Good day, and welcome to the AFM International First Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Victor Raleno. Please go ahead, sir.
Thank you, Alison. ASMI issued its 2018 Q1 results last evening. For those of you who have not seen the press release, it along with our latest investor presentation, is accessible on our website, asm.com. We remind you that this conference call may contain information relating to ASM's future business or results in addition to historical information. For more information on the risk factors relating to such forward looking statements, please refer to the company's press releases, reports and financial statements, which are available on our website.
And with that, I will turn the call over to Chuck Del Prado, President and CEO. Chuck?
Thank you, Victor, and thanks to everyone for attending our Q1 2018 results conference call and for your continuing interest in ASM International. Before I start with a review of the Q1 results, Peter van Bommel, our CFO, will first provide an explanation on a couple of changes in our accounting
Jack. IFRS 15 is the first change I will discuss. IFRS 15, which is redefining the way revenues have to be recognized, is, as you know, mandatory as of this year. For us, the largest impact is related to revenue from Japanese customers. Previously, recognition of revenue with Japanese customers took place on the moment that the customer accepted the tool.
Under IFRS, this will be on the moment that we ship the tool. Hence, we will also, for Japanese customers, recognize sales a couple of months earlier as compared to the previous situation. For other geographies, geographies, as we explained in some of the earlier calls, revenue recognition took already place on the moment of shipment. If you look at the impact from IFRS 15 in 2017, it varied from quarter to quarter. But for the full year, the impact was relatively limited, decreasing sales by about 1% and operating profit by 4%.
In the annex of the press release, we have provided the restated cost and loss figures for the quarters and the full year 2017. The impact in 2017 was negative as under IFRS 15, some revenue needed already to be recognized in prior periods. Note that these changes are, of course, non cash. Another change in our reporting is that starting with the Q1 of 2018, we disclose the breakdown of our sales between spares and services on one hand and the equipment sales on the other hand. Again, in the annex of the press release, we provided the comparable quarterly and full year figures for 2017.
Spares and Services is an important business line for our company, and it gives us the opportunity to provide additional value to our customers and to build stronger relationships with them. Last year, spares and services accounted for 22% of our total sales, Following solid double digit growth in 2017, this business grew this business line grew by 10% in the Q1 of 2018 on a currency comparable level. That's primarily driven by the growth of the installed base of our equipment. We are investing in this activity to further enhance our capabilities to drive growth in the coming years.
Thank you, Peter. Let's now review our Q1 financial results. Revenue in the Q1 amounted to €159,000,000 an increase of 2% compared to the Q1 of last year and a decrease of 12% compared to the Q4 of 2017, with both periods of last year on a restated basis. Revenue in the quarter was within our guidance, which was a range between €155,000,000 €175,000,000 albeit somewhat to the lower end, mainly related to some last moment reschedules. Our ALD business was a key driver of revenue in the quarter.
By industry segment, revenue was led by memory, in particular 3 d NAND, followed by logic. The gross margin decreased to 37.8 percent, down from 39.6 percent in the Q4 and 43% in the Q1 of last year. The negative impact from the new products in epi and PE CBD moderated to 2% in the quarter, down from 3% in Q4 and 5% in Q3 of last year. Cost reduction programs are on track, and we expect the gross margin of the new products to improve further in the course of this year. In addition, the gross margin was negatively impacted by the sales mix of the existing products, which was less favorable during the quarter.
As we explained on earlier occasions, the sales mix can vary from quarter to quarter, leading to fluctuations in the gross margin. Finally, the gross margin included higher costs related to preparations for higher activity levels, particularly in manufacturing and services. The effect of these higher costs and the sales mix was a bit more pronounced because of the relatively low sales level in Q1. In Q2, we expect our gross margin to improve substantially compared to Q1, which will bring us back to our target range for gross margins of a low to mid-40s percentage. SG and A expenses increased by 9% compared to the previous quarter, which is mainly explained by costs associated with the patent litigation.
R and D expenses increased by 2% compared to the 4th quarter, whereby R and D costs decreased, offset by a lower capitalization of R and D as compared to Q4. Financing results in the 4th quarter included €8,000,000 currency translation loss compared to a translation loss of €5,000,000 in the 4th quarter and €7,000,000 in the Q1 of last year. As a reminder, we keep a substantial part of our cash balances in U. S. Dollars and the related translation differences are included in the financing results.
Let's now look at ASMPT. Results from investments, which reflects our 25 percent ownership, which reflects our 25 share of the net earnings from Asia and PT, amounted to €60,000,000 up from €14,000,000 in the Q4 and down from €35,000,000 in the Q1 of last year. On a 100% basis and excluding one offs, the net result of ASMPT amounted to HK6 16 million dollars in the quarter, up 16% compared to the 4th quarter and up 36% from the Q1 of last year. In the Q1, HMPT reported sales of 5 $56,000,000 up 3% compared to the Q4 of 2017 and 16% up from the same quarter last year. The letter compares favorably to ASMPT's 1st quarter guidance for which was for a year on year percentage increase of high single digits to low double digit percentage.
ASMPT reported bookings of US754 $1,000,000 in the quarter, an increase of 52% compared to the 4th quarter and up 24% from compared to the Q1 of last year. Bookings in the quarter represented a new record high and were driven by strong broad based demand in both back end equipment and SMT solutions. So let's now turn back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to €19,000,000 in the 1st quarter, down from €37,000,000 euros excluding the book profit of €184,000,000 on the sale of the 9% stake in ASMPT in the Q1. Our new orders in the Q1 were €206,000,000 up 2% from the 4th quarter and up 1% year on year.
Orders were at the higher end of our guidance, which was a range between €190,000,000 2.10 Orders were mainly driven by our ALD business. Looking at the breakdown in bookings by industry segment, the Logic represented the larger segment in the Q1, driven by advanced node investments. And Logic was followed by DRAM and 3 d NAND. Orders in the DRAM segment increased substantially compared to the 4th quarter, mainly for ALD patterning tools and driven by customers' investments in new capacity. DRAM orders coming from a low base were at the highest level in more than 2 years.
So looking at the balance sheet and the cash flow. At the end of March, the cash position decreased to €741,000,000 down from €836,000,000 at the end of December, and we generated €15,000,000 in free cash flow. Net working capital decreased to €156,000,000 down from €180,000,000 at the end of the Q4, driven by the sequential decrease in revenue and accounts receivables and as account receivables, which were relatively high at the end of December, were collected during the quarter. In the Q1, we spent €102,000,000 to repurchase almost 1.8 1,000,000 of our own shares. These repurchases were part of the 250,000,000 share buyback program that started last September and that was recently completed, to be specific, on March 29.
In total, we repurchased more than 4,300,000 shares under this program at an average price of slightly more than 57 euros per share. With this program, we have returned in full the cash proceeds of the 5% stake in ASMPT that we sold in April of last year. As most of the attendees of this on this call are probably aware, we sold another 9% stake last November for proceeds of approximately €450,000,000 We are using the proceeds for a tax efficient capital return of €4 per share. This is subject to approval by our shareholders at the upcoming AGM that is scheduled for May 28. Next to the redistribution of this €4 per share, we intend to return the rest of the proceeds in the form of a new €250,000,000 share buyback program that we will launch later in the year.
At the upcoming AGM, we also proposed to the cancellation of 6,000,000 shares that we currently hold in treasury. This will bring down the total issued number of shares by almost 10%. And last but not least, as we also announced last February, we propose a 14 percent increase in dividend to €0.80 This marks the 8th consecutive year that we pay significant dividend to our shareholders. Okay. So let's now have a more detailed look at the trends in our markets.
2018 is expected to be another growth year for our industry. If we look at the average forecast of market observers such as Gartner and Vida Zain, the WFE spending or wafer fab equipment spending is expected to increase by a high single digit percentage in this year, following approximately 30% growth in 2017 or, let's say, measured in U. S. Dollar terms. In 2017, as you may know, the WFE growth was primarily driven by 3 d NAND and DRAM.
This year, the key drivers of WFE growth are currently expected to be the DRAM and the Logic segment. Regarding the Logic segment, we also would like to highlight here that we were recognized by Intel as a recipient of their preferred quality supplier awards, so called PQS award, for our performance across 2017. And we were handed this award in March of this year. And this was the 2nd PQS win for the company. And we are, of course, again, very honored to have received this prestigious award from Intel.
In the Foundry segment, most of the investments are currently focused on the 7 nanometer node, where customers are ramping volume manufacturing. Later in the year, the foundry customers are likely to make the first early stage investments in the 5 nanometer node. As we discussed earlier, the single wafer ALD market opportunity in logicfoundry has more than doubled in the past 3 to 4 years. And the transition to 10 nanometer in both logic and foundry was a particularly important inflection, which drove several new ALD applications. The 7 nanometer foundry node brought a further increase in ALD applications.
We believe the upcoming node transition to 5 nanometer with equipment investments to be made in 2019 2020 will be the next important inflection for our company with again multiple new ALD applications. Based on the progress in our R and D engagements, we believe our company is well positioned to capture a more substantial part of these new opportunities. So let's now take a look at DRAM. In DRAM, customers are currently stepping up investments in new fab expansions. In line with our expectations, this is driving renewed demand for ALD patterning tools.
As we explained on previous occasions, our DRAM customers mainly invested within existing fabs in the past several quarters. This led to higher levels of reuse, which had particularly negative impact on our ALD patterning tools business. As customers are now investing in new capacity again, our DRAM orders strongly rebounded in Q1 and compared to the relatively low levels in the previous quarters. Looking at the full year, we expect the DRAM contribution to our sales to increase markedly, although a return to the previous peak level of 2015 is not likely. In addition, we have been broadening our R and D scope in the DRAM ALD market.
We invested in, as we shared before, in new non patterning applications, of which some are currently in the qualification phase at customers. First top line impact of these new applications is expected in the course of 2019. 3 d NAND demand in the Q1 remained solid. Looking at the broader WFE markets, 3 d NAND investments grew at, as we all know, at a very high rate in 2017. And it is likely that in 2018 growth in this segment, if any, will slow compared to 2017.
Looking at 2018, we are focused on serving current demand at the 3 d NAND manufacturers. And we're focused on expanding our R and D engagement for the upcoming device generations. The transition to even more complex higher stack device generations will drive the need for an increasing number of single wave ALD applications. Longer term, we expect 3 d NAND to stay an important contributor to the single wafer ALD market. In addition, we target an increase in our SAM, in our served addressable market in this 3 d net market.
And as we shared with you before, so far we estimate that we are participating in a bit more than half of the addressable market within 3 d NAND. And we aim to increase this percentage as we develop new solutions and broaden our customer base in the 3 d NAND market segment. Looking at our other product lines. Beyond ALD, we continue to see good momentum in PECVD, in part driven by the customer win in 3 d NAND that we announced last year. And in epitaxy, we remain strongly focused on further broadening our position in the epi market down the road.
Another area I would like to highlight is the development of our business in China. The wafer fab investment environment in China is strong right now and ASM's business in China has good momentum. This year, we expect our revenue from the China region coming from a low base to at least double compared to the 2017 level. Also in terms of product lines, we expect several of our product lines to really contribute to that growth in China in this year. So now let's look at the guidance we issued with our Q1 press release.
For Q2, on a currency comparable level, we expect sales between €200,000,000 €230,000,000 and we expect an order intake between €160,000,000 €200,000,000 And the broad and as we shared in the press release, the board the broad ranges for Q2 on both sales and order intake reflects some uncertainty around the exact timing of individual tools. So that's a short message on the guidance. At this point, like always, we 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 a time, so that everybody has a chance to ask a question. All right, Alison, we are ready for the first question.
Thank you, sir.
Our
Our first question comes from the line of Sandeep Deshpande from JPMorgan. Please go ahead, sir.
Yes. Hi. Thank you for letting me on. My question is in the second half of the year, I mean, your look based on your current guidance from the market and on your Q2 guidance, you seem to be looking towards a much stronger revenue ramp. Could you possibly talk about what is the driver of these ramps in the substantial ramp in the second half of the year?
And where these where these new tools are going to go into? And secondly, with regard to the Q1 margin in particular, Chuck, you've had very good record in terms of gross margin for many years now. And why is it that over the past year that you've had these stores in terms of the gross margin going getting impacted when you've had new product introductions in the past 5 years as well when this
did not happen? Thank you.
Okay. Sandeep, thanks for your question. So yes, first of all, yes, second half versus first half, yes, let me share that if you look it's best to answer it by looking at the different industry segments. As we look at it now, as we look at our full year forecast, our current estimate is that for both Logic and Foundry, for example, Q1 is the weakest quarter of the year. Yes, that's one remark.
Secondly, if you look at the different segments, then we think that logic, the second half will be stronger than the first half in terms of this oil revenue. Foundry, we also think based on our current forecast that Foundry also second half will be stronger than the first half. And thirdly, DRAM, we also think second half will be stronger than the first half. So to repeat, LogicFoundry, as we see it now, Q1, the weakest quarter of the year. And for LogicFoundry and DRAM, we expect second half to be stronger than the first half.
The only area where we foresee now that the second half will be weaker than the first half in terms of revenue is 3 d NAND. And of course, there are variations by quarter in the revenue outcomes, but this is the big picture. And that explains, I trust your question. So then on margin yes, you're welcome. And then on the margin, Peter, I propose you answer that.
Yes.
Sandeep, it's a combination of a few things. First of all, I think we have explained in these calls already earlier that we were investing heavily in taxi and TECP and that we had some initial impact of that on the gross margin. I think that is developing according to plan. We had negative impact of 5 percent in Q3 last year. It went to 3% in Q3.
And in this case, in this quarter, it's 2%. So when you would leave that out, then you would be on a comparable level of 40%. And what we always have said is that we expect our margins to be in the low to mid-40s. And why that range? That was mainly driven by the fact that we have certain products or certain applications for certain customers, which have either a higher margin or a lower margin.
And while we have seen in the past period that margin was the lower margin products were compensated by the higher margin products, we have seen a very uneven distribution this quarter. And that had a onetime 2% impact on our sales mix. And of course, it's not a guarantee that, that mix will not in the coming quarters. Also sometimes it will be a bit lower because it's very strongly dependent. And hence, that was also the reason why we have always given that range of 40% to 45% on those differences in product mix.
And the third one is which is also 2%, and that's also highly impacted by the fact that we have relatively lower sales is that we are preparing ourselves for a much higher sales level. When you look to the indications that we that we have provided, first of all, a range of €200,000,000 to €230,000,000 but also an expectation that in euro terms, our market share will be above the high signal of the sales will grow for the year as a whole above the high single digit percentage. When you calculate that through, then you need an organization which can cope with the sales level above the €200,000,000 And therefore, we have made, especially in Q1, extra costs for training of advanced hiring of new INQ people and for extendable manufacturing activities. That in combination with what already has been mentioned earlier that we had some last minute changes, which was leading to some substantial extra cost in our manufacturing organization that has led to some inefficiencies as a result. And that combination together led to a 2% decrease of our gross margin within the quarter.
And I said in the press release, we estimate the gross margin in Q2 to show already a substantial improvement and bringing it back again in the range of the low to mid-40s, And that's where we also aim to be in the rest of the year.
Thank you. Thank you very much.
I hope that this gives you sufficient color.
Thank you.
Our next question comes from Peter Olofsen from Kepler Cheuvreux. Please go ahead.
Yes. Thank you. Basically, 2 follow ups from the earlier questions. So for 3 d NAND, you expect a weaker second half compared with the first half. In that respect, could you talk about the progress on some of the opportunities and vendor selections that you have been working on, especially for some of the new applications?
And then as a follow-up on the gross margin discussion, Could you shed some more light on the adverse mix in the existing products? Has it to do with the split between ALD and non ALD? Or is it more related to client segments like memory versus logicfoundry?
Thank you. Okay. So Peter, yes. First on progress on vendor selection. So yes, there has been some interest, especially on 96 stack and a new 3 gs NAND application.
So what we can say there, basically very short answer, we did ship another system. So we received a PO and we took revenue on another tool this in Q1 for a specific leading 3 d NAND customer. So in that respect, we made a lot of progress with that customer. But at the same time, given the fact that we think that the second half, the climate in the 3 d NAND, we expect to be somewhat weaker. We did not take into account currently a steep ramp of revenue for those new applications.
Again, not because of our performance, but because of lack of volume ramp at the customer. Peter Olsen, you had an additional question?
Yes, yes. So is that because you expect the ramp to take place in 2019 rather than second half this year?
Yes. As we will, this is not, let's say, a hockey stick application. It's one layer. So revenue contribution will grow gradually. But at the same time indeed, I think that's the contribution.
We indeed think that more the benefit from volume and the customer will we indeed anticipate to see more in 2019 or at least towards earliest towards the end of this year. It's just a little bit depending on that's the visibility we have on that now, but we don't count on significant contribution from that application before the end of the year. That's the way we deal with it now in our own projections.
Okay. Just to hear.
Yes. Peter Ramon, please go ahead.
Yes. With regard to your question, Peter, about the gross margin at first mix, it has nothing to do with ALD versus non ALD. It's really it's application related. So we have certain configurations for certain customers, which have lower margins and or higher margins than the average. And what I said earlier, normally you have a more balanced distribution than what we had this quarter.
So we have really a very unbalanced distribution. And that was in combination with relatively low sales leading to that 2% impact on our gross margin.
Okay. Thanks for the clarification.
The next question comes from Robert Sanders from Deutsche Bank. Please go ahead.
Yes, good afternoon. You talked about the expansion of Korea and Singapore, a new manufacturing facility in Singapore and a clean room in Korea. What kind of revenue level could you support when those investments have completed in middle of next year? Could you support the euro revenue? What are you aiming to be able to support on an annual basis?
Yes. Peter can address that question. Yes. We have
not provided that detailed information. But to give you a color, we have looked to a strategic plan for the next 3 to 5 years, and we expect that it will be more than enough to show to have the growth for the next 5 to 10 years to support that growth.
Got it. And the second question, just a quick follow-up about 3 d NAND. Why do you think H2 is a weaker environment than H1? I mean, one argument could be that yields are going up, therefore spending supply goes up, therefore people are a bit more conservative about spending. That's one argument.
Or it could just be something else temporary just because you have 2 big customers and maybe that's just a temporary issue there. But why do you think this because we've heard other semi caps flag that the 3 d NAND is slowing a little bit in the second half. Why do you think that is?
Yes. Of course, we cannot give an answer, let's say, representing the customer, but this is just we have we try to work according to a very sophisticated forecasting system where we multiple quarters out forecast demand at our at those customers. And this is what we see at this moment in time with, let's say, among the leaders in 3 d NAND, maybe China is maybe a little bit different, but let's say among the leaders in 3 d NAND, This is the view we have at this moment in time. Is there are you if your question is could that change in 3 to 6 months from now, yes, of course, it could change, but for, let's say, the better. But this is the, yes, the assumption we took at this moment in time.
Again, there is business, there is demand in the second half. But in our current forecast, it's lower than in the first half.
And so Chuck, we're still squeezing one can I just squeeze in one more question just about the Gartner data that was out yesterday, I think it was yesterday on ALD? Could you just give us some commentary about that? I think Lam took a lot of share from a low base. So how do you see that progressing into 2018 2019? What's your latest thoughts?
Thanks.
Yes. Yes, indeed. So you're referring to Gartner because, of course, earlier in the week also, VLSI published a market share report. And I think in the market share report of VLSI, our share according to them dropped by 9%. Gartner said that they estimate our share to drop by 10% in 2017.
And what we can say about those numbers, 2 individual views is that based on our own assessment, we think that indeed our single wafer ALD market share has gone down as we already communicated with our Q4 results. Although we believe that the size of the market share decrease is slightly more moderate compared to what both of them estimated. And we yes, we also in the past gave some color that the single wafer ALD, single wafer ALD share, it decreased to a large extent because of the, let's say, the industry segment mix effects. The next 2, of course, are broadening of the base of competitors. But the industry segment related mix effects also played an important role.
And to explain that, as you know, we have our strongest market share in logicfoundry. And the logicfoundry part of the single wave ALD market was relatively stable last year, while most of the growth was as you know driven by memory where our share is a healthy one, but clearly not as high as in logicfoundry. So yes, that's basically, let's say, an explanation of the current numbers. And yes, and of course, we would like to emphasize in this call that we take these numbers seriously. And we have a very strong focus on defending and expanding our position in the LD market.
And as we already talked about before, we see in logicfoundry, we see very good opportunities to increase our share of wallet and to extend our leadership with the next node transitions that is upcoming as we go to 5 nanometer, which gives us great opportunities. And so that's on logicfoundry, especially on the foundry segment. And looking at 3 d NAND, we shared before we target to increase our served available market. And because right now as we shared in the introduction, we focus on only a bit more than half of the single wafer ALD market in 3 d NAND. But we are working hard on new solutions that will drive this share of the pie up in the coming years.
And finally in DRAM, as we also shared before there, we so far have targeted primarily the patterning market and we target substantial increase in our relative served available market, especially as we're going to address the non patterning part of the market. So those are elements we all focus on to maintain our leadership in ALD. And I trust that answers your question, Rob. Any further clarification you would like to say? No, no, no.
That was great. Thank you. That was great. Thank you very much.
Okay. You're welcome.
Our next question comes from David O'Connor from Exane BNP Paribas.
Good morning, gentlemen. Thanks for taking my question. Maybe a couple of follow ups on my side from previous questions. Firstly, on the just going back to the 3 d NAND in the second half, what's your initial expectation that 3 d NAND would be stronger in the second half and now it seems to be that bit
weaker? Can you repeat the question? I did not fully understand what you meant, sorry.
Yes. Just going back to your previous comments, I think it was to Peter's question about the second half on 3 d NAND. You now expect a weaker 3 d NAND second half. Did you say that your previous expectation was that the second half would be stronger in 3 d NAND and now you've seen a weakening of that based on what you're seeing as at the major vendor where you have some new wins?
Yes. I think maybe a couple of months ago, we might have thought that it would be a little bit more evenly distributed among the year. And indeed, we our view has developed there. And yes, based on at least our visibility, again, you have to compare that with visibility from peers. Our opinion is that the second half likely is somewhat weaker than the first half.
That's indeed a little bit more recent insight we develop. But we never Okay. We never look at that. I don't think we thought that in the past the second half would be stronger than the first half. We just thought it would develop in even lead pattern throughout the year.
And that opinion was that view has been adjusted somewhat by us. And it's taken has been taken into account in our current projections for the remainder of the year.
Okay. But on an overall level across segments, would you say your view has strengthened about the second half versus earlier in Q1?
You mean across the board now, not 3 d NAND specific?
No, just across the board.
Well, we just again, we again, there are several dynamics between the different industry segments that change every 1 or 2 months. And again, I think the best answer is that our outlook for the year that we foresee the second half to be stronger than the first half and that we aim to outgrow the WFE market, assuming the WFE market will grow with a high single digit percentage, that view has not changed.
Got it. And maybe another one on the WFE market. I see in your presentation, particularly Slide 6, you're quoting some of the Gartner numbers. And looking at 2019, which is down kind of double digits, Is that a view based on your discussions with customers, is that a view you subscribe to as well? Or are you seeing a different kind of dynamic from your customer discussions?
Thanks.
Well, we see a pretty strong downward correction in the current projections by industry watchers. And so far, we don't fully see that back in our dialogue with customers. We see maybe some corrections in some parts of the memory market, but not to the same extent that they forecast. Again, we're not saying that they are not right, because it's, of course, in this industry, way too early to say something for sure that much in advance. But if you ask, do they already acknowledge these strong downward trends, then the answer is no.
Okay, great. And maybe if I could squeeze one more in on, again, a follow-up to previous questions on your share. Given all your investments currently on the 3 d NAND side and the non pattern DRAM, how much of the ALD market do you think you will ultimately address say in 2 years' time?
You mean how much of the 10?
Yes.
Yes,
that's a good question. Yes, we have not specified those numbers in detail, but we are if you now look at the total TAM, the single wafer ALD TAM in 2017 as we are finalizing our own estimates of the size of the market, then we indeed don't address the full TAM. And that's why we defined a few years ago that in several segments, especially in memory, but also in logic and foundry that we want to increase our served available market. And we are yes, we have not finalized those projections. But of course, our target is that ultimately we not only increase our served available market significantly in the coming years in this market, but that we also as a percentage of the TAM that we also increase the percentage that the SAM represents within the TAM in ALD.
And but it's too early to share any numbers with you, but that's what we are driving. That's exactly what we are driving. And of course, the most to gain is in the memory space. But also, again, in the logicfoundry space, there's also, of course, from an absolute point of view, a lot to gain because we currently still foresee that on average in the coming years, not maybe every 12 months, but on average, the logicfoundry space compared to DRAM specifically, compared to 3 d NAND specifically is going to be the biggest segment.
Thank you, David. Operator, can we have the next question?
Certainly. The next question comes from Tammy Chou from Berenberg. Please go ahead.
Hi, thank you for taking my question. So firstly, it's again on DRAM. So for next year, do you think it's mainly your customer investing in the old fab? Or do you think it will be new capacity again? And also the second question is on in terms of the applications, which are relevant to single wafer ALD.
In which silicon market, are you patterning, non patterning or which application do you think you have the strongest market position and strongest market share?
Yes. On the latter question, I'm not very eager to answer that very specifically, Danny. I understand you would like to know, but I think in 2017, what is good to know is that our estimate is that clearly in 2017, the non patterning part of the DRAM market was bigger than the patterning market and meaningfully bigger than in DRAM, in DRAM single wafer ALD. We're talking about DRAM single wafer ALD. So that's even more it's an indication that we should focus on market.
And we as we shared in the introduction, Tammy, we have we're working on several applications and multiple applications. And with some of those, we already have clear engagements ongoing with customers, qualification, let's say, partnerships ongoing with customers and some will go faster than others. We expect the first results in the P and L to become visible in 2019. So that's on your second question. On your first question, yes, will DRAM expand in new fabs or in existing fabs in 2019?
That's a different one. The only thing we can say is that it depends on 2 things. It depends on, let's say, the ASP development, supply demand situation in DRAM by that time. That's one element, of course, that's going to be very relevant. And secondly, but also will be relevant is how the 3 d NAND space at that time looks.
Because if some customers as you know are active in both areas And if the 3 d NAND space is similar to as it is today, then they may be more inclined to invest the capacity in DRAM than when there is a huge surge again in 3 d NAND, then they can make a choice. So at least some of them can make a choice. There are some vendors that only focus on 3 d NAND. But that so the elements that influence that decision depend vary a little varies a little bit by customer.
Okay. Can I squeeze in another one just because you couldn't answer the second one? In China, the revenue said it's basically increasing significantly and compared to the 2017 level. Do you know if that's actually coming from the foundrylogic space mainly or the memory space?
It's a mix. I'll say that if you look at a few years back, we were primarily focused on, let's say, the logic, logicfoundry space of China, but we have been working hard also to improve our infrastructure in China and have made a lot of progress also in getting to know the players in memory. So it will be a mix. And next to that, I think in general also there are more and more markets, for example, is becoming of course more and more important. And of course, that also plays into China, but not only to China, it's across the board.
It's a market that includes a wide range of devices, analog processors, MEMS sensors, power chips, you name it, and that are being used in mobile, automotive, IoT. And so we are more also focused on that part of the market, for example, also with our furloughs. So that also plays into it.
Okay. Thank you.
Yes. Thank you. Okay. You're welcome, Tammy.
We have a follow-up question from Peter Olofsen from Kepler Cheuvreux. Please go ahead Peter. Your line is open.
Yes, thank you. Looking at the SG and A line, there were some costs related to the patent disputes. Is there any news that you can share on these disputes? And to what extent should we model additional costs in the coming quarters?
Yes. Let me take that question, Peter. I mean, as you know, we have 4 disputes at this moment. 1 is an arbitration case, which is related to a dispute that we have over the period of the license that we agreed with Hitachi Kokusai for the period 2012 to 2017. So we filed arbitration there by the end of August.
And there are 3 legal cases on this moment. And while arbitration cases normally will last for, say, a year, legal cases in the U. S. Can last for a more extended period of time. So it's too early on this moment to say how much that exactly will cost and how much that you have to pencil in per quarter.
But for sure, this is not the last amount that we have to book under legal costs related to these cases. As said earlier, for us, protecting our IP strong IP position is very important, and we will diligently
Okay. So there will likely be some costs, but difficult to quantify at this stage?
And difficult to quantify what the cost will be over which quarters because it's also highly dependent on when exactly the preparation work for the legal case is started now. But then the hearings will be, that's not known yet.
Okay. Thank you.
Ladies and gentlemen, that concludes today's question and answer session. Mr. Del Prado, I'd like to turn the conference back to you for any additional or closing remarks.
All right. I would
like to thank you all, especially this late in the day. We apologize, especially for the Europeans, for the U. S. And people, it's different. But for the European that it was this late in the day and on Friday, normally, we will have this call at least 2 hours earlier and sometimes also earlier in the week.
But thanks anyway for your attendance and all your sharp questions. And feel free of course to touch base with us in the coming weeks with any further questions that you may have because to make sure that everything is very, very clear.
Thanks again
and enjoy the rest of your day. Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.