Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the ASM International Q1 2023 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, Sherry. Good afternoon, welcome everyone to our Q1 earnings call. I'm joined here today by our CEO, Benjamin Loh, and CFO, Paul Verhagen. ASM issued its first quarter 2023 results yesterday 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, along with our latest investor presentation. As always, we remind you that this conference call may contain information relating to ASM'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 now hand the call over to Benjamin Loh, CEO of ASM.
Thank you, Victor. Thanks to everyone for attending our first quarter 2023 results conference call. We know it is a busy day for all of you. I will follow the usual agenda for today's call. Paul will first review our first quarter financial results. I will then continue with a discussion of the market trends and the outlook, followed by Q&A. I will now turn it over to you, Paul.
Thank you, Benjamin. Maybe first in my remarks, I will focus on normalized results. Details of the acquisition-related PPA expenses and reconciliation of normalized and reported results can be found in the press release and in the investor presentation. Let's now move to the financial results. In the first quarter of 2023, we delivered revenue of EUR 710 million. At constant currencies, this was an increase of 40% year-over-year and unchanged compared to the fourth quarter of 2022. Revenue came in slightly above the top end of our guidance of EUR 660 million-EUR 700 million due to a few shipments that were pulled in by customers from the second quarter. Equipment revenue increased by 43% year-over-year at constant currencies, led by ALD and Epi.
Momentum was also strong in our vertical furnace product line, which achieved a new quarterly high in revenue. Spares and services revenue had a solid quarter, up 21% year-over-year at constant currencies. In terms of customer segments, revenue was led by foundry, which increased both year-over-year and compared to Q4 and at a new quarterly high. Power analog was the second largest segment, strongly up and also at a new quarterly high. Logic sales were still at a healthy level, but decreased both year-over-year and quarter-over-quarter. This was followed by the memory segment, with sales substantially lower, reflecting the significant cuts in investments in this market. Gross margin increased to an exceptionally high level of 51.1% in the quarter, up from 46.9% in the fourth quarter of 2022 and 47.8% in Q1 of last year.
The increase in Q1 gross margin was explained by mix, including an exceptionally rich application mix within our ALD sales and also an increased contribution of China sales. In Q1, cost inflation further increased, although we still had some benefit from early ordering of materials that we did last year at relatively lower costs. In the following quarters, we expect an increased impact from cost inflation to a certain extent compensated by continued focus on cost reduction programs, including value reengineering and by passing on higher costs in the pricing of our tools. SG&A expenses increased 15% compared to Q1 last year, mainly reflecting increased headcount. The year-over-year increase in SG&A slowed down compared to the quarterly increases last year, which at that time were explained by the extra investments we made in strengthening our organization.
For the full year of 2023, we expect SG&A to be slightly lower compared to the run rate in Q4 of last year. Net R&D expenses increased year-over-year by 65%. Net R&D grew at a slightly faster rate than the increase of 51% in gross R&D, explained by a somewhat lower increase in capitalization of R&D expenses. The increase in R&D is explained by higher headcounts and an increased number of R&D projects. We continue to step up our investments in R&D to position ASM for the growth pipeline of opportunities that we see in the midterm. For the full year of 2023, we project net R&D in line with or somewhat above the run rate of Q4 2022. Operating profit jumped 55% year-over-year. The operating margin increased to 31.2% in Q1, driven by the exceptionally high gross margin.
In line with what we communicated with our Q4 results, we believe it is possible that the full year 2023 operating margin could be slightly below 26%. We remain committed to the structural target range of 26%-31%, we expect the operating margin to move back into this range beyond 2023. Below the operating line, financial results includes a currency translation loss of EUR 7 million. This compares to a translation gain of EUR 9 million in the first quarter of last year, Translation loss of EUR 36 million in Q4 of last year. As most of you probably know, we hold the largest part of a cash balance in U.S. dollar, the translation differences are included in our financial results. Now we'll move quickly to ASMPT.
Our share in income from investments reflecting our 25% share of net earnings from ASMPT amount to EUR 9 million in the first quarter compared to EUR 8 million in the fourth quarter, and down from EUR 24 million in the first quarter of last year, reflecting the slowdown in the back-end equipment market. Our reported results include an impairment reversal of EUR 215 million. This was related to the earlier impairment of the value of the stake in ASMPT in the third quarter of last year. Combined with the reversal in Q4 of last year, this impairment has now been fully reversed as per the end of Q1 and reflects the recovery in the market valuation of ASMPT. Now turning back to ASM operations again.
Our new orders in the first quarter were EUR 647 million, a decrease of 6% year-on-year, and a decrease of 20% from the fourth quarter at constant currencies. Towards the end of the quarter, order trends started to soften, including the impact from some pushouts in the delivery in the logic foundry segment, and to a lesser extent, incremental weakness in the memory segment. Looking at the breakdown in bookings by customer segments, foundry was the largest segment, followed by power analog, logic, and then memory. Combined logic foundry orders were fairly stable compared to Q4 and year-on-year. Power analog bookings dropped compared to Q4, but were still at a very solid level. As a reminder, power analog in Q4 included exceptionally high orders for LPE.
Supported by a strong backlog, we believe LPE continues to be on track for the 2023 revenue target of more than EUR 130 million that we communicated last quarter. Memory orders in Q1 dropped both in DRAM and NAND and were at the lowest quarterly level since 2019. Let's now have a look at the balance sheet. The financial position continues to be strong. We ended the quarter with EUR 573 million in cash, up from EUR 490 million at the end of the fourth quarter. Increasing cash was mainly driven by strong free cash flow of EUR 155 million, this compares to a free cash of EUR 99 million in Q1 of last year, excluding the cash paid for the acquisition of Reno in that quarter.
This increase in free cash was primarily driven by increased profitability. Working capital slightly decreased compared to the end of Q4, with modestly higher inventories offset by lower accounts receivable. CapEx amounts to EUR 26 million in the first quarter. We continue to project CapEx of EUR 150 million-EUR 200 million for the full year. A significant part of this will be spent on infrastructure expansion, primarily for our R&D activities. This also includes the first spending related to the EUR 100 million investment that we announced earlier to substantially expand our activities and global development centers in Korea. The EUR 100 million share buyback program that we earlier announced will start on April 27th, and it will run ultimately until November 15th.
In terms of dividends, as a reminder, we announced a regular dividend of EUR 2.50 per share, similar to last year for approval by the AGM on May 15th. With that, I hand the call back over to Benjamin.
Thank you, Paul. If we look at the industry environment, broader parts of the semiconductor market continued to slow down in the first quarter. The uncertain economic outlook, inflation, and monetary tightening further dented end market demand. Market segments such as PCs and smartphones continued to be impacted by substantial inventory corrections. TechInsights recently lowered its forecast for the overall semiconductor market to a drop of nearly 8% in 2023, compared to a decrease of 4% previously expected. The biggest drop is forecasted for memory, but TechInsights now also predicts a small decrease for the logic foundry-related part of the semiconductor market versus growth that was expected only a couple of months ago. Automotive is still a bright spot for which continued growth is expected. Against this backdrop, our results were still good in the first quarter, as Paul just discussed.
Our revenue increased somewhat more than initially expected in the first quarter, driven by pull-in demand. The fact that we could ship a number of additional tools is in part thanks to the supply chain situation, which has improved substantially compared to last year. However, it has not yet fully normalized as we are still facing constraints and extended lead times in specific areas such as for certain components and specialty materials. Logic foundry was again the key driver for us in the first quarter as leading customers continued to add capacity in the most advanced nodes. Supported by the record high order backlog at the end of 2022, our logic foundry sales were very robust in the first quarter.
As we highlighted on previous occasions, the new logic foundry nodes that went into volume manufacturing in the recent periods have been positive inflections for ASM, with strong double-digit increases in ALD layers and applications. Towards the end of the quarter, demand started to soften in leading-edge logic foundry. This has continued in the recent weeks. We have seen that a few customers in leading logic and foundry have started to push out some tool deliveries in certain advanced nodes. In the first place, we believe that this reflects the further softening in end market conditions. Although investments in the advanced nodes are part of multi-year programs, we have observed that some logic and foundry customers are taking a more prudent view to their investment plans for this year, pushing out some tool shipments by a few quarters.
We believe that some customers have seen a delay in the completion of new fab infrastructure, and as a result, have shifted some of the related equipment investments from 2023 into 2024. This softening trend in demand impacted our order intake at the end of the quarter. We expect these push outs to have a more pronounced impact on orders in the second and the third quarters. To be sure, despite the decrease in the second half, overall investment in leading-edge logic and foundry will still be at a very decent level in full year 2023. We still expect our strong exposure and leading position in logic and foundry to drive an outperformance for ASM relative to WFE this year. For the next years, our view is unchanged, that leading-edge logic and foundry will remain an important growth market for our company.
Importantly, we have not seen a change in our customers' focus to move to the next nodes. gate-all-around nanosheet technology is expected to enable further improvements in device performance and power efficiency, which in turn will be the key for future data-intensive applications, such as in AI. We believe customers' finalization of the gate-all-around process is on track with volume introduction plan for 2025. We expect gate-all-around related demand to start supporting our orders from the end of 2023. We have a really secure tool of record selections for what we believe to be critical and high-growth ALD applications in gate-all-around devices. In Epi, we are also strongly engaged with leading customers, and we expect gate-all-around to drive further share gains. In the memory market conditions further worsened in the first quarter, evidenced by further pressure on memory prices.
Memory customers are not only cutting down on investments, but have also been lowering their production and utilization levels in order to reduce excess inventories. CapEx is currently largely limited to some modest technology investments. We do not anticipate a meaningful recovery in memory spending in the remainder of the year. Memory WFE is expected to be down by a significant double-digit percentage this year. Looking beyond the current downturn, we believe that ASM is going to benefit once memory spending recovers. Last year, we won a number of new positions in 3D NAND with our ALD gap fill solutions. In DRAM, we expect a further increase in high-k metal gate adoption in the next node transitions. In addition, we have expanded our R&D engagements for new applications in next generation DRAM and higher stack 3D NAND, which we expect to further strengthen our position in memory ALD.
The trend in the analog power sector remains solid. Consumer-related applications are weak, but automotive-related demand continues to be very strong. Revenue in this segment increased strongly for us, even excluding LPE. In the power analog segment, we are also benefiting from strong momentum with our products. Our Intrepid ESA tool for 300 mm power and wafer manufacturers continues to do very well. Demand for SONORA, our new 300 mm vertical furnace that we launched last year, is also very strong with both existing and newly won power analog customers. With multiple SONORA systems shipped, we had record high vertical furnace sales in the first quarter. A meaningful driver for our power analog and wafer business is also the Chinese market.
As just discussed by Paul, the contribution of China to our sales increased in the first quarter, both compared to the fourth quarter and year-on-year. In addition to power analog, our sales also increased in the logic foundry segment of the Chinese market. In part, this reflected the impact from the rebookings in the fourth quarter. As a reminder, in the third quarter, we conservatively de-risked the backlog by taking out all orders for the Chinese market that could be impacted by the export controls that were announced on October 7th. At the end of November, we announced our assessment that an estimated 15%-25% of our China sales would be impacted by the export controls. We subsequently rebooked the orders that we could still ship, fully complying with all rules and regulations. A meaningful part of these rebookings contributed to sales in the first quarter.
Some customers in the Chinese market continue to invest in equipment for the relatively advanced nodes, which have not been impacted by export regulations, while we believe that some other customers have decided to shift their focus to somewhat less advanced nodes. At the same time, we have also noticed a much stronger increase in logic and foundry fab projects in the older technology nodes, such as 45 nm and older. Our participation in the older nodes is limited to the niche segments of power, analog, and wafer manufacturers, where we have achieved a solid position, as just discussed, with our vertical furnace and Epi solutions. In older node, logic and foundry nodes, ASM is relatively underexposed, so we don't really benefit from increased investment in that area. Moving on to LPE. Let me provide you with an update on LPE.
We believe the products and technologies that LPE has in manufacturing and also in development are very competitive. Now the LPE is part of the ASM group, we already are seeing tangible benefits for customers, such as strengthened global customer support. We have seen a strong increase in R&D engagements for next generation 200 mm tools, now with virtually all of the leading players in the silicon carbide sector. Last quarter, we already mentioned the first orders from a new U.S. customer, and we believe we are very well-placed for additional customer wins in the coming periods. For this year, as mentioned earlier, we continue to expect strong growth for LPE, with revenue in excess of EUR 130 million. For the coming years, we expect LPE to further strengthen its position in the fast-growing silicon carbide market. Now turning to the outlook.
Following strong revenue in the first quarter, we expect sales to remain at a good level of EUR 650 million-EUR 690 million in the second quarter at constant currencies, again, supported by our strong order backlog. The trend in logic and foundry softened towards the end of the quarter, with some pushouts in advanced node investments. This had a limited impact on first quarter orders, with a more pronounced impact expected on second and third quarter orders. Due to pushouts in leading-edge logic and foundry, and to a lesser extent, further weakness in memory, we now expect our revenue in the second half to decrease by 10% or more compared to the level in the first half at constant currencies. This compares to our previous expectation for somewhat lower revenue in the second half.
For the year as a whole, we expect our revenue to increase by a single-digit percentage, including LPE and at constant currencies. This compares to the WFE market, which is now expected to drop by a high teens percentage in 2023. For the market in total, the impact of pushouts in advanced node spending is partly compensated by increased mature node spending in logic and foundry, especially in China, but this is a market where we have only limited exposure. The longer term trends remain positive for our company. Despite the correction in 2023, structural growth is expected for the semiconductor market, driven by new applications in cloud computing, artificial intelligence and electric cars. Our customers remain committed to their technology roadmaps.
The next generation devices with higher density will be enabled by new 3D architectures, further miniaturization and new materials, which in turn will drive increasing ALD and Epi requirements. In logic and foundry, the gate-all-around transition will drive a significant increase in ALD applications and opportunities to further increase our Epi market share. In memory, we expect to increase our ALD position in next-generation DRAM and 3D NAND devices. In power analog, we have significantly expanded our position. With silicon carbide, we have added a new growth engine to our portfolio. With that, we finish our introduction. Let's now move on to the Q&A.
We'd like to ask you to please limit your questions to not more than two at a time, so that everyone has a chance to ask a question. All right, Sherry, we are ready for the first question.
Thank you, sir. The first question comes from Robert Sanders of Deutsche Bank.
Yeah, thanks for taking my question. I guess the first question would just be on the China business, domestic China business this year. I think ASML has talked about their business doubling in the current year versus last year. I was just wondering if you could give us some feel about how much growth you're gonna see in the domestic China business in the current year, I have a follow-up. Thanks.
Thanks. Thanks, Robert. As we explained a little bit earlier, I think, you know, we will see probably more business coming in from China compared to, you know, previous years. It's not going to be at the same level as what perhaps one of our peers have mentioned. You know, this is explained by, you know, the stuff that are really in what you call mature nodes, you know, 45 nm and above, there is very little play for us there. I mean, you don't really need, you know, ALD at 45 nm, 65 nm, 90 nm. There is very limited exposure for us. You know, some of our peers would be benefiting from that, but they're very much less for us.
Got it. On the follow-up would just be around OpEx. If I just take your comment that you expect to be just below the bottom end of your profit margin guidance of 26% and upwards, does that mean your OpEx will actually grow not that much this year, maybe 10%? Just can you give us some idea of how much you think OpEx will grow in this year? Thanks.
Yeah. No, of course, Rob. For OpEx, our target for the year will be that we keep, let's say, SG&A costs, somewhat below the Q4 run rate. Last year Q4 was EUR 75 million. Our target is actually Quarters. Q1 was maybe lower than what you should think of. It is expected and targeted to be below the EUR 75 million, somewhat below the EUR 75 million. For R&D, Q4 was also at EUR 75 million. I would expect that to be more or less the run rate for 2023, with some pluses and minuses from quarter to quarter. For the full year, I would expect more or less Q4 run rate for 2023.
Thanks a lot.
Thank you, Rob.
The next question is from Sandeep Deshpande of JP Morgan.
Yeah, hi. Thanks for letting me on. My first question is on your backlog. When we look at your backlog, at the end of last year and the order intake, you had in Q1, you were only a couple of hundred million of orders away from what the consensus revenue for the year was. Can you talk about has the backlog been pushed out or canceled? Secondly, with regard to your guidance on the second half, that sales are slightly softer than what you had previously guided to, can you talk about the companies where you're seeing this? Thank you.
Sandeep, thanks a lot. On the first question, yes, I think, you know, with some push outs, you know, we probably have some adjustments in the backlog. As we have always explained, what we report as backlog is only what needs to be delivered over the next 12 months. Should anything drop out, or let's say, you know, get pushed out and is more than 12 months, we will have to, you know, take that out. And, you know, that is the adjustment that we have done as far as the backlog is concerned at the end of Q1.
On the second half, you know, the way that we look at this, and, you know, we have really tried to give, you know, a pretty good view of what we think is going to happen. A couple of things here. One, of course, we look at, you know, some of the logic and foundry, the leading-edge logic and foundry pushouts. Some of them do have an impact, and we made an adjustments for that. Of course, it's our view that I think memory is going to continue to be weak. The rest should hold up pretty well. With that, we kind of change our guidance.
Previously we said it will be, you know, somewhat lower than the first half. Now we think that it will be at 10% or more. That's the reason why we changed the second half guidance.
Thank you.
The next question.
Thank you, Sandeep.
I apologize, sir. Excuse me. The next question comes from Adithya Metuku of Credit Suisse.
Yeah. Good, good afternoon, guys. Thank you for taking my questions. Just, firstly, just on the revenues, I just wondered if you could talk a bit about the second half, how you see the revenue split between third and fourth quarters. Are you thinking third quarter will be the trough, or do you think it'll take a bit longer than that? Secondly, I just wondered if you could give us some color on the eval tools, which went up sequentially in the quarter. Any color on which products and end markets drove the increase in eval tools would be helpful. I have a follow-up if I'm allowed to ask it. Thank you.
Adi, thanks a lot. I don't think we will give, you know, a split, you know, a breakdown between, you know, the third and the fourth quarter. I think, you know, we have shared whatever we could, you know, based on our view, realistically what potentially could happen in the second half, you know, a combination of Q3 and Q4. Hopefully that suffice. On the eval tools, you are correct. Maybe let me explain what is really happening in terms of the technology development, which actually drives the eval tools. Of course, we are right in the thick of, you know, working together with all three customers on the, let's say 1st- generation of gate-all-around.
A nd, you know, some of those tools, some of the, uh, eval backlog or let's say balances, of course, for tools that are still there, uh, and, uh, they are still in the process of, uh, you know, uh, development and, uh, evaluation. But at the same time, we are increasing eval tools that will be used now going, uh, you know, forward over the next couple of quarters as we ship them, uh, for 2nd- generation gate-a ll-a round. So I think I previously shared that, um, all three customers are very active. And, you know, besides just finishing off the 1st- generation of gate-a ll-a round, uh, work has already started on the 2nd-generation gate-all-around. And that's actually helping, in other words, causing the increase in the, let's say, balance of eval tools.
Net-net, it's very positive for us because we are heavily involved with all of them right in the thick of things. you know, it will take couple of years, especially for 2nd- generation gate-all-around. if you are not in there now, then you don't have a chance. we are starting very early.
Understood. I've got another question if I'm allowed to ask it or shall I join the queue again?
Can you please rejoin the queue?
Sure. Thank you.
The next question is from François Bouvignies of UBS.
Hi. Thank you very much. My first question is on a follow-up to gate-all-around. You mentioned in the release that you will see probably some orders by the end of the year from gate-all-around. If we look at what Lam Research said publicly, they said they got some multiple customer wins on the ALD low-k spacer and that gate-all-around is driving some kind of orders. Can you explain maybe why you maybe being a leader in ALD, you would probably see that, you know, at the same time, what magnitude can we, can you help us on the magnitude of orders you would get by the end of the year?
The second question is on your gross margin, obviously, significantly higher than maybe most of us expected. You mentioned two reasons for that is a mix in China and within ALD. I was wondering, you know, China is gonna probably continue, I mean, in terms of trend, at the moment, so I wouldn't expect the mix to change from China. What about ALD, you know, mix? In other words, the mix that we have seen in Q1, should we expect a drastic change in the next few quarters? Thank you.
Thank you, François. Maybe I'll take the gate-all-around questions and Paul can give you more color on the gross margin. First of all, you know, on the gate-all-around, let's say, penetration. All three of them are in, you know, in the phase where they are fast approaching the finalization of the process. Now, the way that this works is, you know, some of the work that is done is through evaluations, through joint development, but they also buy a couple of tools themselves, and we do have some of that as well.
Now specific to what you have mentioned about one of our peers, claiming that they have been winning certain applications, we are actually very confident of maintaining our market share, which is the largest in leading edge logic and foundry. Of course, you know, there will be some wins, some loses, but we are very confident that we will maintain our leading position there. We are not so concerned about that. In terms of the timing for ordering. I think if you, if you look back and say, look, all three of them are messaging that high volume manufacturing will start in, will be in 2025, and then you look back, maybe another year, where they start pilot manufacturing. You are correct.
We do expect to see, at least the orders for gate-all-around pilot, you know, happening or starting, from the end of this year.
Let me then take the question on gross margin. Indeed, there's a few reasons for what I would say an exceptional high margin in Q1. As you already mentioned, we had a very strong mix within ALD, which for sure we will not have every quarter, just to make that clear. The mix in China was good and strong, which helped a lot, but also given that we had some rebookings that were basically taken out end of last year. I think that the China sales in Q1, although China sales will continue, as you say, but maybe not to the same level as in Q1. That's still to be seen.
There was also a third reason, especially looking forward in Q1, we still had the benefit of, let's say, some benefit at least of advanced, yeah, purchase of materials, where there was some cost inflation, but not, let's say, to the extent that we expect to see that in the subsequent quarters. While at the same time already in Q1, we had some benefit from increased sales prices already. There was some small benefit from that part as well, which will be a little bit less going forward into the coming quarters. Having said that, the margins should still remain nicely within our guided range in the quarters to come. That should definitely be the case, but it's very unlikely that you will see a similar level as Q1.
Great. Thank you very much.
The next question comes from Amit Harchandani of Citi.
Thank you. Good afternoon and good morning all. Amit Harchandani from Citi. Two questions, if I may. My first question goes to the topic of pushouts and your backlog evolution. I'm trying to join the dots and figure out what's the level of visibility you may have today looking towards 2024. For example, the pushouts which are going out of your backlog, do you get the sense they are still there, but due for shipments next year? When you talk to your memory customers, is there any talk of rebound, anything on power and analog? My first question really is what's the level of visibility and confidence you have in 2024? Particularly because you also did say that you expect the operating margin to go back up beyond 2023. That would be my first question.
My second question is really more in terms of what you said earlier about cost increases. You talked about your own costs going up. Could you give us a sense for how your own pricing negotiations are coming together? Is it a net headwind for you, inflation today? If not, how should we think about inflation playing out for you over the subsequent quarters? Thank you.
Thanks a lot, Amit. I will take the first questions on the pushouts and backlog, you know, let's say visibility. Again, what we report in our backlog is what needs to be delivered over the next 12 months. You are correct. Some of these pushouts, especially some of the recent leading edge, so-called, you know, logic and foundry pushouts, you know, they will be pushed out probably, you know, into 2024. That, you know, we do have visibility there. Some of the, let's say pushouts, you know, that happened in the past or previously for memory, they may be a little bit longer. Still a little bit uncertain, depending on the memory recovery. I would say it's a mix.
Generally, I would say that if we look at 2024, I think we have, you know, some visibility into, you know, how our backlog is going to convert. To give an overall view of how 2024 is going to develop, that is still a little bit early. We, we will not, or we will refrain from giving any guidance as far as 2024 is concerned. Paul?
Yeah. On the pricing, I think it's fair to say, yes, is there a net benefit from inflationary cost pressure and sales price increase that we have been implementing? As I just mentioned, maybe in the 1st quarter, there was maybe a small net benefit because there we were still benefiting from advanced bill of material purchases, where we had less, let's say, cost inflation than what we will see in the quarters to come. In the subsequent quarters, I think it will be more or less a wash. I don't think there will be a net benefit. We put a lot of work and effort in implementing sales prices, and we have been reasonably successful, I would say.
Not everywhere, but in quite a few cases, we have been, we have been successful. I do believe with that, we will at least be able to offset inflation. I think it goes too far to say that there would be a net benefit other than maybe Q1, but that, they had a different reason, as you just explained. That was because of early purchases that we did already early last year and that we still had in inventory.
Thank you very much.
The next question is from Didier Scemama of Bank of America.
Yeah, good afternoon. Thank you very much. First question is on bookings. Can you help us understand, sort of the level you think bookings could reach in Q2 or Q3, so that we have a feel for what your backlog might be at the end of the third quarter? Related to that, on your press release, you mentioned that you've got a meaningfully, I think, stronger position gate-all-around, presumably versus the traditional ALD applications, and you expect that to start contributing to bookings in Q4. Should we read from this that Q4 bookings could start to inflect sequentially, or are you not prepared to make that comment? Thank you.
Didier, thanks a lot. I think we will share that, you know, we have shared that basically Q1 bookings were slightly impacted by some of the logic foundry or leading edge logic foundry pushouts. We have also shared that this would have more impact as far as the second and the third quarters bookings are concerned. We will probably just leave it as that, you know, as we do not guide, you know, bookings anymore. You know, the gate-all-around impact in the fourth quarter. This is what, you know, we can say. You know, as the three companies start to go into preparing for pilot production, this should happen in 2024.
If you just work back on lead time and so on, we do expect that some of these orders are going to land in the fourth quarter. We do expect that that's gonna help us, you know, with the order situation. Exactly, in terms of timing, you know, whether all three of them do it at the same time, or again, there's a difference of a couple of months and so on. I think that at this moment is a little bit difficult to tell.
All right. On the meaningfully better position in gate-all-around, would you be prepared to say that once you are in volume production, you know, let's say 2025 or 2026, your gate-all-around market share, let's say for ALD, I guess, would be better than 50%-55%, or are you not prepared to make that comment?
It's, it's probably, again, a little bit early for us to make that, you know, kind of guidance. Perhaps I can share it with you this way. We do think that, you know, we are in a position where we will maintain our leading position as far as overall leading edge logic and foundry is concerned. Based on the, you know, traction, the engagements that we have with all three main customers, we think that we are in a very good position to continue doing that. I think once the process development is finalized, probably middle of this year or let's say a little bit in the third quarter, I think we would have a better view whether we have gain share.
I think, you know, we are prepared to share that information, you know, when we have our Investor Day, you know, later on in the second half of this year.
Thank you.
Thank you, Didier.
The next question is from Lukas Tamulevičius of Jefferies.
Hi. Hi. Good afternoon. This is Janardan Menon. I'm also dialing in on Lukas' line. Thanks for taking the question. Two questions from me. One is on the pushouts on the foundry logic side. Given the size of your backlog and the fact that China presumably is interested in taking equipment when they can, you know, what are the chances that you could ship some of the pushed out machines to customers other than those who pushed out, especially those in China? Is it that these machines have already started being built and therefore cannot be re-customized, or is it that they're more high-end systems which cannot really be sold into China at this point in time?
Sure, Janardan. I think it's a mixture. I think, some, if we can do it, of course, we will repurpose or reposition them, you know, to meet, you know, more, let's say, urgent demands. I think in general, when you look at leading-edge logic and foundry, the ones that are at, you know, 5 nm and below, these are equipment that you, that are slightly different, I would say, and that you don't need at the 28 nm node. You know, there is no one-to-one type of just, you know, repurposing. Of course, again, if we can, we want to do it, and we have been doing that.
Some of these, I would say leading-edge, you know, logic and foundry equipment, you know, we have, you know, them, let's say we have them in our build plan, but some of them are in various stages. Some are being built, some are actually, waiting to be built. It's, it's all over the place. I cannot give you a definite answer except that when we can repurpose, we will.
If you can repurpose, is that upside to your current guidance, or has that been somewhat factored into your current guidance?
I think if you look at 2023 as a whole, what we have guided for the first half and the guidance that we have given for the second half, I think we have given, I would say, you know, a realistic view of what potentially would happen. You know, I think we are quite clear on the first half, given that when we announce, you know, the first half type of, let's say guidance, it was only two months ago, so we have a good view. Second half now, we also have a better view. I think it's a pretty realistic picture. Any guidance or let's say any upsides or whatever has already been baked into the forecast.
Just to follow up on the spares and services, it was quite a big jump quarter on quarter and well above your trend previously. Can you explain why or what caused that jump and, how sustainable is this new level of revenue and what kind of growth we can expect there going forward?
Yeah. We had a good bump up, you know, the spares and services. I think we grew by 21% in the last quarter. You know, the spares and services, you know, business, they tend to be a little bit, you know, lumpy. Some quarters you see they're growing much more than others. A part of it is of course, it depends on, you know, what kind of services customers require, what kind of contracts we have. At the same time, also whether we are able to deliver all the spare parts that our customer wants, you know, due to supply chain constraints. That's why it makes it a little bit lumpy. Q1 just happened to be great, and we hope it will continue.
Overall, I think longer term, we do believe that the spares and service business is going to grow, you know, at a very nice, growth rate for us, over the next couple of years.
Understood. Thank you.
The next question comes from Timm Schulze-Melander of Redburn.
Hi there. Thank you for taking my question. The first question was on tool development. You've talked about being deeply engaged with customers on gate-all-around 2nd-gen development. Could you maybe just talk about what kind of synergies might be available to you, given that you are working with all three major players, and, you know, does that mean that R&D pressures maybe can moderate in 2024? Then I have a follow-up.
Thanks, Tim. That's an interesting question. We, of course, are, you know, as far as gate-all-around, you know, the in terms of ALD, in terms of epitaxy, we're probably the bigger player. Now as to synergies, you know, what we do with each customer is specific or let's say confidential to each customer. We also cannot, for example, start sharing them around. Of course, you know, internally you could say, yeah, well, you have developed a specific process, and you know, you don't have to redevelop it. There is some of that. There are some synergistic effects. I would also like to caution that, you know, all three customers have very different designs.
With the very different designs, there are differences in what they use in terms of materials and, you know, the kind, the different, you know, kind of processes that they do. There are some synergies, but, you know, it's not like a ton of it.
Okay. All right. Helpful. Thank you. Then just sort of playing around with some of trying to get a handle on some of this rescheduling, scaling and the comments you made around Q2 and Q3. Is the right way to think about this that it's kind of a mid-double-digit value that was rescheduled coming out of Q1, and that maybe rises to more of an upper double-digit number in Q3? Thank you.
Again, we won't give a specific number as far as Q2 or second and third quarters are concerned, except to say that there will be a more pronounced impact compared to, you know, the first quarter. I think the first quarter we came in just a few percent lower than what was, you know, consensus or let's say, you know, a couple of percentage points lower than where we ended previously. I would say that, you know, just assume that, you know, it will be higher than that in the second and third quarter, but we won't give a specific number.
All right. Thanks very much.
Thank you, Tim.
The next question is from Tammy Qiu of Berenberg.
Hi. Good afternoon. Thank you for taking my question. Benjamin, please, on your foundry and logic push out?
Can you share if that's leading edge or that's leading edge? Also, at the same time, when you talk about pushout to 2024, what is the kind of margin should I be thinking about for 2024? Should I be thinking about then 2024 will be adding this pushed out order or 2024's order will be pushed out into 2025?
Sure. I think, of course, you know, whether how you define leading and bleeding edge, you know, I would, I would just say that maybe, you know, bleeding edge is what you call, you know, the 3 nm and the gate-all-around stuff. And, and leading edge is probably the 5 nm and the 4 nm. Actually we are mainly focusing on anything that is 5 nm and below for us as what we call leading edge. I think you are seeing pushouts primarily in 5 nm and 4 nm. We don't really see a lot of changes, and especially gate-all-around, They are still executing to their technology roadmap, their timelines. We don't, we don't see any changes. We don't see anything that speaks to the contrary.
The pushouts, you know, that we are seeing, you know, in what you would classify as leading edge or 5 nm and 4 nm, I would say a couple of factors that we have explained. I think, you know, we just have some customers that are being a little bit more prudent in terms of CapEx spending for this year. We are also well aware that there have been fab construction delays. Fab construction delays in getting permits, you know, et cetera, that is kind of delaying the tool, the move-in. It's a combination of factor, you know, specific to each customer, it might be different, but that is what we are seeing today.
Okay. Should I be thinking about 2024, please? Should I add on to the 2024 number?
Yeah. I think, you know, what, w hen you look at, you know, what's happening, of course, on, you know, the 5 nm and below, the investment, of course, is a multiyear investment. Having said that, you know, it is possible that even with a plan, a three to four-year ramp, sometimes things get moved out one or two quarters. It's not unusual. I mean, that has happened already also in the past. I think the way that, you know, the three customers are looking at this is they're gonna execute according to what their roadmap is. For example, the gate-all-around high volume manufacturing is gonna land in for 2025.
Whether it lands in Q1 or whether it lands in Q3, I think there's probably some room there, but it will land in 2025. I think that part is fairly firm. If we look at 2024, first of all, I think, you know, it's a little bit early, you know, to really give a full, kind of guidance. I think what we are seeing is that some of the 2023 stuff that were planned for this year is being moved into 2024. We think that, you know, there is a possibility either way that they could be incremental to 2024 plans, but it also could be if the demand is not there, that they might push out, let's say, what was planned in 2024 a little bit further out.
At this moment, it's too early to tell, and too early to say anything.
Okay. Thank you.
The next question is from Stéphane Houri of ODDO.
Yes. Hello, good afternoon. Thank you for taking my question. Actually, I've got a question on silicon carbide expectations. For the year, you have confirmed more than EUR 130 million, but at the same time, in some communications, you were saying that the 25% CAGR is becoming a little bit conservative. Can you share with us your view on your future, let's say, potential in silicon carbide? Talk about the commercial advancement and today with the current capacity that you have, what kind of revenue you can reach. Thank you.
Stéphane, thanks a lot. Yes, we did share. First of all, I think, we first of all shared that the CAGR was 25%, we are kind of figuring out that actually the CAGR is probably higher. We don't have a specific number to share, we will probably have to wait until our Investor Day. We initially shared EUR 100 million, we upgraded this to EUR 130 million because of, you know, much more better demand. What I can say for the silicon carbide business is it's probably right now, at this moment, the strongest part of anything that is in the semiconductor space, and that is primarily driven by all the electric vehicles, the renewable energy stuff and so on.
We are very heavily engaged, you know, especially, I would say, on the 200 mm transition. The 200 mm transition is going to be, I would say, a big opportunity for, not just for LPE, but also for their competitors, because you could see fairly significant investments in 200 mm over the next couple of years. We believe that we are in a very good position because we are practically engaged with every, you know, silicon carbide device manufacturer or wafer manufacturer. At this moment, we are involved in a lot of discussions, looking at, you know, a couple of options, you know, a straight purchase of the first tool for 200 mm evaluation, you know, et cetera.
We are right now in the thick of it. Over the next couple of months, and hopefully by the time we get to the Investor Day, we will be able to update everybody what is the progress. We also look at, you know, in terms of, you know, our capacity. Of course, LPE, you know, in Milan was a small facility, and we are trying to expand there as much as possible. But at the same time, we also, you know, having to look at what about, you know, using our other so-called ASM, you know, facilities to help them with the increased demand, so that we can have enough capacity. All those are being looked at the same time.
Okay, thank you very much.
Thank you, Stéphane.
The next question is from Ruben Devos of Kepler Cheuvreux.
Yes, yes, hello. I had a question on your guidance. Basically, you've provided very helpful guidance for this year, but looking a bit further out, and I know you've talked already about leading edge logic and foundry, but very curious if you could talk a bit about memory, which you said before is a bit of a wild card. Could you also talk about the strong spending in the older nodes within logic and foundry, and how that maybe affects your level of confidence heading into next year? The second question is just on the current lead times for your orders. Yeah, what are they and what is basically the current state of the supply chain? Thank you very much.
Sure, Ruben. Maybe on the memory piece first. I think, you know, we are seeing, you know, first of all, the memory customers messaging, that they are still, you know, having a fairly difficult time, you know, with supplies going down, inventory corrections, and they have resorted to, you know, reducing, you know, let's say, or cutting capacity, production capacity and utilization, to avoid further, let's say, you know, ASP deterioration. I think that's all starting to have an effect. Hopefully, you know, the demand comes back and they are able to, you know, perhaps even, you know, increase the level of manufacturing. You know, in terms of timing, you know, I think is different from the memory chip manufacturers and the equipment manufacturers.
We need to wait for them to add capacity. The way that they add capacity is when they have run out of capacity on the existing nodes, and they want to add capacity on the new nodes. Now, that one is a little bit more difficult to time. You already dependent on, you know, when memory prices come back and demand comes back. Generally, we think that as far as 2023 is concerned, we will probably not see much of that, and mostly it's going to be a technology additions. While they are going through this, you know, correction phase, actually all the memory chip manufacturers are still continuing with their technology development. We are, of course, working with them. We do see some technology buys which we are supplying to them.
On the mature nodes, again, this is something which, you know, is very interesting because, if you look at where ASM is coming from, we are really, you know, a leading-edge type of equipment supplier. You know, the more leading-edge it is, the better it is for us. When you look at, you know, mature nodes that are, let's say, 28 nm, and beyond and older, there is really a very limited play for us in that sense, because, you know, at those nodes, you probably do not need ALD or you need ALD maybe just for the high-k part of it. There isn't really a lot of play for us there.
Where we do play in the mature nodes, which is in the old technology, which is maybe 90 nm, 130 nm and so on, is in the power analog sector, which we have actually been building our position nicely over the last couple of years with Epi and also with vertical furnace. As we shared earlier, we even had a record, you know, let's say amount of revenue, as far as vertical furnace is concerned in the last quarter. We are doing well there. Beyond where we are playing today, you know, we don't really have a lot of play in terms of, let's say 45 nm, 65 nm logic or foundry. That is actually not our, let's say, sweet spot.
In terms of lead times, I would say the lead times, you know, is getting better. We're probably coming down to, you know, the 6-8 months range, that, you know, is more acceptable. In fact, we also still get a lot of pressure from customers, asking us to reduce our lead times, and we are doing that. A little bit on the supply chain constraint, I think it's gotten much, much better compared to, you know, 12, 18 months ago. Again, you know, as we shared, there are weaknesses in, you know, certain components, primarily gas delivery, and also in specialty materials, which, you know, the weaknesses do persist, but we are working through that.
Thank you very much.
Thank you, Ruben.
The next question is from Marc Hesselink of ING.
Yes, thank you. First question actually on the 2nd- generation of gate-all-around. With 1st- generation, you guided that it was a quite significant step up on ALD intensity and more than the usual step-up. What do you expect for the gate-all-around?
I, you know, of course, you know, the 2nd- generation has kind of started. We think that there would be even more. I mean, if we were to give our view today at this moment, we think that there will be even more usage of ALD, primarily because there's even more new materials that will have to be used. New materials generally is good for ALD. That's where we are today. Of course, you have the, you know, the usual scaling. Maybe there's a little bit of change here and there that could also, you know, lead to more ALD. Overall, I think, you know, the main driver of, let's say, ALD intensity being increased is new materials.
Okay, clear. Thanks. The second question is on, you said there's a part of the order book is pushed out. Can you quantify that? How much is being pushed out that's now more than one year ahead?
I don't think we will quantify that. If you look at, you know, for example, of course, those that have been pushed out for more than one year, we have to adjust the backlog, and then we have the new bookings coming. I would say that, you know, it's pretty evenly well-balanced. Stuff that has been pushed out, and I'm making a guess, I'm actually looking at Paul to see whether he knows the answer. I would say that, you know, stuff that has been pushed out more than 12 months have been balanced by stuff that are coming in as well. Net-net, not much of a change.
Okay, clear. Thank you.
Thank you, Marc.
The next question is from Nigel van Putten of Morgan Stanley.
Hi, good afternoon. I have a question or really a follow-up on the order behavior by your customers. Most of what you're seeing is customers reacting to a weaker environment. At the same time, the supply chain situation is also improving. Where are your lead times now, and to what extent have they improved over the past months? That's the first question. Thanks.
Thanks. Thanks, Nigel. You are correct. You know, we do see improvements in the supply chain. As I mentioned earlier, we are getting back to, you know, the more normalized lead time, which is, you know, between 6-8 months. We are not 100% there yet, but we are getting close.
All right, 6 - 8 months. As a quick follow-up, would your gate-all-around tools currently in evaluation, would that be a similar lead time or would you expect that to be longer considering the tools are newer? Just also getting a sense of if you do see those orders coming in in the fourth quarter, I mean, if the customers can get those relatively quickly from you, would that be a more normalized pace from what we've seen maybe a couple of quarters ago? Any color around that would be useful. Thanks.
I would say, you know, it will mostly be around the same. You know, there could be, for example, what we call a very specific, you know, application that perhaps we need to do a little bit more, which might need a little bit more time just because of, maybe we have special hardware requirements and so on that we need to do that. I think the way to look at it is it's probably the same, you know, as the other lead times or the usual lead times that we have, which is getting back to a normalized state of, you know, coming close to 6-8 months.
Got it. Maybe just a quick clarification. If you say 6-8 months, a normalized backlog would also basically mean revenue for the next two and a half quarters. Does that sort of math hold up?
If under normal circumstances, that should be the case. You know, where we have, on the backlog, of course, you know, last year there was actually quite some, what do you call? Early ordering. That's because we had lead times for certain products that extended out to even a year. I think as we, you know, get things normalized, supply chain gets normalized, we should, you know, be looking at that.
Yeah. Yep, understood. It is, it is sort of surprising to hear 6-8 months. I mean, if you look back a couple of years ago, then I think I remember it being more like three to four months. If you compare the backlogs back then. Is that a particular reason why that's changed? Is that just the complexity of your products, or is that still sort of supply chain complexities that are elevated now? Sorry to put in the extra question.
No. I think it's a mixture of, you know, the several factors that you mentioned. It is true that some of the equipment are becoming more complex. That's one. Two, you know, supply chain has also become, you know, more complex as well. And, you know, all of that added up together, you know, is leading to a longer, let's say, lead times of 6-8 months. Now, of course, there are certain products which are a little bit faster, some which are lower. I'm just giving you an average number.
Of course. Thanks. Appreciate it. Thank you very much.
Thank you, Nigel.
The next question is from Gianmarco Bonacina of Equita.
Yes, good afternoon. A couple from me, please. In the second half, you mentioned that you may have a 10% decline versus first half or even more. Given your backlog, what at the moment, worst case scenario in terms of deviation on the downside from the 10%? Just a couple of points could be worse, and what could be the, let's say, the biggest risk here? The second one is just on the FX impact, because you talk about, let's say, cost and currency. We noticed in the first quarter, you already had a headwind on FX despite the U.S. dollar should have given you a tailwind. At current FX, what's your best guess in terms of headwind for the year?
I calculated EUR 2.6 billion in cost and currency revenue, but clearly we have to deduct also the FX headwind. It could be a mid-single digit or probably less. Thank you.
Gianmarco, I will let you know Paul answer you on the FX, you know, scenario question. I just want to clarify your question on regarding the backlog. You are saying that we have messaged a 10% reduction in the second half, and how does this impact the backlog? Is that what you're asking?
I'm saying given you have a backlog, how much worse can be -10%, -15%, -10%? It seems you have a backlog, it shouldn't be much worse than -10% at this point in time because we are in April. You envision a scenario where actually the decline, the sales, second half versus first half could be significantly more, because in the press release you talk about 10% or more. What does it mean more? Basically, it's just a tiny bit or could be also, let's say, a bigger deviation from this 10%. Thank you.
I think, you know, we'll leave that, you know, as it is. What I can tell you, Gianmarco, is really we have, you know, given, in our opinion, a very realistic forecast as of today, what we know today. We do think that, you know, the 10% or more reduction in the second half is going to happen. Now of course, you know, that's based on the best view that we have today and we want to leave it at that. Paul?
Yes. On the FX, Gianmarco, it's if we say, let's say if we guide, let's say take in this case 10% or more for the second half, and we say it's constant currencies, what we refer to is that that is based on an assumed, let's say currency level that we have seen in the last quarter of our reporting, so in this particular case, in Q1. If you would make the same comment in, let's say, after Q2 reporting, we mean it's the currency that we've seen in Q2 on average, et cetera. That's what we mean by constant currency. We're not talking about headwind, tailwind. We just say we in our forecasting, we always use the latest available currency, and we assume that that will stay.
You can put an enormous amount of time and effort and debate and intellectual wisdom in trying to forecast currencies, they will be as good or as bad as keeping it the same. We keep it the same, and then we'll see what happens. As you know, in the actuals we will always convert it back in terms of growth rates at constant currency compared to prior year. When we guide forward, we look at the last available currency of the last available quarter. I hope that's clear, but that's how we do it.
Okay, clear. Just a quick follow-up. In the Q1, you had a headwind despite the U.S. dollar being, let's say, giving you a positive effect, I guess, because of shipment in other currencies. The Q1 was kind of an anomaly or, I mean, it's not, let's say, an anomaly in terms of country mix, the Q1.
Yeah. The revenue, I believe in constant currencies, measured in constant currencies was slightly lower, the growth then measured in reported currencies. Is that what you referred to? I'm not sure. I'm not sure what you mean.
No. I'm saying in the Q1, you had 40% constant currency revenue growth and 37% reported. Basically you are saying you had a negative impact of FX, because you are adding this. I noticed that actually in the Q1, other companies, they are having a benefit from the U.S. dollar year-over-year. It probably because you are shipping in other currencies like the renminbi or the Taiwanese dollar or the, I guess this is the case. No, you are not shipping that much in U.S. dollar. It's more other currencies in this quarter.
I don't know what the functional currencies is of other companies that you refer to. Maybe U.S. companies, and if they see the opposite of what we see, that's true. The bulk of what we invoice is in U.S. dollars. Not everything, but the vast majority is in U.S. dollars. Compared to the level of Q1 last year, indeed there was, basically there was this negative impact, as you just said, of around 3% if you measure it based on reported currency. If you compare it to Q4 of this year, for instance, sequential, there was a benefit. It depends on the reference period that you take, and it depends if you report in euros or if you report in U.S. dollars.
Mm-hmm. Okay. No, clear.
Dollars have, of course, a different impact than what we have when we report in euros.
Okay. Thank you.
Thank you, Gianmarco. Operator, can we please have the last question?
Yes, sir. The last question is a follow-up from Adithya Metuku of Credit Suisse.
Yeah. Good, good afternoon, guys. Thank you for squeezing me in. Just one question really on LPE. I just wanted to understand what drives your confidence in the share gains you're expecting in 200 mm silicon carbide tools. Is this based on the attributes of the tools? Is this based on what you're hearing from the customers you're engaged with? Because your competitors also seem to be pretty confident about maintaining the share they've got. Any color you can help with on LPE share gains going forward would be very helpful. Thank you.
Sure, Adi. I think it's a combination of, you know, all of what you have just discussed. Of course, we do our own work in terms of, you know, the performance of our tools, you know, the cost of ownership. At the same time, you know, the rubber really hits the road when you go into discussions with our customers, and then you get the real feedback. I think based on all the engagements that we have, you know, had so far and are still having, we, I would say, you know, have very good, you know, responses and feedback from the customers.
That's why, I think we are, you know, in very active engagement, you know, talking to them, either whether straight purchase, in, you know, evaluations, joint development. I think it's because they also see that, look, you know, after, you know, doing some work with us, it is a good product. It has good cost of ownership, and that's why they are thinking about it. That's how we arrive in terms of our confidence for 200 mm.
Got it. Thank you.
I'd like to hand it over to the CEO for any closing remarks, please.
I just wanted to thank everybody for attending our call today, also on behalf of Paul and Victor. We hope to meet many of you during one of our upcoming investor events, virtually or in person. Stay safe and goodbye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.