Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to today's ASM International Q1 2019 earnings call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you will need to press star and one on your telephone. I would now like to hand the conference over to your speaker today, Victor Bareño. Please go ahead.
Thank you, Sarah. ASMI issued its first quarter 2019 results last evening at 6:00 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. With that, I'll turn the call over to Chuck del Prado, President and CEO of ASMI. Chuck?
Thank you, Victor. Thanks to everyone for attending our first quarter 2019 results conference call and for your continuing interest in the company. Let's start with a review of our financial results. Revenue in the first quarter amounted to EUR 249 million, a strong increase of 56% compared to the first quarter of last year, a slight decrease of 2% compared to the fourth quarter of 2018. Revenue in the quarter was a touch above the top end of our guidance, which was a range of between EUR 225 million and EUR 245 million. Service and spare sales increased by 34% compared to the first quarter of last year and showed also a 2% decrease as compared to the fourth quarter. In terms of equipment sales, ALD was a strong driver in the quarter, the contribution from the other product lines continued to be solid as well.
Of note was the strong performance of Epi, where we achieved record-high sales for the quarter, including multiple shipments of our Intrepid tool and strong sales in the analog power segment. By industry segment, the revenue stream in the first quarter was led by Foundry, with sales up compared to the previous quarter. Foundry was followed by Logic. Combined Logic and Foundry sales were at an all-time high in the first quarter. In Memory, which was the third largest segment, sales remained at a relatively low level. Sales in the analog segment remained solid in the first quarter. Gross margin was 41.3% in the first quarter, slightly down from 41.7% in the fourth quarter, up from 37.8% in the first quarter of last year. The slight decrease compared to the fourth quarter is mainly explained by mix effects.
The gross margin still reflects the effect of investments in new products and new growth initiatives. SG&A expenses decreased slightly compared to Q4 and included a continued higher level of legal expenses. R&D expenses dropped by 15% compared to the fourth quarter. In Q4, the higher level of R&D was caused by a couple of incidental items, as discussed in our previous call. Financing results in the first quarter included a EUR 4 million currency translation gain, compared to a translation loss of EUR 8 million in the year-ago period. As a reminder, we keep the largest part of our cash balance in US dollars, and translation differences are included in the financing result. Let's briefly look at ASMPT.
Results from investments, which reflects our 25% share in the net earnings of ASMPT, amounted to EUR 3 million only in the first quarter, down from EUR 6 million in the fourth quarter and down from EUR 16 million in the first quarter of last year, and are reflecting a lower utilization. In the first quarter, ASMPT reported sales of $467 million, down 23% compared to Q4 and down 16% from Q1 last year. Bookings dropped to $460 million in the quarter, down 3% sequentially and down 30% year-on-year, reflecting the worsening conditions in the back-end market. Turning back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to EUR 53 million in the first quarter, up from EUR 46 million in the fourth quarter. Our new orders in the first quarter were EUR 235 million, down 22% from the fourth quarter and up 14% year-on-year.
Such orders exceeded our guidance, which was a range of between EUR 200 million and EUR 220 million. As a reminder, the quarter-on-quarter comparison was impacted by the fact that our order intake in the fourth quarter was relatively high due to orders that had been pulled in from the first half of 2019 into Q4 of last year. Equipment orders in the first quarter were primarily driven by strong demand for our ALD tools. Looking at the breakdown in bookings by industry segment, foundry represented the largest segment in the quarter. foundry bookings increased compared to the fourth quarter, and we're at a record high for our company. logic was the second-largest segment, with bookings somewhat lower than in Q4, but still at a very healthy level. The combined logic and foundry segments accounted for the clear majority of our total orders.
memory represented the third-largest segment, with bookings decreasing compared to the fourth quarter. Bookings were relatively low in both memory segments. After strong levels in the previous quarters, bookings in the analog segment meaningfully decreased in Q1. Looking at our balance sheet and cash flow, we ended the first quarter with a cash position of EUR 312 million, up from EUR 286 million at the end of December. Free cash flow amounted to EUR 21 million positive, which is driven by a strong level of profitability and partly offset by EUR 12 million cash outflow due to higher working capital. Regarding capital expenditures, as already discussed in earlier quarters, we expect that after the increase in 2018, our capital expenditures will remain at a higher level in 2019 due to the investments we are making in a new manufacturing facility in Singapore.
Groundbreaking for this new facility has recently started, construction work is expected to be completed in the first half of next year, of 2020. As already announced last quarter, we plan to raise the dividend this year by 25% to EUR 1 per share, we intend to cancel 5 million treasury shares, which will reduce the issued share count by 9%. Both proposals will be up for shareholder approval at our upcoming AGM on May 20th. Let's now look in more detail at the trends in our markets. If we look at the WFE, our wafer fab equipment market in total, demand in the first part of 2019 has been trending significantly lower compared to the same period of 2018.
Similar to the second half of last year, this is the balance of a substantial weakening in memory market demand and a much stronger trend in logic foundry spending. Looking at the memory segment, customers are currently digesting the substantial investments they made over the last few years and are focused on rebalancing supply and demand in their markets. This is evidenced by the substantial cuts in CapEx in the memory sector this year. While visibility in the memory market is relatively limited, we do not anticipate a material recovery in spending in the broader memory market in the second half of 2019 as compared to the first half. For the full year 2019, memory spending is still expected to be down significantly. Most of the spending in memory will be on technology transitions. Our strategic focus in the memory segments remains the expansion of our served available market.
Over the last few years, we have invested in broadening our portfolio of ALD applications for future DRAM and 3D NAND device technology. As customers transition over time to next nodes and generations, we expect to increase our SAM, our served available market, step-by-step over the next years. For ASM, the year-on-year drop in memory sales in the first quarter was more than offset by logic and foundry customers who stepped up spending on the advanced nodes. In advanced logic, demand remains strong. Spending is now focused on capacity expansion for the 10 nanometer node and initial R&D investment for 7 nanometer. As highlighted on earlier occasions, the transition to the 10 nanometer node in advanced logic is a strong inflection point for us, for our company, and has driven a substantial increase in the number of ALD layers as compared to the 40 nanometer node.
In foundry, we have experienced strong demand, primarily related to the first round of 5-nanometer investments. Compared to the previous node, we believe we have successfully expanded our position in 5 nanometer in both new and existing ALD applications, and as a consequence, strongly increased our share of wallet in leading foundry. In addition, we have also increased our position in epitaxy with a leading foundry customer in the transition from 7 to 5 nanometer. We expect spending in the combined logic foundry segments to remain solid in the first half of this year. Taking a longer-term view, logic and foundry will remain strong segments in the overall single wafer ALD market in the next years, as ALD is expected to remain a key enabler of further miniaturization. New device architectures and new materials that are on the roadmap of our logic foundry customers.
Last but not least, looking at the analog segment. While this segment is clearly smaller than logic or foundry, we again achieved strong sales in analog in the first quarter. As discussed last quarter, we anticipate the demand in the analog segment will be lower in the second half of 2019, following healthy levels in the second half of last year and in the first half of this year. To summarize the market trends, while memory demand is trending significantly lower this year, ASM is strongly benefiting from advanced node spending in the logic and foundry segments. As already highlighted in the last few quarters, logic and foundry account for the largest part of our business. In addition, we have achieved a much bigger share of wallet with our logic and foundry customers in their most advanced nodes, as we are engaged in a substantially higher number of layers.
This is driving our strong current performance. In terms of product lines, while ALD continues to be a strong driver for our company, another pillar of our growth strategy is to aim for structurally higher sales in the other product lines. In epitaxy, we believe our market share has clearly increased over the last two years on the back of our first penetration in the advanced CMOS segment, and a healthy contribution at the same time from analog and power. We remain strongly focused on further increasing our share by broadening our engagements in the advanced CMOS market. In the other product lines, in PECVD and in vertical furnaces, we are making targeted investments to enhance also our niche positions in these markets in the coming years. Looking at the full-year average, expectations for WFE spending still show a year-on-year decrease of mid-to-high teens % in 2019.
Views are unchanged that this will be the balance of a substantial decline in memory spending, while spending in logic foundry is expected to increase in 2019, supported by solid demand for the most advanced nodes. Now let's close this introduction with a short look at the guidance that we issued with our Q1 press release. For Q2, on a currency comparable level, we expect sales of between EUR 230 million and EUR 250 million, while bookings, on a currency comparable level, are expected to be in the range between EUR 240 million and EUR 260 million. For 2019 as a whole, general expectations are still that the wafer fab equipment market will decline with a mid-to-high teens %. Logic and foundry, as compared to the memory segment, are expected to stay healthy in 2019.
Based upon this current market view, we expect to meaningfully outperform the WFE market in 2019. At this point, Peter van Bommel and myself are more than happy to answer any questions that you may have.
We'd like to ask you to please limit your questions to not more than two at a time, so that everybody has a chance to ask a question. All right, Sarah, we are ready for the first question.
Thank you. Just as a reminder, once again, star one if you wish to ask a question. Your first question comes from the line of Stéphane Houri from ODDO. Your line is now open. Please ask your question.
Yes. Hello, good afternoon. I have indeed two questions. The first one is, with the visibility that you have right now, what prevents you from giving a more precise guidance with the order book that you have and the guidance to give for Q2? The second question, you said you do not expect any recovery in memory for the second half. Do you mean that you don't bank on it in your guidance, or you really don't see it coming? Is there any difference between NAND manufacturer and DRAM manufacturer? Thank you.
Yeah. Stéphane, thank you for your questions. On the guidance for Q2, this is the way we always give guidance, with small ranges as we can. As you have seen, we have adjusted our guidance for Q2 upwards based on the most recent visibility compared to a few months ago, and that's the best we can do. Your question was also what we took into account for memory in the second half.
Yes.
Well, we assumed, for now, no, let's say, material recovery of, let's say, CapEx of serious investments by the key customers in the DRAM and 3D NAND segment. We did not assume any meaningful recovery now. That's just based on the visibility with our customers today.
Same thing for 3D NAND manufacturer and DRAM manufacturer, don't you see any difference?
For DRAM versus 3D NAND?
Yeah.
Yeah. No, we don't see a real difference. We have no indication in both segments. On earlier calls, we gave indication that we might see an earlier recovery in DRAM than in 3D NAND. That is a possibility. We have not been able to gather any more visibility that would confirm that. For now, again, for both 3D NAND and DRAM, we don't foresee a recovery, but at the same time, it could be that for us specifically, and that's very customer specific, that there is a slight improvement in memory spending in the second half compared to the first half. That's more customer specific, project specific than that it is an overall industry recovery.
Okay.
Okay?
Okay, thank you.
Thank you. Your next question comes from the line of Marc Hesselink from ING. Please ask your question. Your line is now open.
Thanks for taking the question. First, what is your visibility? It's clearly stronger technology transitions in logic and foundry. What is your visibility on how that will phase over into the next technology transitions? Will there be a gap period where you need volume orders to fill it, or will it be very close to each other, going into the next technology mark? Second question is, above clearly the guidance revenue for both the first quarter and second quarter, is that purely stronger demand or is there also maybe a bit of a pull-in from the second half of the year?
First, basically you are asking, I read your question on logic foundry as what is the overall climate in logic foundry. I think in general in logic foundry, of course, we see very healthy spending in 2019. Logic foundry combined, it may be a little bit more weighted towards the first half than to the second half, but if that is the case, it's in a modest way, more weighted to the first half, and then it likely would maybe become more visible in the bookings than on the billing side. At this moment in time, we do not see any structural deterioration in that segment. From that point of view, our visibility is that this segment will stay healthy in the second half.
If your question is how do we expect logic foundry to evolve into 2020, of course, that's a little bit too early to comment on. The only thing we can say is that if you look at the 10 nanometer node in logic, then it is a very strong node for us. Again, we have gained a lot of layers going from 14 to 10. We, for now, assume that the ramping of 10 nanometer will not stop at the end of this calendar year, that there is more capacity for this segment to invest. How that exactly from a timing point of view will evolve into next year, that's too early to tell. We don't think that the 10 nanometer node will be saturated, in terms of capacity by the end of the year. That's basically what we have learned so far based on today's visibility.
In the foundry segment, 5 nanometer, also a very strong node. Again, from 7 to 5, we gained significant amount of layers, which feeds the current strength in our reporting. Also there, at the same time, this is their, as far as we understand, the initial capacity built by this leading foundry customer. It will not stop there. How it will develop immediately going into 2020, that's too early to tell. At the same time, in terms of future nodes, we already are shipping tools for N7 logic R&D, we are already shipping N3 tools, for N3 R&D in foundry segment. If you look at the intensity of the R&D programs at the customers, it's hard for us to believe that it will take many years for that to turn into high volume.
I think there's no reason to believe that there's more time in between nodes in foundry than we have seen before, and it's not very likely that in logic, going from 10 to 7 will take as much time as it took to go from 14 to 10. I think that was more an anomaly, in our perception so far. I trust that answers your question. We are very much looking forward to further increase our share of wallet as we go to the next node in both segments. That's what we are working on today.
Perfect. Yeah. Thanks.
the second
Yeah. Sorry. The second part is indeed, if there was a, and I think you already answered a little bit with start of your, was there a pooling of orders of billings in the first half of the year coming from the second half of the year?
No. That is not a major factor in what we reported today.
Yes. Okay. Thanks.
Okay. You're welcome.
Thank you. Your next question comes from the line of Nigel van Putten from Kempen. Please ask your question. Your line is now open.
Hi. Thanks for letting me ask the questions. First one on CMOS epi, how many customers are you engaged with at the moment in a meaningful way? It's clear there's one foundry customer that engaged with you. How are you sort of progressing with other customers?
Well, we have, let's say, including our high volume customer, we have multiple engagements where we are exchanging a lot of knowhow, and we have more than one customer where we have tools, and we have multiple engagements in general. We really are focused to expand our epi position beyond this first HVM customer, if that is what you would like to know.
Yes. Thank you.
It will take time for that to develop. Of course, it's great to have a solid reference now for already two technology nodes in leading foundry.
Yeah. Maybe a follow-up, because you mentioned epitaxy as one of the key drivers for the quarter. Typically, you say, if I remember correctly, that ALD is the vast majority of revenue. This time, you didn't. Is that for that reason, that Epi is maybe as strong as ALD in the quarter?
Well, yeah. It's a good question. Of course, ALD has been a very strong driver for multiple years. As we shared with you for quite a number of quarters, it has been our strategic intention to really get more growth engines up to speed. We adjusted our strategy on multiple products accordingly two, three years ago. As a result of that, we have seen that in 2018, all products basically grew year-on-year. Also, this year, we trust that not only ALD year-on-year will contribute to growth. That is our aim. Again, it's not a guidance, but that is our aim for the year, that not only ALD will year-on-year grow. That is what we will try to achieve this year.
Specifically on Epi, we can say that Epi grew from 2017 to 2018, and we intend to grow Epi also this year.
Thank you.
Okay. You're welcome.
Thank you. Your next question comes from the line of Robert Sanders from Deutsche Bank. Please ask your question. The line is now open.
Yeah. Hi. My first question is just on your U.S. logic customer. There's talk that their 10 nanometer process may not be actually very competitive from an electrical point of view, and that they will only ramp in one site. Is that what you're assuming or in your planning, or are you assuming that they will roll it out across their three main sites? How would that affect you if that played out? My second question is just, I don't know if the VLSI data's come out in terms of your market share, but I'd love to get an update on where you think your market share can go in ALD, and whether you're starting to benefit from the potential move from batch tools to single wafer, if there's any kind of change there with the quality requirements.
The last question would just be, in your N3 foundry development, are you seeing any sort of early work on nanowires gate-all-around as a driver for you guys going forward? Thanks.
Okay. Rob, thanks for your questions. First, the three versus one site. We're not allowed to, on these calls, to speak about, let's say, manufacturing strategies of individual customers. I'm not allowed to answer this question directly. The only thing we can say, Rob, is that we see a tremendous. Let's say, continuation and acceleration of demand in leading logic compared to, let's say, 2016, 2017, early 2018, as it started to develop in the second half of last year, and is continuing full speed in this year. I trust that our customers are doing that with their eyes clearly. They are doing that for a reason. So far, we only have indication that the end markets of leading logic are healthy enough for them to continue on this path. That's the way we are serving them.
The visibility we have on their forecast has been pretty decent so far. That's the only thing that we steer our organization on. I don't want to get into further detail on specific customers, if you don't mind. Secondly, on market share, ALD. Market share, I understand that overnight, also Gartner numbers came out, and I think Gartner estimated our ALD market share went down by about 4%, compared to VLSI, where it went down by about two and a half % in 2018. Well, as you know, as we shared, triggered by questions by you or your colleagues on earlier calls, we are not surprised with these numbers, especially if you look at the fact that in 2018, as always, the market share development is determined by the mix between the industry segments.
As you know, that the overriding driver in 2018 was still memory. That in general, is less favorable to us than when it's more logic foundry driven. As you know, as of the second half of last year, logic foundry took over the lead. We think as of that moment in time, and also going into 2019, I think the developments in terms of industry dynamics are strongly in our favor. We trust that, we expect our market share to improve, to develop in a healthy way in 2019. Based on the fact that memory spending is likely down significantly, while logic foundry is expected to be much more robust, throughout the year.
Beyond that, Rob, as you know, as we shared before, we are aggressively in R&D programs, working on further expanding our served available market, not only in logic foundry, of which you have seen results in the recent technology note changes, but also in memory. We are very focused to gradually, step-by-step, in DRAM and 3D NAND, to increase our exposure. To increase our served available market there, and in that way, maintain leadership in the ALD space. On N3 foundry. Let's put it this way, that we are addressing in general in the logic foundry space. We are very much aware of the current FinFET infrastructure and the needs of this segment in case they would like to transition to nanowires, whether that's in logic or in foundry.
Many of our process developments and material developments, not to forget material developments, are also focused on that potential transition. As we see, that's likely not very near term, but we are already engaged. As you know, we are now engaged at least on programs that for our customers are 2 to 4 years out. For some more fundamental items, we'll even look 5 to 6 years out. Most of our R&D is focused on 2 to 4 years out, and that also includes nanowire work.
Thanks a lot.
Okay. You're welcome.
Thank you. Your next question comes from the line of Achal Sultania from Credit Suisse. Please ask your question. Your line is now open.
Hi. Thank you for taking my question. I have a question regarding the seven and five nanometer transition, because they are believed to use EUV for its development. There's this belief that EUV should reduce deposition steps. However, you still see it increasing for your ALD. Could you please explain why that is the case?
Okay. Since you said five nanometer, I trust you're specifically talking to foundry.
Let's start with the bottom line first. It's clear that we are increasing our share of wallet in foundry as we go from N7 to N5. I think the numbers speak for themselves, that we are reporting today. It's an indication that the net result of that node transition is positive for ASM. Yeah? That's the bottom line answer to your question. To elaborate a little bit more on it, of course, you likely are referring to how much exposure will EUV give to the multi-patterning part of the business. There, our answer has not changed in time, and that is that indeed some conventional double patterning layers will be replaced by EUV, yes. At the same time, the introduction of EUV will enable our customers to continue Moore's Law.
That is, again, driving a strong overall increase in ALD demand as conventional deposition will run more and more out of steam. In general, we are embracing the introduction of EUV. Although some layers are going to be placed, it should become clear that multi-patterning will remain a steady business for years to come. It will continue to contribute to the ALD market, but probably, from a relative point of view, on a more steady basis. That's the answer I trust that you were looking for.
Yeah. Thank you. Another question that I would have is more for modeling purposes. Your tax rate in Q1 was about 3%, and this is compared to 12% in Q4 and 9% in 2018. Can you please give some guidance what we should model for your tax rate going forward?
Yeah. We see that the tax rate, indeed, was very low. What we still have, as you might be aware of, is our NOLs as well in the Netherlands as in the U.S. We have done the investments in Korea, we are basically on this one doing also investments in Singapore that have certain tax advantages. Those tax advantages in the course of the coming years will decrease. As a consequence of that, I expect that our tax rate, which will be in the mid to high single digit in 2019, will gradually increase in the years to come.
Got it. Thank you.
Thank you. Your next question comes from the line of Tammy Qiu from Berenberg. Please ask your question. Your line is now open.
Thank you for taking my question. Firstly is, I understand that you guys have been working on R&D for next probably five years design. From the chip maker perspective, at what point do you know for sure that you are in for this application or not in? For example, everyone is looking at seven nanometer today, do you already have confirmation from your customer that you are in for five nanometer or three nanometer, and on what market share? My second question is on, from your perspective, I understand that you don't see a material memory recovery in the second half. What about 2020? What is the landscape? Appreciate it's still early days, but how do you think we are setting at this stage from a memory market, demand, supply, and CapEx spending perspective? Thank you.
Okay, Tammy, thanks for your questions. First of all, when do you know? Well, as you know, we are now already in foundry is preparing for basically ramping its five-nanometer production. Those decisions have already been made quite some time ago. On logic, 10-nanometer decisions have been made, of course, already quite some time ago. We're talking about when foundry three-nanometer decisions are being made and Intel and other advanced logic players are going to make their decisions for their future nodes. Those decisions are, in general, made The development engagements already start, let's say, two, three years in advance. Really, the tools are being put on site, and then processes are being reviewed in more detail. Between one and three years in advance, those solutions are being explored.
In the last year, probably between 12 and six months before they start to seriously invest, then you get a better indication of whether you are in or not. That's in general the case. We must say that in some instances, you see the industry changing a little bit. Sometimes also solutions that are introduced at a more advanced node, that customers are considering to use them also for an earlier node, if they really significantly improve their performance or reduce their cost. Sometimes, maybe we will see that in the future a little bit more. Again, it has not been done so much so far, but we don't exclude that in the future will happen more. That's in general, the picture. 2020 memory. Yeah.
It's too early to tell, Tammy, but we would not be surprised that at some point in time in 2020, there is a reason for the memory players to start investing again. It would not surprise us, and I think many industry watchers have the same impression, that it would surprise many if also 2020 would continue to be a year without meaningful new CapEx in memory. Again, there's nothing that confirms that from a customer point of view. That's our early view at this moment in time. We don't expect material recovery in 2019, and that's also what we have assumed so far in our own outlook for the year.
Okay.
Except for, again, like we alluded to earlier in the call, some specific customer investments that we are experiencing, second half compared to first half. They are not representing an overall change in industry trend.
Okay. Thanks. Just a quick follow-up. From your memory customer perspective, compared to historically, do you see them changing their minds about investment quickly today, or do you see them getting more planned ahead of the whole game?
I don't think I can give a very outspoken answer. There's so many elements that play a role in our customers making those decisions. It's better for you to ask them. We don't want to speak on their behalf.
Okay.
Thank you.
Okay, cool. Thank you.
Thank you. Your next question comes from the line of Peter Tsai from One Investment. Please ask your question. Your line is now open.
Hi, thank you. I have two questions, please. Firstly, just looking at the balance of evaluation tools on balance sheet, it's still a pretty substantial amount. I was wondering if you've seen the underlying customer activity products or technologies change as you're now in Q1 and Q2 on the evaluation tools, and whether there's any comments you could make about the potential pull-through of that evaluation tool technology base later in 2019 or early 2020.
Yes, I can answer that. The eval tools indeed are still pretty healthy on the balance sheet. That's of course very good news because that means a lot is still cooking. What we normally see is that an eval tool will remain with the customer somewhere between two and six quarters. We expect that some of those tools will gradually pull through in our sales turnover. It's too early on this moment to give you guidance on what sort of quarters that it's going to happen. I think for the sake of the reasoning, two to six quarters is a fair time to take into account for pulling through towards the final customer.
Could you also give us some view on the technology and end market construction of the eval tool base and maybe whether it's evolving?
The eval tools, we only put an eval tool with a customer on the moment that's a complete new technology which has not been proven. When there is a big market opportunity, we are not going to pull an eval tool with a customer when the end demand of him will be only one or two tools. We are not going to put an eval tool at his premises on the moment that we have a tool which has already been proven by several other customers. They're really new developments, what we're talking about.
Okay. You can't give any sort of more specific indication of what kind of developments or nodes?
They are the more advanced nodes by definition, because the rest has been tested already.
Yeah.
When you think about now, the things when you talk about eval tools, it's in foundries, it's highly likely more N3 related and some N5 still related than anything else.
Okay, pull it forward, it's two to six quarters. They've been there now for roughly two or three quarters. Does that imply you'd expect some of this to pull through early next year?
We expect that in the next quarters, some more of those eval tools will be pulled through. We also hope and expect that new eval tools will go to customers because that will make sure that we can grow further in the years to come.
Right. Okay. The other question I have is just on foundry. A lot of the strong revenue performance has been concentrated around one customer and one very large prototyping or testing phase of rollout. Can you give a sense as to, when you look at your foundry pipeline, the extent to which that is broadening now off of that base project, either further to that customer or other customers?
Okay. The learnings that we have and the penetrations that we have made within this leading foundry are assisting us elsewhere. Yeah, they definitely are assisting us elsewhere, let's say, in terms of understanding what certain foundries in general need. Of course, we cannot transfer, let's say, customer-specific solutions to other customers. That's what we never do. Only general learnings we can apply to other customers. It more depends on how strongly other foundry players can develop their market position because at this moment in time, in the advanced nodes, there's very clear leadership. Let's say the other foundry players are still in progress of developing their positions in those nodes. Is your question, are we ready to engage when other foundries come up to speed on those advanced nodes? The answer is yes. We have strong engagements with those customers ongoing.
It's depending on when they are ready to launch based on their end markets.
Also a question around demand from a perspective of, call it passing the baton from your current large engagement to further engagements, whether you would expect that to be something you would feel late this year, early next year, or whether it might take a bit longer from a concrete revenue demand perspective.
I trust that your question is whether success on one product will also feed success maybe on other products at the same customer. Is that what you mean?
Well, yeah. The same customer or other engagements. I know you're talking to anyone who's working on 7 nanometer foundry. From that perspective, it's really a question of when they are ready to spend, either in follow on from the existing customer or the new customers as you highlighted. I'm wondering whether this will be, from a revenue perspective, a smooth transition, which would mean that you'd see business late this year, early next year, or whether there would be a gap in time before that next significant revenue base builds its way through your P&L.
I think, again, we definitely can use all the learnings of penetrations of today at other customers. Whether there really is an opportunity to make that happen is more dependent on, let's say, the timing of other customers, when they are ready. We have no indication of, let's say, major foundry spending at other parties this year so far.
Right. Okay. Thank you for the help.
Thank you. You're welcome.
Thank you. Your next question comes from the line of David O'Connor from Exane BNP Paribas. Please ask your question. Your line is now open.
Great. Thanks for taking my question. Chuck, maybe a question on 10-nanometer again. Just want to get a better sense of how much legs are left on the 10-nanometer build-out. I'm trying to reconcile some of your previous comments. I think in your introduction remarks, you mentioned that bookings were down in logic in Q1, quarter-over-quarter. Yet at the same time, you expect strength to continue through year-end. With bookings down in Q1 in logic, is it fair to say we're now over the initial build, and that's what you're referring to as more just the long tail of that build-out? Or can you continue at the kind of current levels, maybe quarterly going down? Any kind of sense around how we should model that rest of the year would be helpful. Thanks.
We give formal financial guidance up to including Q2. The only thing we can say, we already shared earlier in the call, is that we do expect the contribution to the top line for logic foundry combined to stay healthy throughout the year based on a healthy climate that we now foresee for that segment throughout the year. Then within the logic foundry combined segment, there are differences by quarter between logic and foundry. It goes too far to go into all that detail. It could be that logic foundry combined, the contribution in the second half is maybe modestly lower than in the first half. At the same time, we think it's going to stay very healthy throughout the year based on today's visibility. That is the best we can say at this moment in time.
Okay. With logic bookings in Q1 down quarter on quarter, are we now over the initial build of 10 nanometer?
Again, we expect logic contribution to the top line to stay a healthy one throughout the year based on today's
Okay, got it.
Yeah?
Got it. Maybe one follow-on as well on the gross margin trajectory for the rest of the year. What are the different puts and takes of that as you look out, maybe Victor, for the rest of the year? Thanks.
Yeah. Gross margin is developing as what we have indicated earlier. We expect our gross margins to remain in the low to mid-40s%. 2019 is a year, which we already mentioned, where we have a lot of introductions of new products. Initially, that will have some impact on the gross margin. You have seen it also within this quarter, the same sort of development we have seen in the first quarter as in the fourth quarter. We have, beside that, some mix differences. Sometimes they could be a little bit more positive, sometimes they are a little bit more negative. They are mostly related to certain application for certain customers. That's basically how we expect also the remaining part of the year to develop within that range of low to mid-40s%.
Very helpful. Thanks, guys.
Thank you.
You're welcome.
We don't have any further question at this point. Please continue.
Well, on behalf of Peter and Victor, I would like to thank you all for attending this call on this late Thursday afternoon. Thank you for your engagement with the company. Any questions you may have after this call, feel free to contact, of course, us later today or in the coming days. I trust that we will stay in touch with all of you. Thank you again, and have a nice day or a nice evening. Thank you very much.
That concludes your conference for today. Thank you, everyone, for participating. You may now disconnect.