Good afternoon, ladies and gentlemen, and 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. I would now like to hand the conference over to your speaker today, Victor Barina.
Please go ahead.
Thank you, Sarah. ASMI issued its Q1 2019 results last evening at 6 o'clock 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 Chuck del Prado, President and CEO of ASMI. Chuck?
Thank you, Victor, and thanks to everyone for attending our Q1 2019 results conference call and for your continuing interest in the company. So let's first let's start with a review of our financial results. Revenue in the Q1 amounted to €249,000,000 a strong increase of 56% compared to the Q1 of last year and a slight decrease of 2% compared to the Q4 of 2018. Revenue in the quarter was a touch above the top end of our guidance, which was a range of between €225,000,000 245,000,000 Service and spare sales increased by 34% compared to the Q1 of last year and showed also a 2% decrease as compared to the 4th quarter. In terms of equipment sales, ALD was a strong driver in the quarter, but the contribution from the other product lines continued to be solid as well.
Off note was the strong performance of Epi, where we achieved record high sales for the quarter, including multiple shipments of our Intrepid-two and strong sales in the analog power segment. By industry segment, the revenue stream in the Q1 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 Q1. In memory, which was the 3rd largest segment, sales remained at a relatively low level.
Sales in the analog segment remained solid in the 1st quarter. Gross margin was 41.3 percent in the 1st quarter, slightly down from 41.7 percent in the Q4 and up from 37.8% in the Q1 of last year. The slight decrease compared to the Q4 is mainly explained by mix effects. The gross margin still reflects the effect of investments in new products and new growth initiatives. SG and A expenses decreased slightly compared to Q4 and included the continued higher
level of legal expenses.
R and D expenses dropped by 15%, 1 5 percent compared to the Q4. In Q4, the higher level of R and D was caused by a couple of incidental items as discussed in our previous call. Financing results in the Q1 included a $4,000,000 currency translation gain compared to a translation loss of €8,000,000 in the year ago period. As a reminder, we keep the largest part of our cash balance in U. S.
Dollars and translation differences are included in the financing result. Let's briefly look at ASMPT. Results from investments, which reflect our 25 percent share in the net earnings of ASMPT, amounted to €3,000,000 only in the first quarter, down from €6,000,000 in the 4th quarter and down from €16,000,000 in the Q1 of last year and are reflecting a lower utilization. In the Q1, ASMPT reported sales of 4 $67,000,000 down 23% compared to Q4 and down 16% from Q1 last year. Bookings dropped to US460 $1,000,000 in the quarter, down 3% sequentially and down 30% year on year, reflecting the worsening conditions in the back end market.
Now turning back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to EUR 53,000,000 in the first quarter, up from EUR 46 €1,000,000 in the Q4. Our new orders in the Q1 were €235,000,000 down 22% from the 4th quarter and up 14% year on year. As such, orders exceeded our guidance, which was a range of between EUR 200,000,000 EUR 220,000,000 As a reminder, the quarter on quarter comparison was impacted by the fact that our order intake in the 4th quarter was relatively high due to orders that had been pulled in from the first half of twenty nineteen into Q4 of last year. Equipment orders in the Q1 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 4th quarter and were at a record high for our company. Logic was the 2nd largest segment with bookings somewhat lower than in Q4, but still at a very healthy level. The combined Logic and Foundry segments accounted for clearly for the clear majority of our total orders. Memory represented the 3rd largest segment with bookings decreasing compared to the 4th 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 Q1 with a cash position of EUR 312,000,000 up from EUR 286,000,000 at the end of December. Free cash flow amounted to EUR 21,000,000 positive, which is driven by a strong of profitability and partly offset by €12,000,000 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 new manufacturing facility in Singapore. Groundbreaking for this new facility has recently started, and 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 year by 25% to €1 per share, and we intend to cancel 5,000,000 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 20. 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 1st 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 logicfoundry spending. Looking at the memory segment, customers are currently digesting the substantial investments they made over the last few years and focus 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 twenty nineteen 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 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 Q1 was more than offset by logic and foundry customers who 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 and 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 14 nanometer node. In foundry, we have experienced strong demand, primarily related to the 1st round of 5 nanometer investments.
Compared to the previous note, we believe we have successfully expanded our position in 5 nanometer in both new and existing LD applications. And as a consequence, strongly increased our share of wallet in leading foundry. In addition, we have also increased our position in epitaxy, who is a leading foundry customer in that transition from 7 to 5 nanometer. Expect spending in the combined logicfoundry 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 road map of logic 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 Q1. As discussed last quarter, we anticipate that demand in the analog segment will be lower in the second half of twenty nineteen, 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 2 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 percentage in 2019. Views are unchanged
that this
will be the balance of a substantial decline in memory spending, while spending in logicfoundry is expected to increase in 2019, supported by solid demand for the most advanced nodes. So 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 €230,000,000 250,000,000 while bookings on a currency comparable level are are expected to be in the range between €240,000,000 260,000,000 For 2019, as a whole, general expectations are still that the wafer fab equipment market will decline with a mid- to high teens percentage. Logic and foundry as compared to the memory segment are expected to stay healthy in 2019. And based upon this current market view, we expect to meaningfully outperform the WFE market in 2019.
At this point, Peter van Plaumbaum 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 2 at the time, so that everybody has a chance to ask a question. All right, Sarah, we are ready for the first question.
Thank you. And your first question comes from the line of Stephen Hori from ODDO. Your line is now open. Please ask your question.
Yes. Hello. Good afternoon. So I have indeed two questions. The first one is with the visibility sorry that you have right now, what prevents you from giving a more precise guidance with the order book and that you have and the guidance to keep for Q2?
And 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? And is there any difference between NAND manufacturer and DRAM manufacturer? Thank you.
Yes. So on the Stefan, thank you for your questions. On the guidance for Q2, we yes, this is the way we always give guidance with small ranges as we can. And 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.
Then your question was also what we took into account for memory in the second half. Well, we assumed for now no, let's say, material recovery of, let's say, CapEx of serious investments by customers in the DRAM and 3 d NAND segment. So we did not assume any meaningful recovery now. And that's just based on the visibility with our customers today.
And same thing for non manufacturer and DRAM manufacturer, don't you see any difference?
For DRAM versus 3 d NAND?
Yes.
Yes. No, we don't see a real difference. We have no indication in both segments. And on earlier calls, we gave indication that we might see an earlier recovery in DRAM than in 3 d NAND. And that, that is a possibility.
We have not been able to gather any more visibility that would really would confirm that. So for now, again, for both 3 d 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. But that's more customer specific, project specific than it is an overall industry recovery. Okay.
Okay. Okay. Thank you.
Thank you. And your next question comes from the line of Marc Hesselink from ING. Please ask your question. Your line is now open.
Yes. Thanks for taking the question. First, what is your visibility? So it's clearly strong economic transitions in logic and foundry. What is your visibility on how that will phase over into the next technology transitions?
Will there be like 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 one? And second question is as well above early in the guidance revenue for both the Q1 and Q2, is that purely stronger demand? Or is there also maybe a bit of a pull in from the second half of the year?
Okay. So first on yes, basically, you are asking what I read your question on logicfoundry as what is the overall climate in logicfoundry. I think in general, in logicfoundry, of course, we see very healthy spending in 2019. It may be logicfoundry 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 in on the billing side. But we at this moment in time, we do not see any structural deterioration in that segment. So 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 LogicFoundry 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. And 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. But 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.
And then 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 in by this leading foundry customer. It will not stop there. But how it will develop immediately going into 2020, That's too early to tell.
At the same time, we in terms of future nodes, we already are shipping tools for N7 Logic R and D, and we are already shipping N3 tools for N3 R and D in Foundry segment. So those and if you look at the intensity of the R and 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 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.
So I trust that, that answers your question. And we are very much looking forward to further increase our share of wallet as we go to the next node in both segments. And that's what we are working on today. And then the second
Yes. Sorry, the second part is indeed, yes, there was a and I think you already answered a little bit with your start of your was a pull in of orders of billings in the first half of the year coming from the second half of the year?
No, we don't that is not a major factor in what we reported today.
Yes, Kees. Thanks.
Okay. You're welcome.
Thank you. And 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 SIMOS Epi. How many customers are you engaged with at the moment in a meaningful way? I mean, it's clear as 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, let's say, multiple engagements in where we are exchanging a lot of know how. And we have, let's say, multiple customers where we have we have more than one customer where we have tools, and we have multiple engagements in general. So we really are focused to expand our epi position beyond this first HVM customer, if that is what you would like to know. But it will take time for that to develop. But of course, it's great to have a solid reference now for already 2 technology nodes in leading foundry.
Yes. And 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, yes, it's a good question. We have of course, ALD has been a very, very strong driver for multiple years. But as we shared with you for quite a number of quarters, it has been our strategic intention to really get more gross engines up to speed. And so we adjusted our strategy on multiple products accordingly 2, 3 years ago. And as a result of that, we have seen that in 2018, all products basically grew year on year.
And also this year, we trust that beyond 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. And 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. And your next question comes from the line of Robert Sanders from Deutsche Bank. Please ask your question. Your line is now open.
Yes, hi. My first question is just on your logic 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 3 main sites? And how would that affect you if that played out? My second question is just I don't know if the VLSI data has 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 being from the move potential move from batch tools to single wafer, if there's any kind of change there with the more the quality requirements? And then the last question would just be, in your N3 foundry development, are you seeing any sort of early work on nanowires get all around as a driver for you guys going forward? Thanks.
Okay, Rob. Thanks for your questions. So first, yes, the 3 versus 1 side, it's always we're not allowed to on these calls to speak about, let's say, manufacturing strategies of individual customers. So I am not allowed to answer this question directly. The only thing we can say, Rob, is that we see a tremendous, yes, let's say, continuation and acceleration of demand in leading logic compared to, let's say, 2016, 'seventeen, early 'eighteen in as it started to develop in the second half of last year and is continuing full speed in this year.
So I trust that our customers are they are doing that with their eyes clearly. They are doing that for a reason. So and so far, we only have indication that the end markets of leading logic are healthy enough for them to continue on this path. And that's the way we are serving them. And the visibility we have on their forecast has been pretty decent so far.
And that's the only thing we can yes, that we steer our organization on. So I don't want to get into further detail on specific customers, if you don't mind. Then secondly, on market share, ALD. Yes, so 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 2.5% in 2018.
Well, as you know, as we shared on based on 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. And as you know that the overriding driver in 2018 was still memory. And so that in general is less favorable to us than when it's more logicfoundry driven. And as you know, as of the second half of last year, logicfoundry took over the lead. So 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.
So we trust that, yes, 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 logicfoundry is expected to be much more robust throughout the year. And then beyond that, Rob, as you know, as we shared before, we are aggressively in our R and D programs working on further expanding our served available market, not only in logicfoundry, of which you have seen results in the recent technology node changes, but also in memory. We are very focused to gradually step by step in DRAM and 3 d NAND to increase our exposure, to increase our served available market there to and in that way, maintain leadership in the ALD space. Then on yes, then on M3 Foundry, yes, let's put it this way that we are addressing in general in the logicfoundry 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. And all our many of our process developments and material developments, not to forget material developments, are also focused on that potential transition.
But 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, yes? And for some more fundamental items, we'll even look 5 to 6 years out. But most of our R and D is focused on 2 to 4 years out. And that also includes nanowire work.
Thank you. And your next question comes from the line of Kwang Lee 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 7
and 5
nanometer transition because they are believed to use EUV for its development. And 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. So I since you said 5 nanometer, I trust are specifically talking to Foundry. And yes, well, what the only thing we can well, 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 7% to 5%. That's I think the numbers speak for themselves that we are reporting today.
So it's an indication that the net result of that node transition is positive for ASM, yes? That's the bottom line answer to your question. So then to elaborate a little bit more on it, of course, you likely are referring to how much exposure will UV give to the multi patterning part of the business. And there, our answer has not changed in time. And that is that indeed some double patterning 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. And that is again driving a strong overall increase in ALD demand as conventional deposition will run more and more out of steam. So in general, we are embracing the introduction of EUV. And so although some layers are going to be placed, it should be clear that multi patterning will remain a steady business for years to come. And so it will continue to contribute to the ALD market, but probably from a relative point of view on a more steady basis.
And so that's the answer I trust that you were looking for. Yes.
Thank you. And then 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 percent in Q4 and 9% in 2018. So can you please give some guidance what we should model for you for your tax rate going forward?
Yes. We see that the tax rate, indeed, was very low. So what we still have, as you might be aware of, is our NOLs as well in the Netherlands as in the United States. We have done the investments in Korea and then we are basically on this one doing also investments in Singapore that have certain tax advantages. So that will those advantages will in the course of the coming years will decrease.
And as a consequence of the 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. And your Thank you for taking
my question. So firstly is, I understand that you guys have been working on R and D for next probably 5 years, you signed. 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, and everyone is working on 7 nanometer today. Do you already have confirmation from your customer that you are in for 5 nanometer or 3 nanometer and on what market share?
And 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? I appreciate it's still early days, but how do you think we are assessing at this stage from a memory market demand, supply and CapEx spending perspective? Thank you.
Okay, Tammy. Thanks for your questions. So first of all, when do you know well, as you know, we are now already in foundry is preparing for basically ramping its 5 nanometer production. So 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.
So we're talking about when foundry is 3 nanometer, decisions are being made and Intel and other advanced logic players are going to make their decisions for their future nodes. And that's those decisions are in general made the engagements already the development engagements are already start, let's say, 2, 3 years in advance. The really, the tools are being put on-site and then processes are being reviewed in more detail. So between 1 3 years in advance,
those processes
those solutions are being explored. And then in the last year, probably between 12 6 months before they start to seriously invest, then you get a better indication of whether you are in or not. And yes, that's in general the case. We must say that in some instances, you see that yes, you see in some instances, you see the industry changing a little bit that 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 improve significantly improve their performance or reduce their cost. So sometimes, they are also maybe we will see that in the future a little bit more.
Again, it's not being done it has not been done so much so far, but we don't exclude that, that in the future will happen more. That's in general the picture. Then 2020, 2020 memory, Yes, it's too early to tell, Tammy. But we cannot 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.
But again, there's nothing that confirms that from a customer point of view, but that's our early view at this moment in time. But 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. 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. But they are not representing an overall industry change in industry trend.
Okay. Just a quick follow-up. From your memory customer perspective, compared to historically, do you see them changing their minds about investment
I don't think I can give a very outspoken answer. There are so many elements that play a role in those in our customers making those decisions. It's better for you to ask them. We don't want to speak on that. We don't want to speak on that.
Okay. Okay. Cool. Thank you.
Thank you. And your next question comes from the line of Peter Tsak 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 the valuation tools on balance sheet, it's still a pretty substantial amount. And I was wondering if you've seen the underlying customer activity, products or technology change as you're now in Q1 and Q2 on the evaluation tools?
And whether there's any comments you can make about the potential pull through of that evaluation tool technology base later in 2019 or early 2020?
Yes, I can answer that. So 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. So what we normally see is that an eval tool will remain with the customer somewhere between the 2 6 quarters. And we expect that some of those tools will gradually pull through in our sales turnover, yes?
It's too early on this one to give you guidance on what sort of quarters that it's going to happen. But I think for the sake of the reason, so 2 to 6 quarters is a fair time to take into account for pulling towards the final crystal.
But 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 are 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, yes, we are not going pull an eval tool with a customer when the only when the end demand of HIND will be only 1 or 2 tools. And 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. So it's really new developments that we're talking about.
Okay. But you can't give any sort of more specific indication of what kind of developments or nodes?
It's other more advanced nodes by definition because the rest has been tested already. So when you think about now things when you talk about the eval tools, then it's in foundry, it's highly likely more N3 related and some N5 still related than anything else.
Okay. But pulling it forward, it's 2 to 6 quarters. They've been there now for roughly 2 or 3 quarters. So does that imply you'd expect some of this to pull through early next year?
We expect that in the next quarter, some more of those eval tools will be pulled through. However, 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. And the other question I have is just on Foundry. A lot of the revenue strong revenue performance has been concentrated around 1 customer and one sort of 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?
Whether okay. The learnings that we have and the penetrations that we have made within this leading foundry are assisting us elsewhere. Yes, they definitely are assisting us elsewhere in terms of, let's say, in terms of understanding what certain foundries in general need. But of course, we cannot transfer, let's say, solution customer specific solutions to other customers. That's what we never do.
Only general learnings we can apply to other customers. And but it also depends on how strongly it more depends on how strongly other foundry players can develop their market position because this moment in time in the advanced nodes, there is very, very clear leadership. And 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? Then the answer is yes.
We have strong engagements with those customers ongoing. But it's depending on when they are ready to launch based on their end markets.
And also a question around demand from a perspective of passing, call it, passing the baton from your current large engagement concrete revenue demand perspective? And concrete revenue demand perspective?
I assume that you mean that I trust that your question is whether success on one product will also feed success maybe on other products. It's the same customer. Is that what you mean?
Well, yes. So the same customer or other engagements. I know you're talking to anyone who's working on 7 nanometer foundry. And from that perspective, it's really a question of when they are ready to spend either in follow on from existing customer or the new customers as you highlighted. I'm wondering whether this will be a from a revenue perspective, a smooth transition, which would mean that they would you'd see business late this year, early next year or whether there would be you're going to be a gap in time before that next significant revenue base builds its way through your P and
L? Yes. I think, again, we definitely can use all the learnings of penetrations of today as 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. And 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. And 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 in the 10 nanometer build out. Trying to reconcile some of your previous comments.
I think in your introduction remarks, you mentioned that bookings were down in Logic in Q1, Q on Q. 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 with the kind of current levels, maybe quarterly going down? Any kind of sense around we should model after rest of the year would be helpful.
Thanks. The only thing we give formal guidance, 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 logicfoundry combined to stay healthy throughout the year based on a healthy climate that we now foresee for that segment throughout the year. And then there are within the logicfoundry combined segment, there's of course there are differences by quarter between logic and foundry, but it goes too far to go into all that detail. Again, we and it could be that logicfoundry combined, the contribution in the second half is maybe modestly lower than in the first half.
But 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. But 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 healthy throughout the year based on the data.
Okay, got it. Yes.
Got it. And maybe one follow on as well on the gross margin trajectory for the rest of the year. What should we what are the different puts and takes of that for the as you look out maybe, Victor, for the rest of the year? Thanks.
Yes. Gross margin is developing as we have indicated earlier. We expect our gross margins to remain in the lowtomid-40s. 2019 is a year, which we already mentioned, where we have a lot of introductions of new products. So initially, that will have some impact on the gross margin.
You have seen it also within this quarter. So the same sort of development we have seen in the Q1 as in the Q4. 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 applications for certain customers. And 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.
And we don't have any further question at this point. Please continue.
Well, I would like to 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. And any questions you may have after this call, feel free to contact, of course, us later today or in the coming days. And 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 does conclude your conference for today. Thank you everyone for participating. You may now disconnect.