Good day, welcome to the ASM International Q3 2016 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Victor Bareño. Please go ahead, sir.
Thank you, Siobhan. ASM issued its 2016 third-quarter 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 affect results, please refer to the company's press releases, reports, and financial statements, which are available on our website. With that, I will now turn the call over to Chuck del Prado , President and CEO. Chuck?
Thank you, Victor. Thanks to everyone for attending our third quarter 2016 results conference call and for your continued interest in the company. After a review of operations, Peter van Bommel, our CFO, will join me in answering your questions. First, I would like to thank you for the many messages of support we received following the death last month of our Founder and former CEO, Arthur del Prado. Arthur's energy and vision built this company. We are sure that the best way we all can remember him is to continue the great work that he started. Again, thank you for your support. Let's now start with a review of our third quarter financial results. Performance in the third quarter was in line with our expectations.
Revenue in the quarter decreased by 11% compared to the third quarter of last year and increased by 4% from the second quarter of this year. At a level of EUR 144 million, third quarter revenue was within our forecasted range of between EUR 135 and EUR 150 million. Our ALD business was again the main driver. By customer segment, revenue was led by foundry, followed by logic. The strength in foundry and logic was driven by 10-nanometer investments. The gross margin remained at a solid level of 44.2%, up slightly from 43.8% in the second quarter and 43.4% in the year-ago period. SG&A expenses increased by 2% from the second quarter and decreased by 11% year-over-year. Reported R&D expenses amounted to EUR 24 million in the quarter. Amortization of capitalized development expenses amounted to EUR 4 million.
The total R&D expenditure, adjusted for amortization and capitalization of development expenses, amounted to EUR 27 million in the quarter, up 9% from the second quarter and up 15% compared to the year-ago quarter. The year-on-year growth in the total R&D expenditure is again explained by the increase in customer requests for new applications and engagements that we have experienced in the recent periods. Operating income amounted to EUR 17 million, stable compared to the second quarter and down from EUR 31 million in the third quarter of last year. Operating margin amounted to 12% in the quarter, almost flat compared to the second quarter. Financing result in the quarter was EUR 3 million negative and consisted of a translation loss of a similar size, which was mainly related to movements in the US dollar. In the second quarter of this year, the financing result still included a translation gain of EUR 8 million.
Results from investments, which reflects our share of approximately 39% in the net earnings of ASMPT, increased to EUR 27 million for the quarter, up from EUR 16 million in the second quarter and EUR 9 million in the year-ago period. These figures exclude the ongoing amortization charge, which amounted to almost EUR 7 million in the third quarter. For the full year, this charge is projected at EUR 27 million. ASMPT sales in the third quarter increased to $541 million, up 14% from the second quarter of this year and up 29% from the third quarter last year. ASMPT reported bookings of $436 million for the third quarter, a decrease of 22% compared to the second quarter and 14% higher than in the third quarter of last year. The quarter-on-quarter decrease reflects the seasonal correction in the back-end industry. Turning back to ASMI's consolidated operations.
ASMI's net earnings on a normalized basis amounted to EUR 40 million in the third quarter, down slightly from EUR 42 million in the second quarter and down from EUR 50 million in the third quarter of last year. The year-on-year decrease in net profits is explained by the drop in operating results, as well as lower financing results and lower taxes, which included a one-off benefit of EUR 9 million in the year-ago period, and partly offset by higher results from investments. New orders fell by 23% from the second quarter to EUR 123 million in the third quarter, and were as such, well within the range of the EUR 100 million-EUR 130 million range that we had guided for. Year-on-year, the drop in orders was 17%. Orders were for the largest part driven by our ALD business. Bookings were led by foundry, at a distance followed by memory and then logic.
Compared to the previous quarter, foundry remained solid, memory was stable, and logic decreased. Within memory, the mix of bookings shifted from DRAM towards 3D NAND in the third quarter. Let's turn to the balance sheet and cash flow. At the end of September, the cash position decreased to EUR 363 million, down from EUR 370 million at the end of June, and down from EUR 447 million as per year-end 2015. The decrease in cash position over the last three months was mainly the result of the cash used for share buybacks, partly offset by positive free cash flow, free cash generated during the quarter, as well as EUR 50 million dividend received from ASMPT. Net working capital decreased slightly from EUR 130 million at the end of June to EUR 127 million as per the end of September.
Outstanding days of working capital measured against quarterly sales decreased from 85 to 79 days. In the third quarter, we spent EUR 27 million to repurchase approximately 800,000 of our own shares as part of the EUR 100 million share buyback program that we announced October last year. As of last week, we completed approximately 97% of the program, and the number of outstanding basic shares has decreased to approximately 60 million shares at the end of September, down from 60.7 million shares at the end of June and 61.9 million shares at the end of the third quarter last year. Let's now make a few comments on the new share buyback program. With the Q3 earnings release, we announced the authorization of a new share buyback program for up to EUR 50 million of the company's common shares. This program will be executed within the 2016-2017 time frame.
The new buyback follows on the EUR 100 million program that we announced with the Q3 results in 2015, that is currently nearly completed. Year to date, we have returned slightly over EUR 130 million to shareholders through dividends and share repurchases, this is up from EUR 116 million that we returned in the full year 2015. Our commitment remains unchanged to use excess cash for the benefit of our shareholders. Let's now have a look at the different trends that we see in the ALD market and how these fit into our outlook. The logic and foundry segments are the key drivers for us this year. As we already highlighted in previous quarters, the transition to 10 nanometer shows an increase in the number of ALD layers for which we have been selected as compared to the previous 14 nanometer/16 nanometer generation.
We expect to significantly grow our share of wallet within logic and foundry customers this year. While logic historically has been the strongest customer segment for ASM, we have built strong relationships in the foundry sector over the last several years. With the 10 nanometer node, we are now further stepping up our penetration levels within leading foundry in a significant way. We expect to book record revenue in the foundry segment this year, up substantially from previous levels. In DRAM, we still expect spending to be down substantially in 2016, following strong spending levels in 2015. As we already highlighted with our Q2 results, recovery in DRAM spending has been pushed out and is not expected to occur before mid-2017. Key driver will be the 1X technology node. We continue to be well positioned to serve the patterning requirements of our DRAM customers.
In NAND Flash, as explained at earlier occasions, 2016 is a transition year for the single wafer ALD market. The mix of customer spending in NAND Flash has almost entirely shifted in the course of 2016 from planar NAND to 3D NAND. Which means that the multiple patterning in planar NAND, which still had a healthy contribution in 2015 to ASM revenue, has almost completely disappeared. After increasing our focus on 3D NAND in the past few years, we have made progress this year and achieved several production tool of record selections, as we shared with you before. In the third quarter, we booked multiple Eagle XP8 tool orders for a number of ALD applications in 3D NAND. This year, 2016, we will have the first revenue contribution from 3D NAND, albeit still at relatively low levels.
We maintain our forecast that the single wafer ALD market will show a double-digit % decline in 2016. This decline is a result of significant drops in the memory segment, both in DRAM and in the NAND Flash, which are only partially offset by a substantial increase in the logic foundry segment. While the overall single wafer ALD market has slowed this year, our positioning has remained strong, with our market share likely to be up somewhat in 2016. For next year, we expect a clear improvement for the ALD market, driven by continued strength in logic foundry, an increase in the contribution from new 3D NAND applications, and an anticipated recovery in DRAM spending not earlier than mid-2017. Turning to the longer-term outlook for the single wafer ALD markets.
The outlook for structural growth remains strongly driven by miniaturization and the introduction of new materials and new complex device architectures. We still estimate this market to double by the 2018-2019 timeframe. Given the decline in the market in 2016, it is more likely that this will happen in 2019 than in 2018. The logic and foundry sector continues to be a key contributor to the long-term growth of the market. The complexity and low-temperature requirements of advanced FinFET structures drive a strong increase in new ALD applications and layers. In addition, ALD-based multiple patterning is a key enabler of the 10-nanometer transition and also of the 7-nanometer node in logic foundry. In a transition from 14/16 nanometer to 10 nanometer and 7 nanometer over a multi-year period, we expand the single wafer ALD served available market in logic foundry to more than double in total.
In DRAM, we expect multiple patterning to remain a steady contributor for the coming technology transitions. In NAND, from a lower base in 2016, we foresee a steady increase in the number of single wafer ALD applications as customers transition to next-generation higher stack 3D NAND devices in the coming years. In short, while the single wafer ALD market shows a decline in 2016, we expect the market to return to growth in 2017, and the prospects for longer term remain strong. Let's look at our Q4 guidance as we communicated in our press release. For Q4, we expect sales between EUR 150 million and EUR 170 million, while we expect an order intake of between EUR 130 million and EUR 160 million, both on a currency comparable level. At this point, we are happy to answer any questions you may have.
We'd like to ask you to please limit your questions to not more than two at a time, so that everybody has a chance to ask a question. All right, Siobhan, we are ready for the first question.
Thank you. If you would like to ask a question at this time, please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. We will take our first question from Mathias Santos Lever from Morgan Stanley. Please go ahead.
Hello. Thank you for taking my questions. First of all, Chuck, would you say that the main difference in guidance is regarding DRAM being pushed out some next year, or is something extra in here? The second question, could you give some more color on the 3D NAND orders you received in the quarter? What is the drivers for next year? Is it additional customers coming online, or is it current customers ordering more tools? Also, is there any material difference in profitability between 3D NAND tools, planar NAND tools, or DRAM tools? We are all sorry to hear about the news about Arthur del Prado. Thank you.
Okay, Mathias. Thank you for your last remark. Very much appreciate it on behalf of the company. On your questions, we will do the margin question at the end, Peter. On DRAM, in general, Mathias, there is not really something extra that changed. It is just that while the pricing environment in DRAM has recently improved, current investment levels are just much lower at this moment than in 2014, 2015 timeframe. As we already announced in our Q2 results, recovery in new investments has been pushed out to 2017. Our current view is just based on the most recent visibility that we will see the impact from such a recovery not before halfway being into next year.
That forecast does include the assumption that there will, maybe in the initial capacity build at our customers, some reuse of existing capacity at certain customers, before those specific customers will see a resumption of new ALD tools. That is the big picture on DRAM. On NAND, as we explained, I think the main driver next year will be, for us, a higher volume of customers that we already are engaged with in the initial, let us say, pilot phase, this year. I think more customers likely will come up to speed maybe towards the end of next year. We do expect, and we view 2016 as a transition year. As you know, multiple patterning and planar NAND has almost completely disappeared, and single wafer ALD in general within 3D NAND has so far been limited.
Like we said in our introduction, in the third quarter, we really booked multiple XP8 orders for a number, really a number, of ALD applications in 3D NAND. We project that a double-digit growth in the 3D NAND single wafer ALD market next year. Beyond that, with customers going to higher stacks, the ALD needs will further increase in subsequent device generations in the years beyond 2017. Then we expect also more customers' engagement than today with our company. Again, those programs, we are already strongly engaged in R&D, but we're working for insertion of those applications in the nodes after next year. That has to do with the fact that, the level of engagement at this point in time, with the customers differs based just on the specific technology and different architectures of the different customers.
We see a very meaningful future for 3D NAND in single wafer ALD.
Yeah.
Your question with regard to the profitability of V-NAND, DRAM, and Planar NAND and the differences between there, they all are approximately at the same profit level. We do not see any big differences there.
Perfect. Thank you very much.
Okay, you're welcome, Mathias.
We will take our next question from Nigel van Putten from ING. Please go ahead.
Hi, good afternoon. A couple of questions on next year. DRAM is not expected to recover before the second half. Should we expect the first half of 2017 to still be stronger than the first half of 2016? Then I have a follow-up.
Yeah. Nigel, I understand that you would like to know that, we for the moment only want to give some qualitative color on 2017, among the different segments. It's just a little bit too early to provide real quantitative guidance on the full first half, because a lot is still happening in the market, again, within the different segments. We would like to not do that because we prefer to give you an accurate guidance than having to correct that in two months from now. I hope you appreciate that.
Yeah, sure. Fully understand. An unrelated question on talk of consolidation in the sector. Could you comment on some speculation you're considering to maybe acquire a share or the entire semiconductor business of Hitachi Kokusai? More specifically, have you been in talks with the mother company, Hitachi Limited?
This question was, of course, to be expected after so many articles that came up in the press. I trust you understand that while we as a company, we don't react on rumors in the market.
Okay. Fully understand. Thanks.
Yeah. You're welcome.
Our next question comes from Peter Olofsen from Kepler Cheuvreux. Please go ahead.
Good afternoon, gentlemen. Two questions from my side. First, on logic foundry. Could you talk about the linearity of the logic foundry 10 nanometer ramp? You indicated it was a clear driver for sales in Q3. Do you think it will be quite steady in coming quarters, or could there be some quarterly volatility as clients digest some of the recently installed capacity? Then coming back on the earlier question on M&A. I understand you won't comment on specific stories or rumors. Generally speaking, would you consider buying a business that derives a meaningful part of its revenues outside semiconductor equipment? If you were to make an investment in a company, is it fair to assume that you would like to have control over this company and being able to integrate and consolidate it?
Would you also be willing to acquire a minority stake in a company like you have in ASM Pacific? Thank you.
Yeah, Peter. Okay. Interesting questions, especially the second one. I'll comment on that in a minute. First, on the logic foundry linearity of ramp. I think what I can say about it is that between the two segments, logic and foundry, there is a difference. You saw initially that in the beginning of the year, logic pushed harder, in terms of, let's say, bookings, and you see that bookings basically were stronger, developed stronger for foundry later on in the year. As a result of that, also in terms of billings, the contribution later in the year of foundry is stronger than that of logic. That determines also, and we're closely looking now at how will that develop going into 2017. How will, in foundry, 10 nanometer continue its ramp? How quickly will foundry really move on in preparing for seven-nanometer pilot?
How much steam is there left or shown by logic, going into 2017? We hope to get better visibility on that in the coming months. That's on that part. Your second question. Again, in general, applies the same answer as to Nigel, that we don't react to great rumors in the market. What we can say to part of your question is that you said, how well does non-semiconductor-related business fit in your strategy? On that part, we can say that we have always been a very focused company. Focused on areas that we are good at. That has brought us a lot of strong performance and shareholder appreciation. We would like to stick to that formula. I trust that that answered that part of the question.
Yes, it does. Maybe coming back on the earlier question on logic foundry. When it comes to this market, some of these customers are already talking about seven nanometer. Do you think that will further increase your opportunity or addressable market for ALD, or will it be broadly similar to 10 nanometer?
Will it broaden the possibility? The clear and short answer is yes, definitely.
Okay. Thank you.
You're welcome.
Our next question comes from Chetan Udeshi from JPMorgan . Please go ahead.
Hi. This is Sandeep Deshpande. Just a couple of questions. Firstly, regarding 3D NAND, I'm sorry if I didn't hear some of your earlier comments. In the next generation of 3D NAND, where you say you're going to begin to ship a little bit of volume in the fourth quarter, can you discuss what is it that you supply, what process are you supplying in the next generation 3D NAND, and why that was not there? Or are you replacing somebody else who was supplying that in 2D NAND? How significant a supply you can become of that process in the long run, overall in 3D NAND, given that this is going to be the dominant NAND going forward? Secondly, Intel, which has been historically a big customer of yours, and Micron, are also going to do 3D XPoint in the next few years.
Are you exposed on 3D XPoint, which is potentially going to be another major memory in the market? Finally, regarding again on this M&A, I would ask a more philosophical question. Is ASMI interested in being part of the consolidation in this industry? Or as a consolidator or consolidate, or is it just that you will only buy small add-on things depending on your core businesses? Thank you.
Okay, Sandeep. Clear. A few questions. First on 3D NAND. It should be clear that our revenue contribution in 3D NAND this year has not only started in Q4. We've had some, let's say, contribution from multiple customers in terms of bookings and revenue throughout the year. It is, again, an initial engagement with multiple customers, as these customers go to their newest nodes and are, let's say, developing, they're improving their yields and before they go to higher volumes. That's the engagement that is ongoing with, again, multiple customers. It's on, just for them, new applications where they view single wafer ALD to really bring the right cost picture and also the right extendibility from a technology and specs point of view down the road. That triggered them to work with the leader in single wafer ALD.
Of course, we also have to expand our relationships over time to all the players in the market, because we are not present at all the players in 3D NAND in, let's say, pilot or high volume at this moment in time. There's a lot of potential, and our view is that the compound annual growth rate for the 3D NAND market space in single wafer ALD is going to be a double-digit one in the coming years. We view that it provides, if we execute well, a great growth potential for the company to develop our single wafer ALD market. Again, it will go gradually. In the end, we expect that it could represent a meaningful part of the single wafer ALD market. It's not only Q4. Maybe that came across wrongly. That's on the 3D NAND part.
CrossPoint, we do have R&D engagement on CrossPoint already for quite some time. It's now just waiting, like for our peers, for this device development really to hit the market. For our customers to find basically an end user market for this technology. As soon as that happens, we are ready. We view that our engagement in CrossPoint was there at the right time, while at 3D NAND, initially, we were maybe a little bit late, and we are catching up now rapidly. On CrossPoint, we are from the start, at least that's our assessment today. Again, execution still to be proven, but from an R&D point of view, that's the case. I trust that answers that part of the question. On the sector consolidation, Sandeep, interesting one. Of course, the key priority for the company is, of course, shareholder value creation.
We as management and the boards of the company jointly, we see tremendous opportunity to achieve this by continuing to execute on our growth strategy. We believe, as a company, that we have the right portfolio and customer relationships in place to grow our business in the coming years. That is our primary focus. Not to be consolidated, but to grow ourselves. Against that backdrop, the backdrop of further consolidations and consolidation attempts in recent periods, we continue to experience strong pull from the top customers in this industry to expand their engagement with us. That's based on many aspects that they value in our company. We believe customers appreciate ASM's position being a focused, differentiated, and independent supplier of innovative technologies. Of course, it's important that we develop scale, but we see good opportunities to build scale.
Always with keeping in mind, of course, the key priority for us is shareholder value creation. In our role as a consolidator, we've always told you on earlier occasions that acquisition opportunities, our primary objective is organic growth. There's a lot of opportunities there. But on the non-organic part, it's an ongoing part of our strategic review process for years. But it's not a goal in itself. Acquisitions have to make sense strategically. They have to strengthen our position in the market, and it needs to add long-term profit growth and shareholder value. In that respect, we look at things for years, and it can be skill-related, and it can be technology-related. I trust that answers your question, Sandy.
Thank you.
Our next question comes from Tammy Yu from Berenberg.
Hi. Thank you for taking my question. The first question is that you have mentioned you are not penetrating in all the 3D NAND customer yet. I'm just wondering, is that because of they're using alternative solution, or are they just not reaching the level of 3D NAND layer stack yet? Also, you always mention that you are expecting to lose a little bit market share, when more players try to join this ALD market. Just wondering, for seven nanometer compared to 10 nano, basically, you will have more applications, but in combination with potential market share loss, do I see actually ALD demand going up, or it going to be flat from node to node? Thank you.
Yeah, Tammy, I was just checking with my colleagues here your first question, because I could not fully understand it. Could you repeat it one more time?
Yes. You were saying you are not actually in all the 3D NAND player currently based on your 3D NAND capable ALD tool, right? You still have further room to penetrating to more players.
Yes.
I'm just wondering, the players that you are not dealing with, are they use basically your competitor's tools, or it's just simply the fact that they are not actually at the 64 layer, for example, 3D defined yet, and therefore they don't actually need your ALD tool for the time being?
Yeah, it's a good question. When the customers that we have limited engagement with currently in HVM, they started development in 3D NAND when, let's say, not too much single wafer-related ALD capability was available in the market. Yeah? If we would have been more focused on that market at that moment in time, we might have been able to develop the single wafer ALD market earlier in time. Of course, there are some competitors that have single wafer ALD business in 3D NAND currently, but that is not the main reason. In the earlier nodes, solutions were found in a different way, but not through single wafer ALD. Okay? I trust that answers your first question. We're more than happy, of course, to follow up on that through Victor with you if you would like to have more clarity there.
On your question on market share development, logic foundry towards seven nanometer. We do believe, based on the strong engagements in R&D that we have with customers that go prepare for seven nanometer at this time, that our penetration level could increase towards seven nanometer. We have a good feel about that transition upcoming. As a result of that, we think that the contribution in the future in seven nanometers from logic foundry to single wafer ALD is going to increase. Yeah, it's not maybe exactly in 6 months or in 12 months, but if you look at the contribution of the seven-nanometer node compared to the 10-nanometer node, then we strongly believe that the contribution of logic foundry in absolute terms will increase in a meaningful way. I trust that answers your question.
Okay. Thank you.
Okay.
Our next question from Richard Clode from Henderson. Please go ahead.
Hi, Jeroen. Again, condolences. He was an extraordinary man. I just wanted to ask you about the commentary on 2017, I didn't want to overly read your statements like a Fed statement. Going from a very strong kind of recovery in 2017 to kind of clearly improved in 2017. Did you kind of mean anything like that? Again, on the buyback, the fact that it's 50 rather than 100, again, I think on both points, analysts have kind of been saying that, are you meaning anything by those two bits?
Okay, Richard. Thank you for your words of prompt. Very much appreciated. On the 2017 remarks. The views that we have provided so far for next year are not really a quantified forecast. We are confident, and we try to get that across in everything we said so far. We are confident that the single wafer ALD market will show a meaningful recovery in 2017, but it's just a little bit too early to be more precise in quantifying this outlook. For the rest, we try to give you as much color as possible on the dynamics in the different customer segments. Again, repeating that on logic foundry, we do expect spending in that segment to remain strong in next year, supported by continued 10 nanometer capacity ramp and also some early 7 nanometer spending.
It's still about to be seen how quickly that transition between those two segments will go. On NAND flash, the contribution to the single wafer ALD market will show, it is our belief, a double-digit increase in 2017 versus the lower base this year. DRAM spending, we adjusted our wording there a little bit. We expect now the recovery in 2017, driven by 1x nanometer investments to happen not before mid-2017. Also taking maybe some reuse of existing capacity into account by certain customers. Of course, in DRAM segment, things could also change rapidly, but those are the assumptions we made. Again, we chose not to give a quantified forecast now because we'd rather give you an accurate one than a too preliminary one that we later on have to adjust.
We'd rather stay with our track record of being as accurate as possible in our guidance to the market.
Just to follow up on that. The fact that on the last quarter, you used strongly improved in 2017, and this quarter, you're saying clearly improved in 2017. I understand that you don't want to quantify it, but that's not a downticking in terms of your thinking about 2017 at all?
The only thing that I think on logic foundry and 3D NAND, nothing changed. On DRAM, you noticed that we adjusted the wording somewhat, that we said instead of in the course of 2017, that we now said, not early to mid-2017. We've been a little bit more specific there. That's the only adjustment compared to a few months ago.
Great. Then just on the buyback, why it's 50 this time and not the kind of the 100 that we've seen in the past?
Yeah. Let me give you that color. What we always have said is that we want to keep approximately EUR 300 million of cash, that excess cash will be used for the benefit of our shareholders. When you look to the announcements that we have done in the previous years, when we did the announcement in 2014, going back two years, we had EUR 410 million cash at the end of September on our balance sheet. Last year, that was EUR 428 million, both cases justifying the EUR 100 million. At the end of September this year, we had EUR 363 million of cash on the balance sheet. We are simply following the same principle, that led to the EUR 50 million. There is nothing more behind it.
Fantastic. Thank you for clarifying.
Okay, Richard. Looking forward to staying in touch. Thank you.
Our next question, Nigel van Putten from ING, please go ahead.
Yeah, thanks. I have a couple of follow-ups. First, on the order book guidance. What explains the delta between the new orders for the current quarter? It seems a bit stronger. Does that reflect sort of ongoing strength in foundry, or is it maybe because of a meaningful pickup for 3D NAND orders? Another question, this year, I think there was some planar NAND orders, multi-level cell still. Should we look at NAND revenues in total to be higher next year compared to this year? Can you provide some color? That will be very useful. Thanks.
Okay, Nigel, on your first question, order book. Yeah, it's basically that the order book is a little higher. It's just a mix of several items, among which the logic foundry combined is a little higher than Q3, there are also a few other elements that contribute to the higher bookings in Q4. On the NAND, our expectation is that now that NAND definitely contribution will be higher next year than this year.
Okay, thanks. Very useful. Maybe a quick follow-up then. Towards 2019, with the doubling of the market, obviously this year the logic foundry segment is the biggest by a stretch, followed by, I guess, still DRAM and then NAND. How should we look at this mix in your modeling towards 2019 for the ALD market?
Yeah. If you look at the mix, of course, logic foundry is going to be a very important contributor, where we expect that the single wafer ALD served available market will already more than double in the transition, going from 10 to 7 nanometer over a short period of time. 3D NAND applications that are expected to grow in the subsequent higher stack device generations. The contribution in those two areas will definitely grow. That, combined with the fact that we do expect that DRAM contribution, especially the multi-patterning in DRAM, that their contribution will remain steady the coming years. Those elements are all taken into account in making our projection.
Okay, great. You said more than double from the 10 nanometer to the 7 nanometer node. Is that the number of applications, or is that because maybe 10 nanometer is a much smaller node than what the expectations are for 7 nanometer?
The more than doubling is the transition from 16/14.
To make sure that I stated that well, from 16/14 nanometer to 10 and 7.
Right. Okay.
In that transition. That's where the doubling in the served available market is going to take place. In general, I think you can say that compared to, let's say, the recent past, the contribution of logic foundry in the single wafer ALD market is going to be much more important besides the other segments. I think in the past, logic foundry was a moderate contributor, and their contribution is going to be way more significant in the coming years. Besides, again, a healthy gradual growth we expect in NAND through 3D NAND going to higher stacks, and the recovery of DRAM that we anticipate in the market as a whole. I trust that that provides a little bit more color, Nigel.
Yes. Thank you very much for taking my question.
Yes. You're welcome.
As a reminder, it's star one to ask a question, and we will take our next question from David O'Connor from Exane. Please go ahead.
Good morning, gentlemen. Thanks for taking my question. Question, Chuck, on the 3D ramp-up for the new applications. You mentioned, I think in your opening remarks, that these are dependent on the yield of customers. Do we need to see a significant step-up in the 3D NAND yield before we see some of these new applications or tools for these new applications, those orders come through? I just want to try and understand the risk of this NAND strength you're expecting in 2017 from these new applications, that that could come later in 2017. That's my first question. Second question, can you actually give some more details on the new opportunity, the non-patterning opportunity in 3D NAND? It seems quite hazy to me. I just want to try and drill down a bit and see what exactly kind of this application is.
Maybe a third question, if I could squeeze in another one. Can you talk a small bit about your assumptions for tool reuse as your customers move from that 10 nanometer to the seven nanometer in foundry? Thanks.
Okay. Yeah. On the yields, we just made certain assumptions. We are making certain assumptions in our own forecasting, but we don't want to elaborate too much on that because that's customer-sensitive information to the outside world. We're just not allowed to do that. I trust you will respect that. On the non-patterning, David, on the non-patterning layers in 3D NAND, just to emphasize, basically everything. Well, maybe except for one or two applications, but basically almost everything that we are working now on in 3D NAND is non-patterning related. Because in 2D NAND, we relied on patterning. In 3D NAND, we cannot rely on patterning at all. We are showing and working with customers what the benefits are from single wafer ALD and non-patterning, really device-related structured layers. That's everything we do today.
As we try to provide color in the introduction, this engagement ongoing. There's with multiple customers now, multiple layers that are basically preparing for high volume now in pilot phase as we speak. We're also working with several, with the same and other customers for future higher stack nodes for other applications. That either for future nodes towards the end of next year, going into 2018. On the reuse. Reuse in logic foundry. Yeah, that is a possibility, and also our customers likely talk about that themselves. The level of reuse will depend on, it's determined by a few factors, likely. We cannot speak on behalf of our customers, of course, but we guess for them it's important how ultimately the timing of the transition between from 10 to seven will go.
Will 10 last much longer, or will 10 not last that long, as a result of which excess capacity can easier transition to seven? Or will some of the end product demand for both nodes coexist for some time? That all influences the ultimate reuse. That's one aspect which is still difficult to fully assess. We assume some reuse. Next to that, seven nanometer likely will also use completely new applications that cannot be done with existing configurations, with existing 10 nanometer configurations. There, reuse would not be applicable at all. All those elements we incorporate in our own models for next year and the years beyond.
Okay. Understood. Maybe if I could just have one follow-up on the EUV. I notice you pushed out from previously the doubling the market from 2018 to 2019 to now more 2019. Just wondering what are your thoughts on that. I mean, does EUV start to become a headwind for the logic foundry side of the business as this gets pushed out?
Well, if your question is, was that an important factor in our models to make that statement? The answer is no.
Okay, got it. Thank you.
Okay, you're welcome.
As a reminder, please press star one to ask a question. As there are no further questions in the queue, I will now like to turn the call back to the speaker for any additional or closing remarks.
Okay, well, on behalf of Peter and Victor also, thank you very much for attending today's call, and thank you for your questions. I trust we stay in touch on any follow-up questions you may have. Thank you again, and have a good day. Thank you.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.