Good day and thank you for standing by. Welcome to the ASM International Q1 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Victor Borino.
Please go ahead.
Thank you, operator. Good afternoon, and welcome, everyone, to our Q1 earnings call. I'm joined here today by our CEO, Benjamin Low And our CFO, Peter van Bommel. ASMI issued its Q1 2021 results last evening at 6 Central European Time. For those of you who have not yet seen the press release, it is accessible 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. And with that, I'll turn the call over to Benjamin Lowe, CEO of ASMI.
Thank you, Victor, and thanks to everyone for attending our Q1 2021 results conference call. I know it's a very busy day for most of you, and I hope all of you are healthy and safe. Peter Van Bommel will first review our Q1 financial results. After that, I will continue with a discussion of the market trends and the outlook, followed by the usual Q and A. With that, over to you, Peter.
Thank you, Benjamin. In the Q1 of 2021, Revenue increased to €394,000,000 which is up 14% compared to the 4th quarter And it's at the higher end of our guidance of €380,000,000 to €400,000,000 Year on year, our revenue was up 21%, And that included a 6% negative impact from currencies. The spares and service revenue increased by a solid 34% and accounted for 19% of total sales. Our equipment sales increased by 18% year on year and were led by very strong sales in our ALD product line. In terms of industry segments, The revenue was led by Foundry, which rose strongly to a new quarterly high.
Memory was the 2nd largest segment with sales up in the quarter, both in DRAM and in NAND. The 3rd largest segment was Logic, with sales also up in the quarter. The gross margin increased from 45.2% in the 4th quarter to 49.5% in the 1st quarter on the back of positive mix effects. For Q2, we continue to expect a gross margin in a range of mid to high 40s with again a relatively favorable mix. Over the last couple of years, we have seen a significant increase The number of evaluation tools placed with customers.
Upon successful completion, an evaluation tool is usually purchased by the customer, which tends to have a negative gross margin impact. In the second half, we expect to complete a relatively higher number of evaluations, which may have some impact on the gross margin in the second half. Having said that, the fact that a customer purchases an evaluation tool is also a sign that the tool is now ready for high volume manufacturing, hence an enabler for further top line growth. Let's now look at the operating expenses. SG and A decreased slightly compared to the 4th quarter, mainly due to some quarterly fluctuations in out of pocket costs.
Our R and D expenses dropped by 18% due to slightly higher capitalization and the absence of impairments in the Q1. Excluding these effects, the cash R and D dropped by 5%, reflecting the effects of fluctuations and some incidental expenses. As a result of the higher expected purchases of evaluation tools later in the year that I just mentioned. We project R and D amortization to increase in the second half. Operating profit in the Q1 was up by approximately 60%, both sequentially and year on year.
Below the operating line, results included a currency translation gain of €60,000,000 mainly explained by the appreciation of the U. S. Dollar in the quarter. This compares with the translation loss of €60,000,000 in the 4th quarter. The income tax of €29,000,000 in the Q1 was up compared to the €30,000,000 in the year ago period And it's driven by higher profits and a slightly higher tax rate.
For 2021, we continue to expect a tax rate In the high teens. The result from our investments, reflecting our 25% share The net earnings from ASMPT amounted to EUR 40,000,000 in the first quarter, which is down from the EUR 27,000,000 in 4th quarter and up from the €1,000,000 in the Q1 of last year. As a reminder, ASMPT's 4th quarter results included a couple of incidentals. Excluding those one offs, ASMPT's profit contribution was €11,000,000 in the 4th quarter. In the 1st quarter, ASMPT reported revenues of USD 560,000,000 about flat from the 4th quarter and up 46% compared to the Q1 of last year.
Bookings increased to a new quarterly record of approximately USD 1,000,000,000 up 86% sequentially and up 73% year on year, especially driven by the higher order intake in the semi segment, which showed both sequentially and year on year I'm more than doubling of the orders. Now turning back to ASMI's consolidated operations. Our new orders in the Q1 were €411,000,000 which is up 8% from the 4th quarter and up 23% year on year. As such, orders were ahead of our guidance of €380,000,000 to €400,000,000 The equipment orders were led by record high ALD bookings.
Looking at
the breakdown in bookings by industry segment, LogicFoundry again represented the largest part of the bookings. Foundry showed further strength in the Q1, while Logic moderated somewhat after the increase in the Q4. The memory bookings surged to a new quarterly record with strength in both DRAM and NAND, although the memory segment continued to account for a smaller part of the total. Now turning to the balance sheet. The final Financial position of a company continues to be in good shape.
We ended the quarter with €498,000,000 in cash, which is up from the €435,000,000 at the end of the previous quarter. The increase was driven by a very strong free cash flow of €89,000,000 which was partly offset by €37,000,000 cash used for share buybacks. The free cash flow was driven by the strong increase in profitability and a cash inflow from Working capital and was despite the €64,000,000 in cash taxes paid in the Q1. The working capital decreased in the Q1 despite the higher activity level with days of working capital dropping to a modest level of €48,000,000 In the Q1, we spent €9,000,000 on CapEx, down from €31,000,000 in the 4th quarter and following the completion of a new manufacturing facility in Singapore. For this year, we still project continued higher CapEx level of €60,000,000 to €80,000,000 due to the expansion and upgrading of our R and D Labs.
Last month, we completed the €100,000,000 share buyback program that we started in June last year. In total, we bought back 646,000 shares under this program. This has been our 7th share buyback program since 2014. During this period, we repurchased In total, close to 19,000,000 shares, reducing the share count by almost 30% since 2014. In view of the increase in the cash position at the end of the Q1 2021, we decided to authorize A new €100,000,000 share buyback.
In terms of dividends, as a reminder, We announced a regular dividend of €2 per share, up 50% from last year and for approval by the AGM on 17th May. Then I would like to close with a personal note. This is my last conference call as CFO of ASMI. Since 2010, when I joined ASMI, the company has made an interesting journey, Growing its top line from less than €300,000,000 in 2010 to above the €1,300,000,000 in 2020, With growth possibilities in 2021 equal to the full year turnover of 2010. The value from the company has in that period been growing from €1,000,000,000 to €13,000,000,000 The company is in a very good shape, I am thankful to be part of the team that helped to shape the current ASMI.
I would like to thank all the employees from ASMI for their support This great adventure. I would also like to thank our suppliers, customers and investors in providing their trust and In bringing ASMI to its next level. With that, I hand the call back over to Benjamin.
Peter, I would like to take this opportunity to thank you again on behalf of everyone at ASM for your tremendous contribution to our company. You have been instrumental in driving strong improvements in the financial performance And you also played an important role in setting the strategic direction. The success during your time at ASM is clearly reflected in the performance of our company's share. Since you were appointed as CFO in 2010, the average annual total return amounted to Approximately 30%. Thank you, Peter.
Moving on to market trends. Let's now look in more detail at the trends in our markets. It is clear that our industry has started the year on a very strong footing. The digitalization trend that accelerated last year because of the pandemic Continues to be a strong driver. The strong recovery that started in Q4 in those segments of the semiconductor market They were hit by COVID, such as industrials and automotive, further picked up speed in the Q1.
This combination has led to increasing capacity constraints and shortages in different parts of the end markets. Against this backdrop, the semiconductor market is forecasted to increase by a solid 20% in 2021. Expectations for WFE or wafer fab equipment spending for the full year have also further strengthened. Our expectation is that WFE spending will grow in the high teens to a low 20s percentage range, up from the mid teens percentage that we expected just a couple of months ago. Customer demand is robust across the board and ASM is in the right spot to benefit.
In the LogicFoundry sector, spending is expected to show solid growth this year driven by the advanced nodes. Our customers are putting in significant investments underscored by recent CapEx announcements in response to projected strong multiyear growth due to secular trends such as 5 gs, cloud computing and artificial intelligence. This is driving a strong momentum for us in the logic foundry sector, combined with increases in ALD requirements in the most advanced nodes and our continued leadership in this space. In this context, I would also like to highlight Intel's PQS award that we received last March. We are again very honored to receive this I'm also pleased that we earned this award with distinction in safety in 2020.
As most of you know, safety has always been and continues to be one of the core focus areas at ASM. Memory is also expected to show a decent increase this year. The combination of limited capacity addition in recent years and improving end market demand such as in smartphones are driving improvements in supply demand conditions. This bodes well for further recovery in investments this year, especially in DRAM. While memory continues to account for the smaller part of our business, We have seen a strong pickup demonstrated by the record high quarterly memory bookings in the 1st quarter as just mentioned by Peter.
Demand in the power analog market, which was still a headwind for us in our epi sales last year, has continued to recover. We expect our Epi sales to show a healthy increase this year. Following the solid progress in our R and D engagements in recent periods, We can now confirm that our Intrepid tool has been selected by a new leading customer as PTOR or production tool of record for an advanced epi application in next generation gate all around devices. Moving to the longer term outlook. ALD continues to be an important long term growth market for ASM.
For 2020, we estimate the single wafer ALD market reach size of US1.5 billion dollars in line with the expectations we put out several years ago. We are currently reviewing our forecast and expect to However, it is clear to us that ALD will remain the fastest growing segment of the deposition market with substantial double digit growth potential in the coming years. ALD is a critical technology for our industry to develop The next generation's faster processes and memory devices that in turn will enable the growth of key markets such as in 5 gs and artificial intelligence. Looking at the upcoming nodes across the logicfoundry sector, which is expected to move into volume manufacturing within the next couple of years, we expect this to be again a strong inflection for ASM with a solid double digit increase in ALD layers and applications. Based on our current engagements, We also expect that this will drive again meaningful increases in our share of wallet with our logicfoundry customers.
In the subsequent notes, we expect ALD to become even more important As an enabling technology also for gate all around, GAA transistors with further increases in ALD market demand as a result. In memory, we remain focused on improving our position over time. Further scaling in DRAM, higher stacks in 3 d NAND, The introduction of new materials and increasing device complexity means that a growing number of ALD applications will be required. We continue to be strongly engaged with leading customers in the development of multiple new ALD applications for the NEX And next, next notes. Once these future notes move into body manufacturing starting in 20222023, We aim to meaningfully increase our sales from the memory market.
Right now, our most significant achievement in expanding our memory presence have been our ALD wins for high ks Metal Gate in high performance DRAM with the leading memory players. It is a key technology that reduces device leakage and thereby supports increases in both energy efficiency and device performance. As reported earlier, we booked our 1st meaningful sales for this application last year, and we expect it to support a healthy increase in our DRAM sales this year. A key event during the quarter that I would also like to highlight was the transfer of manufacturing to our NIO facility in Singapore as we also highlighted last quarter. In just 2 months, we transitioned all activities from the old to the new expanded building without disruption to our customers.
This is an important next step in our growth story. As we discussed in earlier calls, it immediately doubles our capacity and provides us with additional flexibility to meet our growing customer demands. What is also very important is that we designed this state of the art facility with sustainability in mind. It is a modern and efficient building that provides a safe and inspiring environment for our people to work and it will support us in our goals to Now let's look at the guidance we issued with our Q1 press release. For the Q2, on a currency comparable level, we expect revenue of €390,000,000 to 4.10 1,000,000.
2nd quarter bookings on a currency comparable level are expected to be in the range of EUR 420,000,000 €440,000,000 In addition, based upon our current view, we expect our sales in the second half to be at least at the same level as in the first half. 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 2 at a time so that everyone has a chance to ask a question. Okay. Operator, we are ready for the first question.
Thank you very much. And your first question comes from Achal Sultania from Credit Suisse. Please go ahead. Your line is open.
Hi, good afternoon. Maybe one question, Benjamin, on the high ks metal gate application that you mentioned about DRAM. We saw one of your key customers in Korea launch a server based DRAM product using that high ks metal gate technology. Clearly, as you mentioned, it has meaningful implications for energy consumption. How should we think about the use of that technology for more higher mass volume products going into smartphones and PCs?
Is that something that is already starting to happen or we have to wait for next year? This year is only about servers and smartphone species is next year. And what's the adoption rate of that technology across other customers in the DRAM space? Any color on that would be helpful.
Thank you and good afternoon. So first of all, what has been launched Today is primarily in what is called the high performance DRAM segment or sub segment within the DRAM market. And in terms of maybe to answer and skip to your the second part of your question, it has been adopted by actually all the DRAM manufacturers. And the question that you have posed as to how what is the adoption rate, how fast this will move to the other segments Of the DRAM market, we can only speculate, but it's really up to our customers how fast they would like to do that. Today, it is primarily focused on the high performance DRAM segment.
Yes. Thank you. And maybe one for one on the gross margin. Clearly, gross margins have been quite volatile last few quarters. So just trying to understand, you mentioned evaluation tools will be a headwind for rest of this year.
But like what were the major puts beyond the mix? Like is there anything else beyond the mix that actually could act as a positive or a negative driver for gross margins like, for example, is the Singapore facility, is That's something which has also been adding as a positive contributor to gross margin. Is the scale something which has been also as a positive contributor. Just trying to understand what are the puts and takes for gross margins for the rest of this year?
It's a combination, Achal. It's on the one hand, of course, that we have a broader potential this moment. So as a consequence, more manufacturing. But what I mentioned already in earlier calls, the impact of that is limited, but it's there. The second thing is low volume of eval tools that have been taken off.
You see that also on the balance sheet that The number of eval tools and the value of the eval tools is increasing. We expect, by the way, that also the second quarter That not much evil tools will be taken off. So the headwinds with the positive note that I mentioned earlier It will only become visible somewhere in the second half. You see also that new products, which we have introduced a few years ago, That's we have efficiencies on those products. So all these things are becoming visible on this moment.
So it's a combination of quite a few effects Which have been driving that gross margin. And but what remains is that mix remains playing an impact. And that's not, as what I mentioned earlier, on product line dependent, but it's more
Thank you, Peter, and all the best with your future plans.
Thank you.
Thank you. Your next question comes from Stephane Ouray from ODDO. Please go ahead. Your line is open.
Yes, hello. Good afternoon. It's my turn to tell you. Thank you, Peter, for the good discussion and insight about the company. I have two questions actually, which could be only 1 in a way.
I'd like to Really understand what you mean by at least at the level of H1 for H2 sales. And if it has something to see or to do with the announcement that you've just made about the selection So of one of your epitaxy tool for gate all around
First of all, thank you, Stephan, as usual. I think we feel that it's a little bit, I would say, early to really give a concrete guidance as far as the second half is concerned. And what we see today Is that as we have mentioned in our press release, the second half will be at least on the same level as the first half. It has actually nothing to do with our being selected for epitaxy applications Forget all the round because I think that one would probably go into high volume manufacturing in the next years. It doesn't impact us this year, but the selection It's a critical milestone for us because it's a second key customer for us.
I hope that answers your questions.
Yes, it does. Right, because as you know, you are publishing your numbers the Same day as ASML and they are guiding for 30% growth. So when we make the calculation, if H2 was just Flat or slightly up versus H1, it would make like 20% growth and we can't just explain the difference only By EUV because EUV will grow by 30%. So I'd really like to understand if there is really an upside or it's to that Flattish guidance or it's really what it is today?
Now what you have to see is that we basically tried to give you there were a lot of people which were raising the question if the second half It would drop very strongly, yes? That we had at the previous call. We had it also with earlier discussions with some of our shareholders. So to take away that, we normally don't give, as you know, Stefan, guidance about the second half. We thought it prudent to say that we expect that the second half is at least at the first half without giving further guidance with regard to the 3rd and the 4th quarter.
Okay. Okay, fair enough. Thank you very much, Peter.
Thank you. Your next question comes from Kegan Brice from Barclays. Please go ahead. Your line is open.
Hey, guys. Thanks for taking the question. Just 2 from my side. The first on market share. So Gartner put your market share for single wafer ALD about 64% for 2020, up from 57%.
Did you see that sort of market share increase on your own Internal estimates. And then I guess more broadly, where do you see your market share across foundry, logic and memory trend in the coming years? You think you can get even further from 2020 levels?
Kike, thanks a lot. On the market share data that has been Publish, I think for us, we do not disclose internal market share, but it's probably in the right direction. So we do expect that we have gained market share in 2020. Your second question, I think, was on do we see further gains in Logic foundry market share, I think what we are trying to do really is to ensure that we keep our leadership position in the logic foundry space, While at the same time, trying to grow our position in memory.
That's clear. Thanks, Benjamin. And then just a quick one on TULI. Obviously, you're seeing meaningful double digit gains in layers and applications for Foundry at 5 and then Logic at 10. But is it probably fair to assume that Given how that we're going to see a pretty low level of tool reuse node on node given just how tight the supply chain is across the industry at the moment?
I think even before this, I mean our 2 reuse was kind of Not prevalent. And you are probably correct that we are not going to see a lot of tool we use because The older node capacities are still being sustained by our customers. So they really do not have the room to take out the Thank you.
Thank you. Your next question comes from Adithya Metuku from Bank of America. Please go ahead. Your line is open.
Yes. Good afternoon, guys. Thank you for taking my questions. 2, please. Firstly, just looking at the recent Changes to the process flow at Intel at 7 nanometers.
Intel has historically used more ALD for Permanent layers in their products. And I just wondered if you could give us some idea as to how to think about what this Simplified process flow at Intel means for ALD demand. And secondly, I just wondered if you could also give us some sense for how to think about OpEx For the rest of this year, OpEx came in significantly lower than consensus expectations in the Q1. Should we expect the 1Q levels to continue through the remaining 3 quarters or should we expect the step up in OpEx? Thank you.
Thank you, Ali. I will try to answer the first question and then perhaps Peter can give you more color on the OpEx question. I think in terms of logic, we still see the same High level of ALD intensity going forward, and we should not forget that right now what is being developed at 7 nanometer, They are also potentially looking at the next, next notes, which means that as we have always explained, ALD intensity will increase. So we do not see a simplified flow reducing ALD intensity.
Yes. When you look to the OpEx, we have to make a distinction between SG and A and R and D. When you look to SG and A, that's never a Trade line, it's slightly growing. But when you compare also with last Here, you see that compared to the Q4, which has some seasonality in it, SG and A costs in the Q4 are mostly A little bit higher than in the Q1 of the year. So we expect that sort of seasonality also to remain In the course of 2021, with regard to R and D, there you see also that mostly the first quarter It was a little bit lower than the Q4 because there we are I have also some one off costs.
And in this case, what I mentioned already in the prepared notes Earlier, we don't have incidents in this quarter, so no impairments on R and D projects. And secondly, what is important is since we didn't have too much EVO tools that have been taken off by the customer, that means that No new products are going into high volume manufacturing. And as a consequence of that, we don't start with the depreciation or with amortization of those projects. When we have later in the year more products which will be taken off by the customer going into high volume manufacturing, Then also the amortization of the older R and D projects of the existing R and D projects We'll increase.
Understood. So essentially, assume the net R and D post the Capitalization and amortization effects will go up through the rest of the year, especially in the second half?
That's what we expect, yes, yes.
Understood. Thank you.
Thank you. Your next question comes from Tammy Qiu from Berenberg. Please go ahead. Your line is open.
Hi, thank you for taking my question. So first one is relating to your future plan in terms of product portfolio. Currently, you have been focusing on ALD for a few years now and you started doing Appy like 2 years ago. Do you feel like at some point you may need to add Another portfolio such as things like batch ALD or mini batch type of tool? And also, will you consider further M and A as a potential opportunity for you to
On the first question in terms of product portfolio, I think what we see today and as we have shared in past calls, we have so much opportunity in front of us They're just trying to go after the single wafer ALD and epi is actually keeping us very busy, And that's what we will continue to do. So no specific plans for additions there. In terms of M and A, again, this is linked to the large amount of opportunities that we have in front of us. We will continue to focus What the current portfolio and opportunities that we have, if there was something that we would do in terms of an M and A, It would primarily be in support of our existing portfolio. So we will not go into something else.
It could be a technology that might come in handy, but That's the extent of the M and A that we will potentially all be looking at.
Okay, cool. And another question comes from in terms of your competition within the ALD market. You mentioned that you are getting more Design wins get all around either new designs. And your competitor who had a couple of markets a few weeks ago Also talked about active design wins with the new generation of transfer design like gate all around. I'm wondering, Do you see your competitor in ALD market being aggressive in the new applications because of my understanding that Their 2 design versus your 2 is slightly different.
And if you can talk me through the pros and cons of your design within the new generation of
I think it's difficult for us to provide any comments as far as our peers or Competitors are concerned. And so I think the comparison is difficult. In the next technology inflection We are very actively engaged with all the major players. And I think the progress that we see From our engagement, we are very pleased with that. We are positive on that.
Now having said that, I think our peer plays in a much larger Product portfolio, they have many things that we do not play in. So maybe they might be referring to that. I do not know. But based on our engagements with our customers, we are very, let's say, positive on the developments that we have with them In defining and coming to a closure as far as the gate all around the process flow is concerned For our equipment.
Okay. Thank you.
Thank you. Your next question comes from Domenick Ozhevsky from Morgan Stanley. Please go ahead. Your line is open.
Hi, afternoon everyone. Just one from my side. Obviously, within the revenue and bookings hierarchy, as you describe it in your release, Logic has Quoted after Foundry and Memory. So just wanted to sort of focus there. Could you elaborate on customer demand you're seeing
Dominik, I think overall, we have all seen various announcements being made. I would say very bullish announcements and announcements that actually we are very excited about. Some of the, I would say, going forward type of demands, we have been informed, so we are aware, and that's what we try Share review in terms of our guidance. I would say some of them is still being worked out. So that's where there's less visibility And we're also waiting for our customers to try to give us more information.
But overall, I think the logicfoundry sector Would grow in a very positive way this year. And the growth should be Both positive and healthy for us because that is our strongest segment as well.
Thank you.
Thank you. Your next question comes from Sandeep Deshpande from JPMorgan. Please go ahead. Your line is open.
Yes, hi. Thanks for letting me on. My question is about the high ks metal gates that you are supplying now In the DM market, are there other such high ks metal gates came into the logic market quite a few years ago. And since then, the logic space has begun using ALD for other layers as well. Are there such other layers that are likely utilized in DRAM that will require ALD in the future.
And you have some market Share in NAND, maybe you can explain what you're supplying the NAND market today and whether you can expand share there?
Sure, Sandeep. Thanks a lot. You're probably spot on that high key method gate started in logic Some time ago and the ALD intensity has gone on to other layers. I think in general, when you look at Shrinking when you look at, especially to some extent also new materials are coming into play. A lot of it actually requires ALD applications because of the precise deposition that is required.
So there is the answer to as far as DRAM is concerned, there is. There are other new applications that we are working Some of them are customer specific, but there are quite some engagements that we have with our DRAM customers going forward. Hopefully, we get adopted and it goes into a volume production sooner rather than later. In terms of NAND, 3 d NAND, what is really driving the ALD adoption is the increasing number of layers, which create High aspect ratios that creates deposition difficulty because it becomes a very narrow Type of structure that you need to deposit. And again, that's where ALD comes into play.
And we are in the process of working with Several or I would say actually most of the NAND manufacturers are working on applications That will solve that problem. At the same time, there will be material changes that will come into play. And again, those material changes Will require ALD applications. So for both NAND and 3 d NAND or sorry, DRAM and 3 d NAND, you'll find that Increasingly, there will be, let's say, requirement for ALD adoption.
Thank you.
Thank you. Your next question comes from Mark Hesselink from ING. Please go ahead. Your line is open.
Yes. Thank you. Two questions. First, the increase in the evaluation tools you're guiding for. Could you explain what that is?
Is that at new clients? Is it new applications at the existing clients? And is there no the category in DRAM NAND and in the Logic and Foundry segment? And my second question is, If we're looking to gate all around, what would that do for the relative weight of deposition versus the lethal market? I've I think that with NAND that moving to the 3 d, it really was attractive for deposition in Edge.
How do you see that in relation to gate or out? Thank you.
Mark, thanks a lot. First question on eval tools. I would say eval tools are usually for new applications Because it's something that if it's something that is really well proven, already in high volume manufacturing, usually, we don't do that. So most of the eval tools that we have at the customer sites are for the next nodes, And there are new applications. And this is the reason why it's so critical to have that eval tool because Part of it really requires that we develop and fine tune the process together with the customers.
That's on the eval tools. I think your second part of or your second question was on, do we see, for example, gain all around Having an impact in terms of lithography, is that what you're saying, deposition versus lithography? I think, when Yes. So Yes. Sure.
Sorry?
Yes. Sorry, sorry. That's indeed what I'd add. So the relative Wait, when you make that?
I think it's difficult for us to give you At this moment, considering that we are let's put it this way, the gain all around process is still In the final stages of being, let's say, worked out. But what we do see, of course, from our own, let's say, business point of view, It's definitely going to be increasing usage of both ALD and actually epitaxy as well. Now will lithography be able to overcome a lot of the double patterning and so on? My guess is it probably follows the trend As in the usual logic and foundry space. But that's just my guess.
Okay. Maybe a follow-up on that evaluation. In this specific case, you guide that it will be increased in the second half of the year. Can you say what those new applications are? Is that geared to something?
I don't think we can disclose that because that would be giving away a lot, maybe too much. But a lot of the new applications are of course focused at the next notes and the next, next notes. Like I said again, if it's an approved application, we won't Highly, highly, unless there are special reasons, we don't do any evaluation.
Okay, clear. Thanks.
Thank you. Your next question comes from Robert Sanders from Deutsche Bank. Please go ahead. Your line is open.
Yes. Hi, good afternoon. Thanks for taking my question. I guess the first one would About Kokusai being blocked from being sold to Applied. And I was just wondering if that would end up in Chinese hands, How that might play out for you?
Obviously, they're more of a batch player, but just be interested to hear what you think about The potential for maybe that one for the Chinese to get a head start there. And second question would just be again on the domestic China opportunity. Have you seen an acceleration since the last time we connected 3 months ago on in terms of your outlook On domestic China. Thanks.
Thank you, Rob. On the first question, that's a difficult one because We are not involved, so we can only speculate. I really have No idea what is going whether this is even possible given the current geopolitical situation. So I think the best thing for me to do is to refrain from speculating. On the domestic China, We continue to see healthy business coming from China.
As we have always shared, the U. S. Restrictions It has only, let's say, impact on a minority of our products. So the majority of our products, We have been able to sell and ship into China without any problems. And the other thing which We probably have shared as well is that over the last 2 years, we have been very encouraged that we have broadened our customer base.
So we are not only dependent, for example, on Foundry. We now have a presence in memory. We now also have a presence in power analog and also even the wafer manufacturers. So all around, I think our business It's progressing nicely in China.
Thank you. Your next question comes from Johannes Rees from Apis Capital. Please go ahead. Your line is open.
Yes. Good afternoon. Those are 2 from my side. First, back on the evaluation tools, in the evaluation tools, also Epi tools for new customers, new application? And second, on the midterm outlook, you mentioned all this Nice CapEx announcements of large customers.
How much gives that you may be visibility over the year 2021? And so back to your new fab, you mentioned in the past, it could be even you could even increase your sales by 4 times. You have the capacity for 2 times, but I think it's a shelf and the whole environment, which could enable you to grow further. So for all at all, how much maybe this, yes, these announcements gives you optimism for the future? And a side remark even on ASM Pacific, will also maybe the back end even be growing larger because of more and more slower So it's a lot of maybe moving to the back end to improve efficiency in the next nodes.
Sure.
First question the answer to the first question is, yes, eval tools would also include, for example, epitaxy equipment. We It's not just ALD. We do also have to do evaluations, for example, for new FPE applications Or sometimes to get an entry into our customer. The midterm question of With all the bullish CapEx that has been announced, I guess your question is whether we need to expand further. And that's something that we watch closely.
Right now, I would say that we are probably okay. But as you have currently mentioned, Moving to the new facility doubles our space, but we also have a reserve space to even double further. And of course, if the demand is so strong and if it comes and we need to do that, we will probably activate that and try to expand our capacity So we watch that very closely. On ASMPT, I think they are actually doing a great job. And when you look at, it's not just a traditional back end of the business, but we do think that ASMPT has a good Position in the advanced packaging space, they have acquired a company called NEX a couple of years ago, They have also developed solutions for the advanced packaging space.
So I think going forward, they should Be able to carve out a good position for themselves in the growing advanced packaging market.
Super. Thanks a lot.
Thank you. And your next question comes from David O'Connor from BNP Paribas. Please go ahead. Your line is open.
Great. Good afternoon and thanks for taking my questions. Maybe 2 from my side. Firstly, The second half guide at least at the same level as H1. Ben, can you give some indication of the mix?
What's the kind of expectation there for the mix in the second half versus the first half? And then for my second question, So maybe one on just the overall ALD market. You mentioned $1,500,000,000 in 2020 and you've indicated over last year that has grown At a 20% CAGR, is there any reason that, that would slow down that growth rate from here, given all The increasing intensity you see across the different device types and the increasing applications? Thank you.
So David, thank you very much. In terms of the 2nd half, as we said, we provided this to kind of Alleviate concerns or questions about whether the second half was going to see a dip. So at this We are not going to provide any kind of outlook except the general statement that the second half will be At least at the same level as the first half. Your question on the market growing to US1.5 billion dollars That was a number that we kind of threw out a couple of years ago based on our own projections. And we do think that in 2020, the market, in fact, Reach about its size.
Whether I'm not 100% sure where the 20% CAGR growth comes from. It could be from One of the research companies. But it is definitely ALD, single wafer ALD, the fastest growing part of the deposition market. Do we see any roadblocks, anything that will kind of derail this high growth? I would say at this moment, no.
On the contrary, what we see today is that ALD intensity is going to increase As the nodes get smaller and as the as we have also increasing Applications in both DRAM and NAND, it actually increases the it will continue to increase growing at that kind of pace.
Very helpful. Thank you.
Thank you. And we have another question from Tani
So I have the last one on ASM Pacific. So given that the cycle between front and back end is not really closely linked together anymore, Understand that there is more sort of your thoughts on back end to deliver more performance given Frontend is getting more expensive and cheap. But Do you actually have any reason to keep holding on this piece of asset? And have you thought about a strategic review probably at some point to think about What do you want to do with that piece of asset going forward?
Tammy, thank you very much. What we do is we look at Our stake in ASMPT today as an investment and as with any kind of investment, we do review that regularly. For the time being, we do not think that there's any action that is required. So we're going to continue to keep that on our books.
Why is that, if I may ask, why do you think it's a good investment for your balance sheet? Because you may be able to use that cash something which is probably more relevant to your core business and the holding is still small now so that it wouldn't actually matter too much from market cap perspective.
Tammy, you are correct. But there is also the historical element here that we used to be the majority shareholders, and We have kind of decreased our shareholding over the last number of years. And at this moment, do we is that something on the horizon? Or do we need to have that kind of cash? The answer the quick short answer is no.
In fact, One of the reasons we are doing a share buyback, of course, is to return excess cash to the shareholders. So If we do see a need, maybe we might do something. But at this moment, we do not see that.
Okay, cool. Thank you.
Thank you. And our last question comes from Jim Fontanelli from Riti. Please go ahead. Your line is open.
Yes. Thank you. So two questions from me. Firstly, just on service revenue. Could you maybe talk through how you're thinking About service revenue for the year, I mean, you've been running in a sort of low to mid €70,000,000 range for the last four quarters.
But this year is clearly going to be dominated by very high client utilization inside the fabs. And that's always a good Backdrop for service revenue and then for the margin structure inside service revenue. So it would be useful to understand how you're thinking about growth potential for service this year?
Thanks a lot, Jim. I think for us, the way that we look at the Service business developing this year is that we will continue to grow in a healthy pace, Just continuing from where we actually started or let's say what we have done since last year, We're going to continue to try to look at more also what we call outcome based kind of Service revenues, we started that last year. We saw we were encouraged By some of the adoption from some of the customers, and we are going to continue to push for that. For the rest of the year, I think what we are seeing would be that we will grow in a healthy way, and there's no major changes expected as far as Our spares and service business is concerned. In terms of gross margin, as we have always said, the spares and service business Gross margin is very much in line with our equipment margin.
So they kind of track closely. So we do not also expect a significant increase In terms of gross margin, it will be just like our equipment gross margin.
Got it. And just to follow-up on that, do you How do you see service revenue growth versus hardware or versus equipment this year? Is it likely to be Underperforming hardware growth or June, you can match?
I think that's still left to be seen because we have Just finished 1 quarter. And as I said, we still need time to look at how that is going to be. But if you have so much CapEx and so much WFE buying new tools, I would say that, that is But at this moment, we cannot comment on that. It's still too early for us.
Okay. And then secondly, just to understand how you're thinking about cash use. I mean, clearly, you've renewed The $100,000,000 buyback, but I mean that just about absorbs cash flow for this quarter. Clearly, you're going to be generating Significantly more than $100,000,000 in free cash this year. So your net cash balance, which is already high, is going to increase.
So what are the options you have around cash return? I understand there are various tax impediments in terms of how you can efficiently return cash to shareholders. But what are the options out ahead of you once you burn through this €100,000,000 buyback?
Jim, it's same as what we have seen in the past years, yes. So we have share buyback as an option. We have also dividend as an option. We have extra dividend as an option. So We will look to all measurements that are possible on a certain amount, then it is excess cash to use that one way or another for the benefit of our shareholders.
Is there a limit to how quickly you can renew that $100,000,000 buyback authorization? Could the cadence of that be every 6 months rather than every 12 months?
That's we can as you know, we have to get approval of the shareholders To buy back certain volume of shares. So we will ask for that again in the next AGM. So I think within that that are basically the limitations that we have.
Great. Thanks.
Thank you. We have no further questions at this time. I would now like to hand back to CEO, Mr. Lo for closing remarks.
Thank you very much. Thank you all for attending our call today. Also on behalf of Peter and Victor, we hope soon to be able to meet many of you during one of our Upcoming virtual investor event and hopefully at the Investor Day in September, face to face in person. In the meantime, stay safe and stay healthy and goodbye.
This concludes today's conference call. Thank you for participating. You may now disconnect.