I mean, if power/analog/wafer by then is still not recovering, then okay, I don't know what is happening there, but you would expect logically that also there by that moment in time you would see a turning point and also spares and services business will continue to grow as we, based on outcome-based services, you said during the Investor Day. Firing on all cylinders would be, I think, the right description here.
Yeah. One thing I would add to what Paul has mentioned is also what we see in 2027 is, in logic, you're going to have 2 nm continue investment in capacity, but also the capacity increase in 2027 for the 1.4 nm node. You're going to have really leading edge 2 nm and 1.4 nm, significant investment in those two technology at the same time. Because 2 nm is actually very strong. It's a very strong node, it's a very long node. That's what our customers are telling us. As you know, there's many sub nodes 2 nm. Investment into 2 nm is still going to continue at a very healthy level in 2027. At the same time, you have the 1.4 nm expansion in that same year.
Thank you. I just wanted to come back on China where you see double digit decline next year.
Are you sure that this is only the market and that you are not facing an increased level of local competition? There is more and more noise about the efforts they are making and the quality they are attaining. Can you maybe describe the situation there and the sustainability of your market share? Thank you.
That's a good point. I think it's a combination of both things. One, China, we've seen everybody, actually also our peers, have seen a very high level of investment in the last two years or so, two and a half years. We've already communicated, I think end of last year, that we would expect this to gradually normalize, whatever that means. Two, with recent, let's say, announced export controls, that also has impacted us to a certain extent, but also our peers, although it's maybe not material. That's 1%- 2% of our annual revenue globally, but it's still a few percent of our China revenue, which again leaves a vacuum for local competition to step in.
Yes, local competition will for sure benefit from this, will get on a quicker learning curve because the unfortunate reality is that because of all these restrictions there is a playing field, an unlevel playing field, where local competitors can step in with what we would say are inferior products compared to our products, but at the same time learn at an accelerated pace compared to the situation if they would not have been able to get their products into customer fab. It's a combination of these two things, I would say.
One thing I would add to what Paul has mentioned. We think that, you know, we are very competitive in China vis a vis the Chinese competitor. We don't see our position to be really worse than what it was before. I think where our products are very good and we continue innovation unabated, which really gives us an edge from that point of view in China. What 2026 shows for us right now is we have really very low visibility on how some of the part of the market is going to materialize. I thought today in my prepared remark that we have won some significant business in Epi Intrepid ESA in the power/analog/wafer , and some of those businesses are actually happening in China. That shows really our competitiveness in that market.
I think if the power wafer analog market recovers, that's going to be also very positive for us in the future. As you know, in the power, visibility is not very long. That market can go down immediately and go up at the last minute. That's really a question we're going to find out in 2026. We are very competitive. We think we can compete very well in that market, and it's an important market which we're going to continue to address.
Thank you, Hichem and Paul.
Thanks.
The next question is from Adithya Metuku , HSBC. Please go ahead.
Yeah, good afternoon guys. Thank you for letting me on. I had to firstly look, when I look at your growth, you've always tended to outperform WFE given the company specific growth drivers. As I look out to 2026, is there any reason why you will not outperform WFE next year?
Is there any headwind that we should keep in mind? Any color there would be helpful. Then I've got a follow up.
I think on the outperforming the wafer fab equipment, we have mentioned that in our Investor Day that we will outperform the wafer fab equipment when going from 2024 - 2030. From 2024 - 2030 doesn't mean we're going to outperform it every year. We're unsure about that. We are already saying that 2026 for us is actually a growth year, which we are very confident about. To answer whether we're going to outperform in 2026, that's too early to say. What we can tell you is that from 2024 - 2030, we will outperform the WFE market.
Got it. Maybe just on that.
I mean, if you were to underperform, given where you sit today and your visibility into the different end markets that you talked about on this call before, if you were to underperform, what would be the reason? I struggle to see what. I don't see any reasons, but I'm just trying to see if I'm missing something here.
It depends really on the WFE mix. What's the mix of products? Memory versus logic versus power wafer, and a lot, it's really mix dependent.
Okay, got it. Just as a follow up, Paul, I just wondered if you could give us some color on OpEx in 4Q. I know you commented on SG&A, but I don't think you commented on R&D. Also, if you could give any color on how we should think about OpEx into 2026, that would be super helpful. Thank you.
Yes, so R&D for Q4 I think will be similar to Q3, gross R&D and most likely also net R&D. SGA Q3, you mentioned that there was relatively low variable expenditures where we made an adjustment based on certain accruals that were made. I think the Q2 is more of an indication than Q3 going forward and into 2026. We've given guidance in the Investor Day, we will continue to invest in R&D, which is a lifeline. There you will see gradual increases compared to this year. As you may, we will keep very tight and as a percentage of revenue, with revenue growth, you would expect that to come down a little bit.
Thank you, Adi. Can we have the next caller please? Operator.
The next question is from Timm Schulze-Melander, Rothschild & Co Redburn . Please go ahead.
Yeah, afternoon gentlemen. Thank you for taking my questions. My first one, just very big picture. Maybe a question for Paul. 2026. Should we expect the aftermarket side of your revenues to outgrow system sales and then had a follow up?
I have a view. I'm not going to tell you because it's too early to tell. What I can say is that we do expect healthy growth in our spares and services business in 2026 compared to 2025.
Okay, great.
It's too early to already say it will be high or low. What we do see, what we believe will happen is that we will continue to see a very healthy growth in ASM 's service business.
Okay, that's helpful. Maybe just one other one. If we just, you talked a lot about how important mix is to the outlook in 2026, could we just, when we think about your ALD business, I know you've talked about it being more than half of your system sales, but could you give us a kind of 5% - 10% range of kind of what that ballpark looks like for 2025? Thank you.
No, we were not going to give very specific guidance. All of them we've given. We've always said ALD is more than half of our equipment business, which indeed it still is and maybe this year more so given the ramp of 2 nm. It's also one of the reasons why the margin is where it is. Also given that again the more power/analog/wafer market is down. Relatively spoken, lower percentage of the overall mix and of course still China strong, although below last year was still strong. When you're adding that all up, that's what you get what we have. We're not going to give specific guidance within a few percentage what we stand with it will be okay.
Given your prior comment about power/ analog and some of the other mix, as a percentage of sales, ALD might be flat or down as a percentage of your equipment sales in 2026. Thank you.
It's depending on what we assume and depending on how much the relative markets grow, there might be indeed, relatively spoken. Now we're really talking scenarios, there might be, relatively spoken, slightly lower share of ALD compared to power/analog/wafer . If, and it's a big if, if power/analog/wafer will grow more, faster, faster than ALD. That's still to be seen as well. It's really too early to tell. I really don't know. We have, of course, certain scenarios and assumptions, but it's too early to give external guidance on this.
All right, thank you so much.
The last question is from Marc Hesselink , ING. Please go ahead.
Yes, thanks for squeezing me in. I have two actually on two bit smaller categories. First, the advanced packaging that you also now point out again in the press release, also at the Capital Markets Day, spent some time of it. The fact that you're really focusing on it, does it show that this is something that can be material as well over the coming years and how do you expect that then to ramp into your revenue numbers?
Thank you for the question. I think we mentioned that we have made some wins in advanced packaging the past quarter, which we are really very excited about. We really think that advanced packaging is very enabling.
We think that as a company we can provide meaningful innovation and disruption to the market in the area of new materials and in the area of surface preparation. Based on our experience in both ALD and also chemistry, we have a significant engagement the past few quarters with some key customers in both memory and logic, high-end logic, to develop some of those films. We're very excited about this part of the business and hopefully we see more and more wins in the next few quarters and we'll keep you updated of those win times.
Maybe to add, is it then material or is it just the first start of something that can be material in the future?
It's really the first start. It's really the start right now. That's why we're excited about the future of the company.
I think that would be something that, let me say, very excited about it. To be honest with you, I think there's, there's, we see customers putting in very hard. I think, as you know, in both memory and logic, heat generation is a big problem. We're developing some films that really would reduce the hotspots with higher conductivity capability. We see films in them actually in the microphotonics area too, developing films that can reduce light dispersion. It's really one area that becomes very important for both the logic and the memory customers. That's an area that hopefully is going to be very accredited to us in the future.
Great, thanks. The second question is actually on LPE. You paid the earn out in the quarter, so you did hit the milestone for that one.
I mean, I think in the press release you can still read that it is very, very weak at the moment and also no recovery into next year. Can you then still talk about the building blocks? Why did you still reach the milestones and when did, are you still confident on this one to pick up? Maybe in the longer term.
Simple answer. The milestones were based on 2024, and 2024 was a star year for us with almost, I would say, explosive growth in silicon carbide . If the milestones would have been based in 2025, they would not have been met. The reality is that they were based on 2024, and 2024 was a very strong year for silicon carbide .
Okay. No feasibility on that improving in the beyond 2026 period.
We of course expect that market to come back at a certain moment in time, not yet. For next year at least, we see no evidence for that to start to happen next year. We still believe that there is a market, a good market for silicon carbide , that we will start seeing coming back, hopefully also in 2027. Again, it's too early to tell.
Okay, thank you.
G entlemen. There are no more questions registered at this time. I turn the conference back to the management for any closing remarks.
Thank you all for attending our call today. Also, on behalf of Paul and Victor, we hope to meet many of you again in the upcoming investor conference and other events. Thanks again and goodbye.
Ladies and gentlemen. Thank you for joining. The conference is now over and you may disconnect your telephones.