Good day, ladies and gentlemen, and welcome to the ASM International First Quarter 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Charco Prado. Please go ahead, sir.
Well, it's actually Victor Bergenio. Thank you, Alex. ASMI issued its 2017 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.
These forward looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. For more information on the risk factors that could cause that could affect results, please refer to the company's press releases, reports and financial statements, which are available on our website. And with that, I will now turn the call over to Chuck Del Frado, President and CEO.
Thank you, Victor, and thanks to everyone for attending our first quarter 2017 results conference call and for you for your continuing interest in the company. After a review of operations, Peter van Boemel, our CFO, will join me in answering any questions that you may have. So let's now review our Q1 2017 financial results. Net sales in the first quarter amounted to €145,000,000 a slight increase of 1% compared to the same period last year and a decrease of 16% compared to the 4th quarter. Sales in the quarter were at the top end of our guidance, which was a range of between €135,000,000 €145,000,000 In terms of product lines, our ALD business continued to be the key factor.
By customer segment, revenue in the quarter was led by foundry at some distance followed by memory. Within memory, sales were predominantly related to 3 d NAND, which contributed in a solid way following the increase in order intake in the last couple of quarters. The sales contribution of DRAM remained modest. We recorded a gross margin of 43.5 percent in the first quarter, slightly down from 43.9% in the Q1 of last year and 44.9 percent in the Q4 of 2016. Variations in the gross margin are mainly explained by mix differences.
SG and A expenses were stable compared to the 4th quarter and increased slightly by 2% compared to the Q1 of last year. R and D expenses increased by 2% compared to the Q4 and by 18% compared to the Q1 of last year. We generated operating income of €15,000,000 down from €30,000,000 in the 4th quarter and €19,000,000 in the first quarter of last year. Financing result in the quarter was €7,000,000 negative. This was caused by a currency translation loss of a similar size, which was mainly related to movements in the U.
S. Dollar and the Japanese yen. In 2016, financing results included a translation gain of €19,000,000 in the 4th quarter and a translation loss of €11,000,000 in the 1st quarter. On ASMPT, ASMPT delivered a strong performance in the Q1. Result from investment, which reflects our 39% share of the net earnings of ASMPT, amounted to €35,000,000 for the quarter, up from €18,000,000 in the 4th quarter and up from €6,000,000 in the Q1 of last year.
These figures exclude the ongoing PPA amortization charge, which was €6,000,000 in the Q1. Excluding a one off noncash gain of €25,000,000 related to the adjustment of the liability component of the convertible bond, ASMPT's net earnings amounted to €64,000,000 in the first quarter. This compares to €47,000,000 in the 4th quarter and €16,000,000 in the Q1 of 2016. In the Q1, ASMPT sales rose to US485 $1,000,000 a new record high for the Q1, up 7% from the 4th quarter and up 32% from the Q1 of last year. Sales growth was led by back end equipment, which jumped 63% year on year, while SMT Solutions increased by 10%.
HMPT reported bookings of US608 $1,000,000 for the Q1, an increase of 29% compared to the 4th quarter and an increase of 49% compared to the Q1 of last year. Gross margin increased to 39.9%, up more than 200 basis points Q on Q and up almost 700 basis points year on year. So now turning back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to EUR 42,000,000 in the first quarter, down from EUR 69,000,000 in the 4th and up from €12,000,000 in the year ago period. Our order intake in the Q1 increased to a new record high of €204,000,000 up 15% from Q4 and up 25% from the level a year ago.
Orders exceeded our earlier guidance of €170,000,000 to €190,000,000 range. The order backlog increased from €157,000,000 to 218 €1,000,000 which also represents a new record for the company. Orders in the Q1 were mainly driven by our ALD business. Looking at the breakdown in bookings by customer segment, memory was the largest segment for the first time in the last five quarters and was closely followed by foundry. In foundry, bookings decreased compared to the record level in Q4, but were still at a healthy level supported by bookings from multiple customers.
Memory bookings predominantly consisted of 3 d NAND, which already picked up meaningfully in Q4 and further increased in Q1. DRAM bookings, although somewhat increasing compared to the 4th quarter, remained at a relatively modest level and were, for a large part, related to tech conversions. Looking at our balance sheet and cash flow. At the end of March, the cash position amounted to €379,000,000 which was about stable as compared to the end of last December. This was the balance of positive free cash flow generated during the quarter, mainly offset by cash spend on share buybacks.
Net working capital decreased to €139,000,000 at the end of March, down from €157,000,000 at the end of the 4th quarter. The number of days of working capital measured against quarterly sales increased to 86 at the end of the Q1 compared to 82 days at the end of December. Working capital remained relatively high caused by higher inventories for increasing activity levels going into the Q2. On the back of the decrease in working capital and continued profitability, we generated free cash flow of €20,000,000 during the quarter. In the first quarter, we spent €31,000,000 to repurchase more than 600,000 of our own shares.
This is part of the buyback program that we announced last October and that we increased to €100,000,000 program last March. As of last week, we completed approximately 46% of the program. As announced last March, we propose to cancel 1,500,000 of our treasury shares. We also propose a stable dividend of €0.70 per share for approval at our upcoming AGM, which is scheduled for the 22nd May. This marks the 7th consecutive year that we pay meaningful dividends to our shareholders.
Let's now look at our ALD business. Looking back at 2016, based on our most recent assessment, the single wafer ALD market dropped in 2016. This drop was, however, not as high as we earlier expected when we did our earlier assessment. This is caused by a few smaller segments of the ALD market where we have not been engaged, mainly in nonthreatening related DRAM. As a result, our market share decreased.
Our ALD revenue in 2016 ended up well in line with the assessment we made in July of last year. Our view on the underlying developments of the ALD market and the strength of our position has not changed. Looking more closely at the dynamics within the ALD market, we see continued strength in the LogicFoundry segment. ALD is a key enabler to build the next generation of advanced FinFET devices. The logicfoundry segment will be an important contributor to the expected ALD market growth.
As we discussed in earlier quarters, the introduction of the 10 nanometer node led to a step change in the use of ALD in logicfoundry. With the 10 nanometer node, we have significantly increased the number of applications for which we are production tool of record, and we expanded our engagements with key customers in a meaningful way. Taking an early look at 7 nanometer logic foundry, that note, we expect our addressable ALD market to further increase. Looking at 3 d NAND, while missing out on the earlier stage of investments, demand for single wafer ALD in 3 d NAND has clearly accelerated in the most recent quarters. The customers that we won in 2016 are ramping their 3 d NAND devices in high volume manufacturing this year.
In the Q1, order intake further increased, and we recorded the 1st meaningful double digit percentage sales contribution from 3 d NAND. This year, the size of the 3 d NAND part of the single wafer ALD market is already expected to exceed the size of the planar NAND market in 2015. We continue to expect a significant contribution of 3 d NAND to our revenue in 2017. Longer term, as customers transition to more complex higher stack devices of 96 layers, for example, and above, we expect the number of single wafer ALD applications to further increase. In addition, in ALD for 3 d NAND, we are actively engaged with other customers, which we expect to turn into another growth driver for us beyond this year.
In DRAM, investments are still mostly focused on technology transitions within existing fabs with a higher level of tool reuse as a consequence. A more meaningful recovery in demand for new ALD tools in this DRAM segment will be dependent on the resumption of capacity additions. Overall, looking at the structural drivers in our industry, the prospects for the ALD market continue to be strong. And as a market leader, ASM remains well positioned to benefit. Let's now comment in more detail on the win that we announced in our Epi business.
Traditionally, we have been a player in the epi market. Our presence in recent years has at the same time been primarily limited to the analog and power markets. While an attractive area by itself, analog power only represents a small part of the total Epi market. The larger part of the Epi market is in logic, foundry and 3 d NAND. To address this larger and growing part of the Epi market, we have invested in new improvements on our cluster to the Intrepid for the last 2 years.
In Q1, we qualified as process tool of record for an advanced epi application at a leading foundry customer and recorded the 1st high volume manufacturing order intake for this Intrepid tool. So let's now look at the broader market environment. Market researchers like Gartner and VLSI are expecting the wafer fab equipment market continue to grow in 2017, with year on year growth of between 8% 9%. Gartner is forecasting the end market for semiconductor devices to grow by 12% from a growth of 3% last year, and that's due to mostly to rising memory ASPs and increasing demand for application processors for automotive, industrial and IoT. Now let's look at our guidance as included in our overnight press release.
We continue to expect a clear year on year improvement in the single wafer ALD market in 2017 with demand in the logicfoundry segment remaining healthy and a strong increase in the 3 d NAND segment. Based on that for Q2, we expect a sales level of 100 between €180,000,000 €200,000,000 on a currency comparable level. And the order intake in Q2 is expected to remain at the high level of somewhere between €190,000,000 €210,000,000 also on the currency comparable level. So at this point, we are more than happy to answer your questions.
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. Alright, Alex. We are ready for the first question.
Thank you. We will take our first question from Peter Olofsen of Kepler Cheuvreux. Please go ahead. Your line is open.
Good afternoon, gentlemen. I will limit myself to 2 questions then. Maybe first on the outlook. You've provided very strong order guidance for Q2, which means that you will enter the second half with a pretty strong backlog. Could you give maybe already give some indication on how you look at the second half of the year?
How that might compare to the first half? And then on the outlook for DRAM, I got the impression that you're a bit more cautious there. You mentioned that pickup in demand is dependent on capacity additions. While listening to some of your equipment peers, it seems spending in DRAM is limited only to some conversion. So there's hardly any capacity additions there.
So am I correct that you're cautious on DRAM and maybe a bit more cautious than what you were earlier in the year?
Okay. Yes, Peter, thanks for your question. So to start with DRAM, we're cautious, yes, but not more cautious than a few months ago. So or then 1.5 months ago, of course, because full year and Q1 results are very close to each other. Yes, We just reiterate the same view of a couple of weeks ago, only a modest improvement.
And yes, based on the fact that we don't see our key customers investing in DRAM in their new fabs, New fabs are so far exclusively reserved for 3 d NAND capacity. And as a result of that, they are mainly expanding DRAM capacity in their existing fabs through tech conversions. And yes, as a result of that, we our view is that in the areas that we are engaged, that the demand for new equipment is still modest. So that's the view, Peter, but no different view from a few months ago. So if we look at our projections for the year, as we made internally, they still use the same assumptions as some weeks ago, okay?
So that's then your question on the second half. Yes, in general, we do foresee a healthy year for the industry and for ourselves in 2017, whereby, as we said before, logicfoundry segment with more emphasis to foundry than to logic will continue to contribute healthy throughout the year. And we see year on year a strong acceleration of 3DNS. NES. And those 2 will support, we think, a much stronger year in 2017 based on current visibility than 2016.
Okay. And maybe it's a bit early, but at this moment, no reason to believe that Q4 will be materially weaker than what we should see in Q2, Q3?
Our guidance went our detailed guidance went up to including Q2. And let's say, we don't see for if you look at the year as a whole, we think the year as a whole is going to be a healthy year. And you also if you look at the Gardel and VLSI, they also project the year to be between 8% 9%. And so we are we feel good about further building a strong position in throughout this year. I would like to leave it at that for the moment.
And of course, as soon as we can give you more color on a quarter by quarter basis for the second half, we will do so.
Okay. Maybe squeezing in one follow-up. Do you think you might be able to regain some market share this year in ALD?
Yes. Well, to be honest, again, we learned a little bit from our experience last year that it's very difficult to since this is such a developing market, to have a view on all the detailed segments in the ALD market, especially when you're only in March of the year. So again, predictions on market share, I think it's a little too early. If you look at how we view our position in the segments that we compete, we feel very, very good about our position. And based on that, that we can grow the company year on year from 'sixteen to 'seventeen.
And we don't view that, let's say, the competitive landscape is changing in a material way at this moment in time. We don't have any indications that is the case. We feel good about that. And especially, you can see the increased contribution on 3 d NAND besides an increased share of wallet that we have been building up in LogicFoundry from node to node, yes, gives us the feeling that we are on the right track. Okay?
Okay. That's helpful. Thank you.
We will take our next question from Nigel Van Putten with ING. Please go ahead. Your line is open.
Hi, afternoon. I have two questions on the epitaxy order. It seems like an exciting development. Question is, is this a top three customer, this foundry customer? And did you develop the application specifically with this customer for a specific application?
Or do you expect to also ship this tool in due course to other customers for other applications as well?
Yes. I think we did not ask permission to the specific customer to disclose their names only for that reason. I would like to not answer whether it's a top 3 customer, but it is a leading foundry customer in the world. And yes, we are well, whether we would like to reproduce this success at other customers, of course, we would like. But let's put it this way.
We aim to broaden our position in the epi market in general, yes? And as you understand, the epi market beyond analog power is in logic and logic foundry and memory. So we look for opportunities. We've been working on opportunities, let's say, beyond this specific application. And as soon as we also book results there, then the same as we did with are doing with this customer, we will let the market know.
But we're very happy that yes, it's the first high volume manufacturing. So that means really a tool that goes into high volume production. It's the first high volume manufacturing related order intake and revenue contribution of this leading foundry customer in Q1. And yes, as you know, the whole total addressable market for Epi is around, yes, probably around US600 $1,000,000 of which the analog power markets in which we have been engaged so far was only probably around €100,000,000 or so. So by broadening our this way, we are starting to broaden our addressable markets within the epi markets.
And so we do foresee more orders and revenue from this specific customer for this advanced Epi application in 2017. And yes, and our analog power Epi business is expected to remain a steady contributor year on year compared to 2016 year on year. And at the same time, we do believe that it is possible that this year, our CMOS EPI revenue will be higher than our analog power business in 2017. So it's an indication on what we are working on.
It's very interesting. Actually, you already answered my other question on the power market because maybe a bit more context. If you love German IDMs or more automotive focused companies also expanding CapEx heavily, building 300 millimeter farms fabs, sorry. Do you also think that maybe 2017 specifically could see higher growth?
Yes. As I just said, because it's a good question, that for now, we would like to say that we expect at least that segment to have a steady contribution year on year. It's too early to say whether that contribution would be exactly in this year bigger than last year. But we do agree with you that longer term, this is a very interesting growth segment.
Great. Thanks.
And where Appy plays an important role.
We will take our next question from Varun Rajwanshi of JPMorgan. Please go ahead. Your line is open.
Yes. Hi. This is Sandeep Deshpande. Just a quick question on the NAND wins. Can you talk about where your tools are being used in terms of the deposition on the 3 d NAND?
And then secondly, with regard to the Epi win, what are your intentions in the Epi business? I mean, you have been in the Silicon Epi business in the past. You lost some share. Now you seem to be coming back with a new tool. What are the long term intentions in the Epi business?
Thank you.
Okay, Sandeep. Good to hear you being in the call. I trust okay. So yes, on Epi, yes, I tried to provide some color in the answer provided to Nigel. So without repeating the whole thing, again, we'd like to reiterate, as we said in the introduction, we have been focused on analog power part of the market for the last couple of years.
That's, yes, a combination of 200 millimeters and 300 millimeters You see that mainstream CMOS is more, yes, is more 300 millimeter only, and it's both in logicfoundry and in memory. And yes, we have invested a lot of money and resources in Epi over the last couple of years. And you know we have a long history in Epi, but we have to do our homework to get our act together again on, let's say, the requirements the market and key customers have today. And I think we made a lot of progress. Of course, there's one strong competitor that owns that market so far.
And but I think the industry would welcome, let's say, to have another viable competitor playing a role in that market. It would create a much healthier playing field. And but of course, then that competitor needs to show that they can perform. And we made a first step in on that path by being selected now for a specific advanced epi application with a leading foundry. But our ambition doesn't stop there.
But again, there's a lot of work to be done, and it's way too early to give, let's say, detailed indications where we will stand at the end of this year or next year. But the engagements we have ongoing in the market are broader than with this one customer. So and again, it's meant to address, let's say, a broader part of the total addressable market in Epi. So far, we have only been addressing $100,000,000 part of the market. In a total addressable market for Epi, it's around 6 €100,000,000 and likely will grow in the coming years because we had a compound annual growth rate that is given on the Epi market is pretty meaningful given to it by, let's say, also the external market watchers.
So that's the question that's the answer to your Epi question. Then to NAND, yes, where is it used in NAND? Yes, I think the biggest difference compared to planar NAND our planar NAND engagement is that in the past so planar NAND engagement was, of course, primarily in patterning, sacrificial patterning related films. And our engagement now is mainly in non patterning, really structured device related films. And as we shared in earlier calls, we are not engaged with all the three d NAND players at this moment in time.
We are engaged with a couple. And our ambition is we now grow our revenue year on year based on the fact that the customers that we are engaged with are really building volume now, really building volume in 4860-forty-sixty four stack environment, a little bit of mix of those two nodes. And going into next year, we would like to build on that engagement in terms of as these customers, let's say, further develop volumes. And we also have the ambition going, let's say, towards 96 stack and higher to also increase the number of customers that we are engaged with. And of course, note by note, increase all the also the single wafer ALD content with all customers.
That's what we are working on, Sandeep.
And are you also involved with customers who are making 3 d XPoint? Are you because that's also a multilayer process. And so are you involved on the 3 d XPoint side?
Yes. Yes. In the R and D phase, we are already for quite some time. And but yes, their, let's say, real P and L, let's say, visibility on our side depends on when our customers will really ramp those products, when they really can ramp when they can ramp those products with their customers and as a result of that are going to order more equipment. And we don't we have in our current models, we have not scheduled for any material growth any material growth there or contribution in this calendar year.
Thanks, Jan.
Okay. You're welcome.
Our next question comes from Jim Santanderi of OREITI. Please go ahead. Your line is open.
Yes, hi, afternoon. So just following up on the EPI win and the non ALD portion of your business. First of all, do you think the non ALD revenues for the business will outgrow the broader SPE CapEx environment this year?
In terms of percentage wise, for sure. For sure as well.
Okay. And then for Epi Power specifically, could you maybe just remind us where you are and where you think are in terms of market share, either for Epi Power specifically or for Epi overall?
Jim, could you repeat that question one more time?
Yes. For the Epi market, could you remind us where you think you are for market share currently either for the overall epi market or for epi power?
I think if you if you take the numbers we mentioned earlier, total market is €600,000,000 Only €100,000,000 of that market is analog power, and that has been the only market we have been engaged in, then you can calculate that our market share so far in that market has been very, very modest.
Okay. Thank you. And then maybe just looking to the future a little bit. If you could, can you give us an update on maybe where ALD stands in terms of road map or node adoption for selective, deposition and whether you're working on that specifically with any of your customers. And then also whether you're looking at internally addressing the thin film deposition market for flexible OLED when it commercializes in a couple of years?
We are through research institutes and also through, let's say, the N plus, let's say, 3, 4 node departments of our customers. We are, of course, looking at all these developments. And in parallel to, let's say, the more immediate needs by customers, N plus 1, N plus 2. So the answer is yes, we are investing in that. Do we see because, of course, that is very important to build on our ALD position in the market now.
So we really try to balance our R and D well between, let's say, supporting our immediate customer needs now and securing our leading position 3, 4 years from now. That's what we really try to balance when we set our budgets, when we determine how to allocate our R and D budgets for the year among the different departments in the organization. If you ask us, is there any contribution foreseen short term of these segments that you just mentioned, specific segments that you just mentioned, well, not really in a material way in the next 12 months.
Okay. And so within that answer, were you confirming that you are looking at developing thin film deposition application for flexible OLED?
That you reiterate that so that my answer is not misread. We always look as part of our strategic planning at, let's say, adjacent markets, how we could apply our strengths to adjacent markets. But our number one priority today is to strengthen our position in mainstream semi and accelerate our growth there.
Okay. And sorry, maybe just the last follow-up on that. Is that because on the display side, on the OLED display side, it's a different type of ALD technology that's required that would require an entirely new R and D stream or tool development road map? What's specifically stopping you from porting over some of your existing ALD skills into thin film for OLED?
Yes. It's just a combination of factors that you usually look at just prioritizing. It's just a matter of prioritizing. It's just a matter of prioritizing whereby technical, commercial, customer requirements, building further building on existing customer relationships. And based on all of that, you prioritize your R and D projects.
And then yes, that made us rank it this way at this moment. And maybe offline, we can talk about this a little more.
Understood. Thank you.
Thank you, Jim.
We will take our next question from Tami Kwei of Berenberg Bank. Please go ahead. Your line is open.
Hi. Thank you for taking my question. Firstly, it would be great if you can share your view that you have the target total addressable market for ALD by the time of 2020 timeline ish. So can you share which portion within that total addressable market will belong to logicfoundry and 3 d MAND? And also, if we think about the blue sky scenario, if there is further upside to your addressable market target, where that can come from?
Thanks.
Okay. Okay. So well, it's clear that Tammy, thanks for your question. We highlighted that before that until 2015, memory was the biggest number one contributor to the single wafer ALD market, especially within memory, especially DRAM. And that as of 2016, logicfoundry is, in our opinion, the biggest contributor to the single wave ALD market.
And we expect that to yes, with our current view on the market, we don't think that, that will change in the coming years. LogicFoundry will stay the biggest segment. At the same time, we will see the LogicFoundry contribute the 3 d NAND contribution to rapidly increase. There's a double digit percentage growth of 3 d NAND contribution, for example, to this single wave ALD market in 2017. And with the visibility we have now, we think that there is also a double digit percentage growth of the 3 d NAND contribution year on year possible in 2018, yes, to give you an indication on that.
And yes, and then so your second question is, are there any upsides to the market?
To the total addressable market for single wave ALD and which segment can be the contribution to that upside?
Yes, yes, yes. Yes, I think it's too early to tell. We are working on certain developments, certain, let's say, application and product developments that could further, let's say, strengthen the single wafer ALD market as a whole, but it's too early. We have to see how these engagements work out. And then yes, based on that, a bigger market could develop.
But it's just too a little bit too early to tell. Maybe in 2018, we Tammy, we can assess that a little bit better. Again, we had to adjust the market estimate onetime by delaying the €1,500,000,000 with 1.5 to 2 years. We want to make sure that we don't that we only change our current guidance to the market when we really have a good visibility on that. But one thing is, well, pretty we're pretty confident about is that the 1.5 to us will not be the end size for this ALD market.
That's we are strongly of the belief that, that will not be the end size of this market. There's a lot of potential beyond the 1.5. Just timing wise, yes, this is so far out. A lot can happen, but also to the positive. So we don't exclude upside, but too early to quantify or provide more color.
Okay. And my follow-up is, in those markets, in memory, audio and logic, is there any in terms of gross margin? For example, if you are basically new into the 3rd NAND market, does the tools actually carry a lower gross margin compared to Foundry and Logic, which is more mature?
That's not the case, but the situation remains the same as what I've mentioned in earlier calls. And I think we have certain applications for certain customers which might have a lower or a higher margin. And you see that also somewhat fluctuate in our gross margins there where we had in Q1 now 43.5%. And you also have sometimes that when you introduce a lot of new applications and a lot of new tools in the markets that initial tools might have a little bit lower margin simply because you have to
go through the
learning with your customer. But in general, we see that those margins are all at a very healthy level and hence the commitment that we have provided earlier that we expect our margins to be in the lowtomid-40s remain the same.
Okay. Thank you.
We will take our next question from Robert Sanders of Deutsche Bank.
I was just wondering first, if you could just think about the I don't know if you have this number at the top of your head, but if you look out to 2021, how does your ALD business split between patterning and non patterning? And I have a follow-up.
Okay, Rob. Yes, thanks for your question. So yes, patterning and non patterning, yes. Well, let's give you a little bit of perspective how we have seen it develop in the last 2 years. First of all, on the market as a whole versus 2015, the percentage contribution to the single wafer ALD market has gone down in 2016.
Yes, so the percentage contribution of patterning to the single wafer ALD market has gone down in 2016 versus 2015. And it is believed with our current based on our current visibility to further decline in 2017. In other words, the development of the single wafer ALD market will become less dependent on patterning only. Still a decent contributor, but it will become less dependent on that segment only. Also, in dollar size, we think that the market has experienced a double digit percentage decline in terms of patterning contribution going from 2015 to, let's say, this year, yes?
And
so that
is and we think patterning will stay an important part of the market, But it will if you look at the projections towards €1,500,000,000 in 2021, That will be let's say, it will be less of a determining factor than it was before in reaching that number. Again, the contribution is still a healthy one, but it's less of a contributing factor. It's not the most important growth engine, on the contrary in the coming years in that market to develop towards 1.5 based on again the visibility we have today. And also, if you look at our revenue, yes, the contribution to our single wafer ALD revenue, yes, this year is expected to be lower than it was in 2015. Other segments have become more important, yes, and are more stronger enablers, have become stronger enablers for growth.
And that's I think to us, we view it as a positive that we have broadened the exposure and the penetration of ALD beyond, let's say, pathogenin, which was double pathogenin, which was multi pathogenin, which was the main driver in 2014, 2015.
Got it. So is patterning a majority still today or you prefer not to say?
Yes. We don't want to provide that much color. But again, I trust that we gave a lot of color already. Okay.
Yes, my follow-up would just be around the sort of pricing behavior of your competitors in ALD. I mean, I think historically you they've struggled because they couldn't match your performance, particularly for patterning applications, your throughput. But in the non patterning applications, they seem to have had some success. So I was just wondering if you'd seen any change in the pricing environment or have some given up perhaps because they missed some of the big windows like TSMC, etcetera. I was just wondering if you could update that.
Yes. No, I think in the of course, in the we really have seen in the non patterning area, we have seen some competitors really step up and build revenue there. And but yes, in line, let's say, with what we foresaw, pretty much in line with what we foresaw, they would do. So we definitely don't want to say that we ignore their penetration level because there are some penetrations in the non patterning field. And especially since in 2016, let's say, the logic let's say, the logic foundry area was the most important part where and combined with 3 d NAND where the investments took place and there was less investments in DRAM.
And in the memory space, in the DRAM space where, of course, let's say, the primary patterning competition was, there was less investment in 2016. So the competition was less visible because we all experienced less of business there.
Our next question comes from Nigel Van Bosten of ING. Please go ahead. Your line is open.
Hi, thanks. I have a follow-up on the last question and more broadly. It seems from the underlying sort of market share data that's provided by Gartner that a couple of companies that have taken the spatial route using spatial tools have been quite successful. Is there any connection or correlation between sort of the success of those tools and maybe patterning or not in 2016?
Well, I think it's not wise to go into a review of competitive tools exactly linked to specific applications. But if your question is, do we see inroads that the Spatial tool has made in Spatial technology has made into the industry, then we absolutely, yes, can confirm that they have made some inroads in certain applications in the field and at multiple customers. And yes, the main thing we can say about it is that we are fully aware of it, that we think that our competitive intelligence, yes, can tell has based on our competitive intelligence, we know reasonably well in what areas these tools are active. And yes, we just include that in our own strategic planning on ALD and in the way we prioritize the funding of our ALD programs to ensure that we keep growing. That's the main thing, Nigel, I would like to say about it.
Honestly, maybe one follow-up. Do you think that the areas your tools are focused on have higher growth CAGR towards 2020 than maybe the applications where the spatial tools were developed for?
Can you say that one more time,
Mario? No, sorry. It was just I think in a question before, you mentioned that you were seeing applications that were seeing higher growth you were quite successful in. My question is, do you think that maybe the applications these spatial tools are developed for are showing maybe somewhat lower growth than the applications you have chosen to pursue?
I don't think we are able to say that. I don't think we are able to say that at this moment in time. They may experience also healthy growth in the areas that they have chosen to pursue on. So I think that's too that would be too fast to confirm that, Nigel. Okay?
Understood. Thanks.
We will take our next question from David O'Connor of Exane. Please go ahead. Your line is open.
Great. Thanks for taking my questions, gentlemen. A couple of rapid fire from my side, if I may. Firstly, on the phone, the orders you mentioned at the start of the call, they decreased in Q1 quarter on quarter, but still at healthy levels. Do you think we've peaked at this point for foundry orders, understanding that they're still going to remain healthy through the year?
That's my first one. Maybe second one on 3 d NANDs. Can you give us also an indication of the increase in the application, intensely moving from 64 layers to 96? How should we kind of think about the content increase there? Are we going from just a couple of layers to half a dozen?
So any color there would be helpful. And then thirdly, maybe on the epi side of things, maybe one for Peter. Can we expect kind of gross margin at similar levels given the ramp up of the epi through the rest of the year? Should we expect some kind of headwind there given your comments earlier? And also maybe is this foundry win, is this for a leading edge node or is it more kind of lagging edge in on the epi side?
And maybe as a lastly, if you could give us some kind of indication what's the competitive advantage of your Intrepid tool there? Is it really because the win is really because of there's only one other customer addressing that space? So there's kind of some pent up demand competition or is there a real advantage with Intrepid? Thanks.
Okay. Okay. Well, that's a whole list of questions. Okay. So Peter, you want to Yes.
So I think the gross margin, EPI margin. Yes, it's in line, David, what I said earlier. I mean, what we do not see that the Epi tools have a different margin from the rest of the tools that we have in our organization. The issue is, of course, that during a start up for new products, and that's not only for Epi, that's for all the tools that we have, then the initial tools might have slightly lower margin than the repeat tools that we have. And that might have a small impact on our gross margin quarter after quarter.
And that's what we call and what we always have mentioned as being the impact of mix changes over the quarters. I trust that that's answered your question.
Yes. Thanks, Peter.
Okay. So then I think 4 other questions. First, did we peak our foundry business in terms of bookings in Q1? The answer is that we what we foresee based on current visibility, very healthy contribution of foundry throughout the year. So that's the answer on that question.
Then 64 to 96 stack content, could you basically, you're asking to quantify that a little bit more. Yes, that's a little tough at this stage because we are qualification, of course, still on 96 496 stacks with several customers. And it's too early to say which applications will really make it, and that will determine how big the upside is. But we do we can say it's really multiple, let's say, layers that we are addressing with multiple customers, let's say, from node to node. So it is, yes, meaningful upside that we have node to node from 64 to 90 6.
And I prefer not to say more than that at this moment in time. And hopefully, in the next few quarters, when customers are closer to freezing their processes, we can provide you a little bit more color. But we also would prefer to only give you the color when we don't have to come back on those estimates later on. So that's that. Then your question was on Epi, whether it's focused on, let's say, leading edge nodes.
Yes, it's focused on advanced applications and advanced nodes. And I don't want to say more about it because we're not allowed to talk to specific customers related to this penetration. So that's that. And then on the competitive advantage of the Intrepid, we have not specified what specific application it is. But I can tell you, the competitive, we've been working on this tool for the last 2 years in multiple ways.
So we've been looking at reliability of the tool. We've been looking at the cost effectiveness of the tool, and we've been looking at the technical performance of the tool. All those aspects have been taken into account. So and again, we have a long time history in Epi for tens of years, And we just we're not focused on mainstream app mainstream Siemens for a number of years. And we made a strategic decision as we shared with you, let's say, for the last 2 years to change that, to increase that focus and to make it a strategic area of attention.
And that's now starting to pay off. And when you want to participate in a broader way in the market, you cannot just focus on one element of the tool. That's what we have been doing. And this is the 1st payoff. And whether more customers will take how much it will take to get in there.
We will keep you informed, let's say, in the coming months, years as we can claim new victories. But it's really early to claim more victories than the one we announced overnight. All right?
Very clear. Thank you.
Okay, David. Thank you for your question.
We will take our next question from Jim Santonelli of OREITI. Please go ahead. Your line is open.
Yes, thanks. Just a quick follow-up, if I may, on gross margin. You saw a slight downdraft in 1Q gross margin. I just wanted to get an idea of what that was related to. I guess, it's a product mix issue behind that, but it would be nice to get a little bit more detail if you could.
Yes. I can add much more than what I said earlier, Jim. I mean, we have, of course, a lot of applications that we serve with a lot of different customers. And as you can imagine, not all the margins on every tool are the same. So depending a little bit on what sort of mix that you have within the quarter, there could be small shifts between the gross margins.
And I should have seen last year where we were always in the high 43% or in the 43%, 44% level. I mean, there's not that much to be added. The 43.5% versus the 43.9%, which we had last year in the 4th quarter in the Q1 and the 44.plus that we had in the 4th quarter are for me very minor differences. There is nothing behind that, which I can give you some more details about it other than what I said, the shifts or the separate mix from applications and customers.
Okay. It's not some it's not necessarily the case that you saw a greater portion of 3 d NAND shipments in the Q1 versus any quarter last year that was a contributing factor to that?
Absolutely not.
Okay. And did you ship any Intrepids in the Q1?
Yes. Okay.
Thank you. We did.
Ladies and gentlemen, that will conclude today's Q and A session. I would now like to turn the call back to the speakers for any additional or closing remarks.
All right. I would like to thank you all very much for your detailed questions, also on behalf of Peter, Victor and others within the company. So let's stay in touch in the coming months. And any follow-up questions that you may have, of course, feel free to touch base with us. All right.
Thanks again. And all, enjoy the rest of your day. Bye bye.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.