Ladies and gentlemen, thank you all for standing by, and welcome to today's ASM International Q4 2019 Earnings Call. At this time, all participants will be in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you all that this conference is being recorded today, Wednesday, 20 6th February 2020. And without any further delay, I would like to hand the conference over to our first speaker of the day, Mr.
Victor Moreno. Please go ahead.
Thank you. ASMI issued its 4th quarter and full year 2019 results last evening at 6 p. M. 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.
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 Chuck Del Prado, President and CEO of ASMI. Chuck?
Thank you, Victor, and thanks to everyone for attending our Q4 and full year 2019 results conference call and for your continuing interest in the company. I'll start with a review of the highlights of 2019. Then Peter van Beaumont, our CFO, will discuss the financial impact of the settlement with Kokusai and the movement in our cash position in the Q4. After that, I will continue with a review of our operational results followed by the normal question and answer session. So on the highlights of 2019.
2019 was a highly successful year for ASM. We increased our sales by 57 percent, including proceeds from the settlement with Kokusai Electric Corporation. Excluding these proceeds, sales increased by 37 strongly outperforming the WFE market. Our sales growth was driven by solid spending in logicfoundry on the advanced nodes, where we achieved strong share of wallet gains. We continue to track well against our strategic targets to further expand our served available markets.
We again made significant investments in the future growth of our company. And at the same time, we are returning excess cash to our shareholders. Supported by a record high backlog, ASM is well positioned for a healthy performance in 2020. I want to thank all employees, all our employees. Without their continued dedication and hard work, ASM's outstanding results in 2019 would not have been possible.
Before handing over to Peter, I will also provide you with an update on the implications of the coronavirus situation. The health and safety of the employees working for ASM and our partners, including our customers, is our top priority, and we have taken several measures to minimize the health risks. So far, we have not seen a meaningful impact on general industry demand trends nor on our business. Based on the situation today, we expect the potential impact on our sales in Q1 and Q2 to be limited, and we have taken that into account in our guidance. Peter, please go ahead on your part.
Thank you, Chuck. In the Q4, we booked a gain of €56,000,000 related to the settlement of the Kokusai arbitration case as announced on the 29th October 2019. This gain was included in the order intake and in sales and also dropped through to gross and operating profit. The €56,000,000 gain in Q4 is an addition to the €103,000,000 gain in Q2 of last year that was related to the settlement of the litigation against Kokusai. In terms of the cash impact, we received €108,000,000 in cash from Kokusai during the Q4, consisting of the €56,000,000 from the arbitration settlement plus the final payment of €52,000,000 from the earlier litigation settlement.
For the full year, at a pretax level, cash was positively impacted by €159,000,000 from licenses were resolved last year, and there will be no further impact in 2020. The settlements also affected the tax rates. As at early occasions, we guided that our structural tax rate would increase to a mid- to high teens percentage once we would have fully utilized the net operating losses. With the gain from the settlement in 2019, combined with the normal operating profitability, we exhausted the remaining net operating losses in the Netherlands. As a consequence, this led to an increase in our tax rate.
For the full year 2019, the total effective tax rate amounted to 14%. Let me also explain the moving parts in our cash position in the Q4. We ended the 4th quarter with a total cash of €498,000,000 that was up from €482,000,000 at the end of the 3rd quarter. As I just mentioned, we received €108,000,000 in cash from CocoaSite during the quarter. We used €52,000,000 for the interim dividends that we paid in November and almost €100,000,000 for the share buybacks during Q4.
In addition, we generated a free cash flow from €63,000,000 in the quarter. Despite the strong increase in sales and activity level, our working capital, excluding the For the full year, we generated a strong free cash flow of €206,000,000 excluding the settlement. This was primarily driven by a solid increase in profitability and a reduction in working capital. Excluding the settlement effects, working capital dropped to 42 days at the end of 2019 compared to 72 days at the end of 2018. The quality of working capital also improved in 2019, illustrated, for instance, by a relative reduction in the raw materials balance and a continued low level of accounts receivable off reduce.
The improvement in working capital was supported by structural measures that we have implemented over the last 18 months.
Thank you, Peter. So let's now continue with a review of our Q4 and full year operating results, starting with the Q4. I will focus on the results, excluding the impact from the Kokusai settlement. In the 4th quarter, we booked €373,000,000 in new orders, up 28% from the 3rd quarter and a new record high for ASM. As we already announced on January 14, order intake substantially exceeded the guidance of €290,000,000 and €310,000,000 that we initially provided with our Q3 results.
The upside was largely driven by stronger than expected logicfoundry demand. ALD continued to be the key driver behind the order intake, but we also recorded strong sequential increases in our other product lines. By industry segment, equipment orders in the quarter were led by logic and foundry, which were about similar in size, followed at a distance by memory. Logic orders increased strongly compared to Q3, driven by continued 10 nanometer capacity investments and also included 7 nanometer development tools. Foundry orders decreased somewhat compared to the record high level in Q3, but remained at a very solid level.
Key driver behind foundry orders was the continued ramp of 5 nanometer. Orders in memory increased slightly from the Q3, mostly in NAND, but were relatively modest compared to the logicfoundry contribution. Net sales in 4th quarter increased strongly to €345,000,000 up from 27% from the 3rd quarter and again at a new record high for the company. Sales in the quarter exceeded the guidance between €310,000,000 330,000,000 Our global operations team executed in an outstanding way in stepping up the level of shipments to meet the higher customer demand despite the capacity constraints that we discussed at earlier occasions. Equipment sales increased 34% compared to the 3rd quarter, and spares and service were up 2%.
In terms of product lines, sales were led by our ALD business, which achieved very strong record high sales in Q4. Sales of the other product lines were also up in the quarter. By industry segment, the revenue stream in the 4th quarter was led by foundry, followed by logic and then memory. Foundry sales increased strongly to a new record high. Logic sales decreased slightly compared to Q3, but were still at a very healthy level.
Memory sales, both DRAM and NAND, decreased somewhat compared to Q3 and had a relatively modest contribution in the quarter. The gross margin increased on the back of a better mix to 43.6 percent in the 4th quarter, which is the highest level in the last 10 quarters. In terms of operating expenses, reported R and D increased 17%, 1 7% sequentially. This is explained by an 8% increase in cash R and D spending and by one off impairment charges of €4,000,000 in the Q4. SG and A increased 18% sequentially, which is mainly caused by higher expenses for variable employee compensation on the back of the strong results in 2019.
Operating income increased strongly to €75,000,000 in Q4, a new quarterly high. The sequential increase in net profit was the balance of higher operating profitability plus the settlement gain and partly offset by currency effects that were €14,000,000 negative in Q4 compared to €14,000,000 positive in the Q3. Let's now have a closer look at ASMPT. Normalized results from investments, which reflect our share of the net earnings from ASMPT amounted to €6,000,000 approximately flat compared to the 3rd quarter. In the Q4, Asia MPT reported sales of USD 568,000,000 up 7% compared to Q3 and down 7% year on year.
Profitability was equal to the Q3 at US29 $1,000,000 For the full year 2019, ASMPT sales decreased by 19 percent to US2 $1,000,000,000 and net profits decreased by 72% to US80 $1,000,000 Okay. So turning back to ASMI's consolidated operations. Let's now discuss the full year results. At slightly over €1,100,000,000 our net sales in 2019 increased 37% to a new high. Equipment sales grew 44%.
Spares and service increased by a solid 15% and represented 19 percent of total sales. In terms of industry segment, sales for the full year were led by Foundry. Our sales in the foundry segment roughly doubled, driven by strong investments throughout the year in the most advanced foundry nodes, especially the 5 nanometer node combined with our share of wallet gains at this node. The 2nd largest segment was logic. Following an already strong increase in 2018, sales in this segment grew again by a substantial double digit percentage in 2019.
In memory, the 3rd largest segment, our sales were relatively flat in 2019, mainly supported by the benefit of customer specific projects in the DRAM segment. The analog segment, which is smaller than the other segments, showed a decent double digit sales increase for the full year. And this was the balance of a strong first half and a weaker second half, as we already discussed and guided for in our previous earnings calls. By product lines, sales in the full year were led by strong double digit growth in our ALD product line, which continued to represent more than half of our equipment revenue in 2019. Sales of our combined other product lines also increased by a robust double digit percentage to a new record high in 2019, led by growth in our Epi business.
Gross margin increased from 40.9% to 42.6% in 2019 for the full year. While we still incurred extra costs related to new growth initiatives and product introductions, this was more than offset by better margins on the newly introduced products, which improved as compared to 2018. As always, gross margin can vary from quarter to quarter depending on the mix. Operating expenses remained under control during the year. SG and A expenses increased by 23 percent mainly due to, 1st of all, higher legal costs in the first half due to the Kokusai cases and secondly, due to higher variable compensation, as we touched on earlier.
Besides this, SG and A increased due to investments to strengthen the organization such as in new IT systems. Total R and D expenses increased by 21%, excluding IFRS effects, and we're at a level of 13% of sales compared to 15% in 2018. Operating profit for the year increased strongly by 77%, with the operating margin at 19.5%, up from 15.2% in 2018. Now turning to cash flow as part of some balance sheet items. As Peter already talked about the drivers behind the increase in the cash position, I will only highlight a couple of points.
Free cash flow strongly increased to €206,000,000 in 2019, excluding the settlement gains and ASMPT dividends on the back of higher profitability and improved working capital. Our capital expenditure, while lower than in 2018, was still relatively high, reflecting ongoing investments in our new manufacturing facility in Singapore. This new state of the art facility progresses well, is expected to be completed end of Q2 and will substantially increase our manufacturing capacity. Under our most recent €100,000,000 share buyback program that we completed last week, we bought back approximately 1,000,000 shares at an average price of €102 per share. During 2019, we spent in total €200,000,000 on shareholder remuneration, of which almost €100,000,000 on dividends and another €100,000,000 on share buybacks.
Over the last 3 years, we have returned more than €1,000,000,000 in
cash to our shareholders.
We will propose to the AGM on May 18 a total dividend of €3 per share over 2019. This consists of a regular dividend of €1.50 per share, a 50% increase compared to the dividend that we paid over 2018. In addition, the total dividend of €3 also includes an extraordinary dividend of €1.50 per share. Following the interim dividend of €1 per share that we paid last November, a final dividend of in total €2 per share will be paid in May following the AGM. The proposed extraordinary dividend and the new share buyback program reflect our continued commitment to use excess cash for the benefit of the shareholders.
Our policy regarding regular dividends is unchanged. We aim to pay a sustainable dividend. Furthermore, we also plan to cancel 1,500,000 of shares. So let's now look at achievements of the company over the last calendar year. So next to our strong financial results, we progress well towards our strategic priorities in 2019.
Key pillar of our growth strategy is a further expansion of our served available markets in the single wafer ALD space. In logicfoundry, we have strongly expanded our position in the most advanced nodes. The number of ALD layers has substantially increased in the Logic 10 nanometer and Foundry 5 nanometer node. This drove solid share of wallet gains and substantial sales increases for our company. We are currently working with our customers on the next nodes, which we expect again where we expect again a further increase in the number of ALD layers and applications.
In memory, as mentioned, our sales were about flat last year. In DRAM, we benefited last year from a number of specific customer projects with where we have strengthened our position. Over the last few years, we have invested and we continue to invest to broaden our service available market in memory. Last year in DRAM, after winning a first selection for a new non patterning ALD application, we won an additional tool selection later in 2019. We expect these tool selections to start Non patterning applications are expected to remain an important part of the single wafer ALD market for DRAM.
In 3 d NAND, despite the market downturn, we supplied multiple systems as part of a new customer selection that we discussed at earlier occasions in the last calendar year. As the 3 d NAND industry prepares for the transition to the next device generations, we expect a number of single wafer ALD applications and ASM's participation in this segment to gradually further increase. Long term growth prospects for the ALD market continue to be strong. Conventional deposition runs out of steam for many challenging process steps and needs to be replaced by ALD as the industry moves to smaller geometries and more complex device architectures in the coming years. Next to ALD, we remain focused on expanding our SAM, our served available market in other product lines, especially in Epi, which has now become our 2nd largest product line.
In 2019, Epi showed again strong double digit growth, and we had our 3rd consecutive year of market share gains. Demand for our intrepid Epi tool continued to be strong in 2019, driven by our expanded position at the leading foundry 5 nanometer node. We booked further progress in R and D customer engagement last year, and we continue to aim further increases in our IP share over time. In PECVD and furnaces, we invest in selected opportunities to expand our niche positions. Last year, this was illustrated by the launch of our new A400 DUO vertical furnace tool for growing 200 millimeter applications such as in IoT.
Let's now have a more detailed look at the trends in our market. So WFE spending, wafer fab equipment spending decreased by a high single digit percentage in 2019, better than what was still expected at the time of our Q3 results. Logic foundry spending was solid throughout the year, driven by spending on the most advanced nodes. In the advanced logic sector, investments in the 10 nanometer node increased strongly on top of continued 14 nanometer additions earlier in the year. Foundry spending on the 5 nanometer node also increased strongly with ongoing demand for 7 nanometer capacity.
Wafer fab equipment spending in memory was down by 30% or more in both DRAM and NAND. Looking at 20 20, WFE spending is expected to be up a high single digit percentage with upside to double digits depending on the strengths and timing of memory spending recovery. We expect logicfoundry to continue its strengths as we move into 2020. Based upon this, we expect the wafer fab equipment market in 2020 to be up with a high single digit percentage with upside to double digit depending on the strengths of the timing of the memory spending recovery. Yes?
Okay. Yes, I think we had some duplication here in the final version. Apologies for that. Customers are investing in advanced node capacity to enable the faster and more powerful chips that will be required for the new end market products that are going to be introduced in 2020 and beyond in areas such as 5 gs, high performance computing and data centers, which are all expected to be important growth markets for the coming years. Memory spending is expected to increase later in 2020.
Supply demand conditions in the memory sector have further improved in recent months, illustrated by decreasing levels of inventory at certain customers and a recovery in memory prices. 3 d NAND spending is first expected to recover, followed by DRAM. The exact timing and magnitude of the recovery in memory spending is, however, not yet clear. Now let's look at our guidance for the next quarters as included in our press release that we announced overnight. For Q1, we expect sales of between €310,000,000 €330,000,000 while Q2 sales for Q2, sales of between €330,000,000 €350,000,000 are expected, both on a currency comparable level.
And Q1 bookings on a currency comparable level are expected to be in the range of between €310,000,000 €330,000,000 After this introduction, as we shared before, we are happy, Peter and I, to take any questions that you may have.
We'd like to ask you to please limit Operator, we are ready for the first question.
Thank you, sir. Our first question comes from the line of Krish Sanjar. Your line is now open. Please ask your question.
Yes. Hi. Thanks for taking my question. It's Krish Sankar from Cowen. First question for Chuck.
I'm just curious, you said you're not seeing any impact from the virus either in terms of your shipments or even demand. Is this still the situation? Is your guidance for Q1 and Q2 sufficiently derisked? Or do you think there could be further downside if the situation gets worse in Korea or elsewhere? And then I had a follow-up.
We our view is that, as we mentioned in the introduction, we reviewed it several times with our teams, also, of course ahead of this earnings release. And we really came to the conclusion that there is very limited risk in our current guidance. So we took that basically into account in the ranges that we provided. And of course, we never know what of course, tomorrow could hit the market. Nobody knows.
But based on today's visibility of the coronavirus, let's say, expansion and the feedback from our customers, this is it.
Got it. That's very helpful. And then as a follow-up, Chuck, you mentioned about the strength in Epi market share last year and you grew double digits. Is there a way to further quantify it either in terms of revenue or what your market share number in Epi was in 2019 versus 2018?
Yes. Well, I think what we can say is that we clearly went from single digits to a meaningful double digit percentage. Yes. Okay. And we see by the way, we see, let's say, in the coming years, as we said in our introduction, based on the expectation that the Epi content in this industry is going to grow, we see tremendous opportunities for the company in the coming years to further expand not only, let's say, our share of wallet but also our share in the market.
As we go to new nodes in both logicfoundry as well as in memory, we expect that the IP content is going to increase. Maybe not to the same extent as in logicfoundry, but it's going to increase there also. So we love that development. And I think as a company, we made inroads at the right time when we took our strategic decisions on Epi in the 2014, 2015, 2015 time frame to reenter the mainstream CMOS part of that market, besides, of course, presence in analog power that we've had for many, many years.
Thank you for your question. Our next question comes from the line of Achal Sultania. The line is now open. Please ask your question.
Hi, good afternoon. Just trying to understand the size of the memory business now. In terms of like obviously you're talking about memory being flat last year, clearly versus market being down 25%, 30%. So just trying to understand like how is that memory revenue split between NAND and DRAM? Is it more like fifty-fifty or NAND is much higher in the mix?
And then can you maybe talk about some of these some more details about these specific projects as to when should we start to see them ramping? I think the 3 d NAND project with 1 or 2 customers and then obviously you're talking about DRAM non patterning ALD projects. How should we think about the revenue opportunity? Is it going to reflect in 20 or ramp up? Or is this more about 2021 and beyond?
Thank you.
Okay. So in 2019, yes, it was great for us that regardless of the memory market overall on the WFE level going down in a significant way, that we were able to maintain a year on year basically stable performance in memory. And that really was strongly contributed by our improved position, growing improving position in DRAM. So DRAM was the largest of the 2 segments in terms of revenue contribution in 2019. And also, if you look at 2020, we cannot, of course, oversee how the full year unfolds, but we shared with you on several occasions that we are very focused in DRAM, for example, to penetrate more into non patterning parts of the DRAM market.
And as we shared in our introduction, we were basically we came in we entered 2 customers with non patterning related application, and we expect to see P and L impact of that this year. And as a result of that, it could very well be that although the market from an overall market point of view, 3 d NAND is expected to recover faster than DRAM, that for us, the DRAM performance will be stronger than 3 d NAND. And we are even pushing for a year on year improvement in DRAM from a revenue point of view. Again, it's early in the year, but based on those selections, we aim to achieve that. And this is all part of what we shared on several occasions of our strategy to expand our served available in market gradually, especially, of course, ALD.
We talked to DRAM. When we with respect to NAND, also in the introduction, we touched on an important application with a leading memory player in 3 d NAND that we introduced at 96 Tech. And we see now that application proliferating into more customers. And also there, we expect that, that will contribute more over time. The increase of applications in 3 d NAND, that will go gradually as we go to higher stacks.
That will just take time. At each stack, we expect that we will increase the number of applications, but that will go gradual. But we have great GDP programs ongoing for years already with several 3 d NAND customers to achieve that in the coming years.
Thank you. Our next question comes from the line of Peter Olofsen. Your line is now open. Please ask your question.
Good afternoon. My question is on the logicfoundry business, which I suppose is the main driver for the strong H1 sales outlook. You have, of course, mentioned that you expect continued strength in logicfoundry in 2020. But do you have some visibility beyond the first half? Also because I think one of your peers, Lem, indicated that they think that the logicfoundry business in 2020 may be a bit more might be a bit first half loaded.
So and any thoughts on that would be helpful.
Yes. Yes. Yes. Well, it's that's a little bit too early. It's too early to provide guidance for the full year.
And the only thing we can say at this moment in time is that we see a very healthy climate for logicfoundry for the full year, Again, without specifying how exactly the second half towards the first half will be, but we definitely don't see any indications that it will fall off a cliff in the second half compared to the first half. We see a very healthy pattern throughout the year based on the visibility today. And just because, yes, there's just strong activity in both 5 nanometer foundry as well as 10 nanometer logic. And we see also, as we said in our introduction, early spending now for 7 nanometer in logic, R and D capacity. And we see a very the customer being very active capacity in the course of 20 capacity in the course of 2021 today in terms of R and D activity and trying to get to a point of freezing their processes for that node.
So that's all we can say at this moment, Peter, okay?
Okay. And then maybe follow-up on this ALD business in logicfoundry, which has grown strongly in 2019, well, for a few years already. Just trying to understand to what extent is this driven by an increase in unit shipments? Or is there also an ASP element where if you address new applications, maybe processes becoming more complex, also your ASP goes up. So is there an ASP element to the growth the ALD business?
Or is it predominantly higher unit shipments?
Well, of course, we are working on better gross margins. So from that point of view, we are trying to optimize our ASP and our cost. But if you look at the top line development, that's purely a reflection of all the strategic decisions we made a couple of years ago to really aggressively expand our served available market, especially in 2019, it showed, especially, of course, in the logicfoundry segment, really working hard to maintain our single wafer ALD leadership and push hard to expand our share of wallet note to note in foundry going from 7 to 5 and in logic from 14 to 10. That is really what you see. And it's nothing different from what we guided for, for the last 2 years.
The only good thing is now that the customer really ramps that we all together are seeing the results from that. That's it, Peter, on one or less.
Okay, clear. Thank you.
You're welcome.
Thank you. Our next question comes from the line of Marc Hesselink. Your line is now open. Please ask your question.
Yes, thanks. So the first one is actually on your comment that you made that you're working with your customers on the next nodes, which you also just addressed for 7 nanometer logic
and 3
nanometer foundry. Are those equipment decisions already made? And yes, did you qualify for doing those processes? And my second question is on gross margin. So quite a good step up that we saw in the quarter.
How should we read that? Is that because of the factory reloading where you are today and then relatively the evaluation tools in the field becomes less that therefore you see the gross margin improve? Or is are there other stuff and therefore also and what's then the outlook for the coming quarters now? Is this will you further gradually move towards your 45% number? Or will that take longer time?
Thanks.
Okay, Marc. So first of all, on the new notes, our decisions have not been made. So we cannot make, let's say, we don't know for, let's say, 400% where we stand on those new nodes. The only thing we can see is how much opportunity do we really get to enter into joint development programs on potential new applications. So and you see that in the way waivers are being exchanged between the companies, the amount of evaluation tools, which is not only an expensive exercise for us, for the supplier, but also for the customer.
They free up expensive footprint in their very expensive clean rooms. They have to free up people to occupy those tools instead of working on competitive tools. So based on those activities, the amount of tools on-site, the amount of wafers that have changed between the customer and our labs, the amount of waivers that go in a development stage through our tools, those are early indications how well we are doing. And based on that, we feel that we have an opportunity going towards the next node to really grow our presence. But exactly how much, that's too early to tell.
But in both areas, in logic and foundry, we see an opportunity to further expand going to the next node. So that's an answer to that question, Peter, on the gross margin.
Yes. The gross margin yes, Mark, a few remarks to be made. First of all, I think the inefficiency is still not out of our gross margin. I mean, we still are you can imagine with the growth that we have seen, especially in the Q4, that we are working very hard to get service peoples to do the installation qualification. So we train a lot of people.
There we have inefficiencies. We have mentioned in the past calls that we have, of course, problems with getting everything out of a factory in Singapore because it's fully occupied. And on the last moment, when changes are occurring, that leads to a lot of overtime. It leads to a lot of shifts that we have to do. So we are still not happy with having reached there the levels that we need to reach.
And that will highly become visible more in the second half of the year or in early next year when we're ramping up when the ramp up of the new factory in Singapore has taken place. On the other hand, we are and beside that, we still have a lot of eval tools in place. And hopefully, that will remain that way because that's a future business. You might have seen from our numbers or so that in the second half of the year, we spent more money again on eval tools at customers. On the same way, what we're starting to see is the positive contribution the more positive contribution, I should say, from new products where after the initial phase where we had to do additional costs to make sure that those products were up and running at customer, those costs are gradually are coming down.
And that has led now to a situation of a gross margin of in the 43% range. And what we have said in several calls earlier is that we expect that we would go in the course of 2020, early 2021 more in the direction of the higher end of the range that we have indicated. And I think that's still something where we strive for.
Okay. That's clear. Maybe a small follow-up on the first part. When do you expect that decision to be made so that you have really the visibility on how much extra applications you want in the transition in logic and foundry?
Yes. I think it will take at least until the end of the year. I think it's a little bit because it's not completely clear. Yes, that also depends on market dynamics. When our customers really take the final decision to ramp that product and that determines also how much time they have to maybe also delay that moment.
And it may differ also between Foundry and Logic. Maybe one area will go a little faster than the other, but for sure not earlier than the end of the year.
Okay. And then did the orders come in immediately? Or that also takes then a
little bit of a delay?
Could you repeat that?
If they make the decision, does that imply that after they make the decision, the orders come in immediately? Or if they're still delayed? So in other words, can we see contribution from that transition here in 2020 or is that a 2021 story?
I think ramping new nodes likely will be 2021. But early expanding your final development environment can still impact this year.
Very clear. Thank you.
Your next question comes from the line of Robert Sanders. Your line is now open. Please go ahead.
Yes. Hi, good afternoon. My first question would just be around your ALD long term growth forecast. We're getting pretty close to that. I'm just wondering when you think you'll give a new medium to long term range forecast for single wafer ALD.
I mean, would that be after the new CEO takes over? And the second question would just be, in that light, is the right way to think about ALD growth from here? Quite a lot of the growth is coming at the expense of DVD, CVV applications, like, I don't know, sputtering in the metal gates or whatever it is in the back end of line? Or do you see it mainly in the front end of line of new totally brand new applications where you're not replacing steps that are today used by all the deposition techniques? Thanks.
Okay. Yes, Rob, thanks for your question. So starting with your last question, ALD can take market from both front end of line as from back end line. So that's really it has potential to take business in both areas. So then in terms of, yes, the LTE market size, yes, so your question maybe is also a little bit where do we stand.
Well, we know that the market was around US1 $1,000,000,000 in 2018. In 2019, there was clearly some growth in 2019 of the same wave ALD market. And it's reasonable to assume that in 2020, single wave ALD market will not grow less than the WFE market, than the WFE market estimates that are there today. So we think that the USD 1.5 billion market size that we predicted for 20twenty 1 is still absolutely feasible for 2021 more likely than 'twenty, of course. And it's clear.
We of course, we learn more and more now as customers go to new nodes. We not only learn more in logicfoundry but also in memory based on all the activities that we touched on earlier in the call. And the conclusion we can take is it will not stop at 1.5%. That's very clear to us. It will not stop there.
And that's the best I can share with you at this moment in time, Rob. But yes, we take your invitation as soon as we get can that we provide some guidance beyond 1.5 towards the future when we can.
You. Our next question comes from the line of Sandeep Deshpande. Your line is now open. Please ask your question.
Yes. Hi. If I may, I have a question on ALD. When you started shipping ALD almost a decade ago, you were supplying the metal gate to one of your customers. I mean, how many layers of ALD are you now on average supplying in the logicfoundry market?
And how do you see that transitioning over the next 5 years? Thank you.
Well, how many layers, tens of layers, many, many layers. It's in IK Mello Gate, as you know, Sandeep, it was a handful of layers that we were basically, at that moment in time, focused on. And that limited basically our served available market. And that's why we put R and D to work very hard in the last 10 years. And it's now yes, of course, from a competitive point of view, we don't want to go into too much specifics, but it's tens of layers that we are involved in Sandip.
Expect that to continue to increase over the next 5 years?
Yes. So
what will it be replacing over the next 5 years? Are you talking vapors? So clearly, it's taking share within the stack, in the semi stack from something else as such really.
Yes, yes, yes. We our view is that, that is, of course, the aim that the let's say, the SAM within the served available market for single wafer Ld within the total deposition TAM is going to grow in the coming years. And we saw, of course, maybe with introduction of 3 d NAND, we saw maybe that there was some slowdown in that development because, of course, 3 d NAND enabled also big opportunities for layers like from PCVD to a relatively mature, let's say, technology to still meaningfully expand. But as we go as we further continue both in memory and logic, our view is that if you look at the device architectures and also the material requirements, we'll introduce a higher complexity level, which will drive ALD further.
Thank you. The next question comes from the line of Wim Geil. The line is now open. Please ask your question.
Yes, a very good afternoon. I got 2 questions left. First of all, your working capital management has been outstanding in the last few quarters. The days of working capital keeps dropping, especially given the strong growth that's quite an achievement. Can you give us a bit more feeling what structural measures you took in order to get here and also how much room is left on that end?
The second element would be the timing of the share buyback and the speed at which you expected to execute. Are the terms of the new share buyback similar as the previous one? And as a consequence, do you expect it to be executed as swiftly as the one you just finished in the Q4? Thanks.
Yes. First of all, the working capital, yes, yes, we as you might recall from mid-twenty 18, there we indicated that we were not very happy with our working capital, especially our inventories. So when you look to what we have done in the inventories, it's especially addressed the raw materials because we were we have changed there the systems. We have worked on further reducing the needs that we have. We always see further opportunities otherwise would not be good.
But the big steps that we have taken in raw materials that will be not any longer possible. Inventories, that's basically the work in progress and that's a function of the throughput time. That's what we are working on. Most likely, we can do there a few other things on the moment that we have for new facility, yes, that will help us. And the rest, the spare parts and the finished goods, I think we have taken there also further actions to work on those things.
So we reached there a level where we can do some small improvements but not that much. In accounts receivable, that's the other element of it. That is we especially look to our offered use there, and they are at a relatively very low level for the within the industry. So I think that's you can argue with your customers to reduce the payment terms there a little bit further, but that's it a little bit. So I think going forward and the last one I think that I should mention is the accounts payable.
And we pay our suppliers in on time. So we don't want to shorten our balance by leaving unpaid bills there. So I think that's the big improvement that we have done, but it's not that much improvement. Can still do some improvements, but not the big improvements that we have seen in the second half of twenty eighteen, especially in 2019. But I think with 40 2 days, we are at a very low level or so when you look to the industry as a whole.
Regarding the share buyback, I mean, our intention always has been that when we announce a way of distribution capital towards the shareholders that we want to do that as in a short period as possible. So it's not our intention to extend the share buyback program for a very long period of time. Having said that, on the other hand, we want to do also the right thing. So we don't want to do it in such a short period of time that it will cost us more than what we normally should have paid for it. And that's the balance that we will look for and that we will work that out in the next weeks to come.
Perfect.
Thank you. Thank you. The next question comes from the line of Stephane Houri. Your line is
now open.
Yes, hello. Good afternoon. It's Stephane Houri from ODDO. I have two questions, if I may. I'll try to reconcile what you're currently saying for the full year and for the first half when you say that the markets will grow high single digit and with the guidance that you give for Q1, Q2,
does it
mean that if there is no recovery in memory, you think that H2 sales will be below H1? Or is it just that you think that you will outperform significantly the market? And I have a follow-up.
Yes. We that's difficult to answer directly. But as we said, we it's a combination. Our high single digit estimate is based on a healthy logicfoundry segment throughout the year and, let's say, a recovery gradual recovery of memory starting to occur in the course of the year. And that could go to double digit if the memory recovery would go faster than we are assuming at this moment in time.
And yes, and so because your question is really where our high single digit percentage estimate is based on, right?
Correct, correct. Because when I do my quarterly model, basically, if I want to make you grow only high single digit, then I have to have a second half, which is supposed to be below the first half. So I'm just trying to reconcile if you're just conservative.
No, no. We can say something for full year on the market, but we cannot give guidance for the full year on ourselves. The only thing you can work with is if you compare based on the midpoint of the guidance for Q1 and Q2, Then and you compare first half twenty twenty with first half twenty nineteen, then there's a growth of 30%, yes? And then the next parameter that you can use is that we forecast for the full year WFE, a high single digit percentage. That's the only thing we can share at this moment in time.
Yes. Maybe, Stephane, to add a little bit on to what Chuck already earlier said. I mean, we do not expect that the second half will fall off the cliff. So we expect that logicfoundry will remain healthy. So I
think that's the distinction that you have. Yes. And of course, we also have an ambition like we had the ambition in 'eighteen and 'nineteen to still outperform the WFE market. That's what we but that's again, of course, also a function of the dynamics between the different industry segments. But based on today, that is still our aim.
Okay. Thank you very much. The follow-up is even a tougher question, I would say, because it's about 2021. Because when you listen to companies like ASML, for instance, you have the feeling that they're even more positive on 21 than on 2020, partly because of their own project on EUV, but also because they don't know like you about the timing of the recovery of memory, but they seem to be sure that in 2021, you will have at the same time logic and at the same time memory. So do you feel the do you share the same feeling that 2021 is somehow a bit easier to forecast than 2020?
It's too early and that's too early. And some suppliers also deal with higher lead times than others. So as a result of that, have maybe different views, develop different views than others. Yes. Okay?
Okay. Thank you very much.
Yes. You're welcome.
Thank you. The next question comes from the line of Nigel Van Putten. The line is now open. Please go ahead.
Hi, good afternoon. Also a question on WSE. Some of your peers have been guiding for a strong uptick in China, especially from domestic players there. That may not all be leading ad show. How is that opportunity looking for you in this year and maybe also 2021?
Is that something that might need some more room to grow from today? Or is that already something you're heavily involved in?
Yes. Yes. Yes. Okay, Nigel. Thanks for your questions.
Good question. Yes, we yes, our estimate is or I guess is that total WFE spending by, let's say, local Chinese customers clearly showed an increase in 2019 over 2018. And it's very likely that 2020, at least based on visibility today, based on visibility of coronavirus impact today, etcetera, that in 2020, it will show a further increase their spending in this industry because they are very determined. And as we shared before, we have built worked hard on improving, strengthening our infrastructure in China, and that resulted into, yes, 2018, a year on year growth in China. I'm talking primarily about the domestic ones because multinational ones is a separate story and just follows the pattern of those companies.
And in 'nineteen, we clearly grew our presence also. Our revenue also meaningfully grew year on year in 2019. And indeed, we see also based on visibility today, a meaningful growth opportunity year on year in 2020 in China.
Sure. Very clear. And then maybe switching to Peter on OpEx. So this year, we've seen plenty of moving parts from legal costs, I think impairments, higher incentives pay and obviously stronger growth. So could you help us maybe benchmark what should be quarterly OpEx number we should be modeling at least in the first half of this year?
Is there any sort of guidance you can provide on that?
Yes. Well, we always have said and that's the reason why we provide also somewhat more detailed information about and development expenses there. And there you see that the cash expenses are gradually increasing. So Q on Q, you saw an increase of approximately €3,000,000 We expect that our R and D expenses are in the low to mid teens. Given the fact that we work on a lot of new projects at this moment, they're moving towards more the mid teens.
Then we have some changing factors there. You have seen in the 4th quarter, as an example, some higher spendings increase as compared to previous quarters. Sometimes that has to do with for a few for €1,000,000 or so with higher wafers that we see blank wafers that we receive. On the other hand, we have as part and parcel of the IFRS methods that we are using. We have, of course, the amortization of R and D.
And gradually, with the enormous volume of projects that we have started in the past years, you see that amortization, the depreciation in principle on those projects is starting to come in. And in the 4th quarter, and we always will have that in over time, there was one project or 1 or 2 projects where we said, okay, the chances that we have to make this really a commercial successful thing, we're not there. So we have to reduce that. So from a guidance point of view, the best thing is that you look to the cost and then we have those amortization issues, which can play a certain role. With regard to SG and A, yes, that's the reason why we have given the guidance we this time.
The legal costs will be are out. They are already out of the Q4. The major issue in this case was related to fact that the Q4 was developing that favorable that some of the targets, the internal targets that has been set have been reached. And that led to an extra provision that we had to take on STI. So that's a one off.
Okay. Thank you.
Thank you. The next question comes from the line of David O'Connor. The line is now open. Please ask the
question. Great. Thanks for squeezing me in here, guys. Maybe just a quick one for you, Chuck. So you mentioned you don't expect logic foundry demand to fall off a cliff in mid-twenty 20.
But is it fair to assume the logic foundry is going to decelerate from the current high level, given the when you look at 10 nanometer logic capacity additions are slowing from here? Thanks.
I can only reiterate what we said before. We see currently a healthy climate and we for the logicfoundry combined. And yes, that's what we are working towards. It's difficult to provide more guidance than we have tried to give so far. I understand that you would like to provide more color, but that's really, really difficult to do now.
But we are, yes, extremely well engaged with both segments at this moment in time. And yes, that's all we can say at this moment, sorry.
Okay, fair enough. And then maybe just one quick one for Peter, CapEx for 2020, any indication there, please? Thank you.
Yes. The 2019 CapEx, as you have seen, was a little bit lower than 2018. We had assumed that the spendings on the new Singapore factory were coming in a little bit faster. So we expect that in the first half of twenty twenty, we'll show slightly higher spendings for Singapore. So for the year as a whole, I expect that our CapEx will be more in line with what we have seen in 2018 than the amounts that we have seen in 2019.
That's helpful. Thank you.
Okay. Thank you for your question.
There are no more questions on the line.
Okay. Well, also on behalf of Peter and also Victor Beranjo, our Investor Relations Executive, I would like to thank you all for your attendance today. Many, many questions came up. We were on the call for 70 minutes in total. I can understand maybe you have some follow-up questions still that we're not able you were not able to address in the call today.
Please feel free to contact Victor, and then we will make sure to follow-up on this in an appropriate way. Thanks again for your loyalty in following the company. And have a nice day, nice evening. Thank you again. Bye bye.
You. That does conclude our conference for today. Thank you all for participating. You may all disconnect. Have a good day, everyone.