Good day, and welcome to the ASM International Q2 2016 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Han Westendorp. Please go ahead, sir.
Thank you, Helene. ASM issued its 2016 Q2 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. And with that, I will now turn the call over to Chuck Toprano, President and CEO.
Thank you, Hong, and thanks to everyone for attending our Q2 2016 results conference call and for your continuing interest in ASM International. After a review of operations, Peter von Bommel, our CFO, will join me in answering any questions that you may have. So let's review our Q2 financial results. Revenue in the Q2 amounted to €139,000,000 a decrease of 3% compared to €142,000,000 in the 1st quarter. Revenue decreased 31% compared to the Q2 of last year, which was a record revenue quarter with €201,000,000 Revenue in the quarter was towards the high end of our guidance, which was a range between €130,000,000 140,000,000 Our ALD business continued to be the key revenue driver.
By customer segment, revenue in the quarter was led by Foundry and Logic. The gross margin remained at a solid level of 43.8 percent in the 2nd quarter compared to 43.9% in the 1st quarter. The Q2 last year showed a margin of 45.1%. The quarter on quarter variations in the gross margin are mainly explained by mix differences. SG and A expenses decreased by 7% compared to the previous quarter.
Reported R and D expenses increased by 6% compared to the Q1. Amortization of capitalized development expenses amounted to €4,000,000 in the 2nd quarter as compared to €7,000,000 during the Q1. The total R and D expenditure, excluding amortization and impairment but including capitalization of development expenses, amounted to EUR 25,000,000 in the quarter, up 3% from the Q1 and up 5% compared to the Q2 of last year. The year on year growth in the total R and D expenditure is explained by an increase in customer requests for new applications and engagements similar to last quarter. We generated operating income of EUR 17,000,000 in the 2nd quarter with an operating margin of 12%.
This compares to operating income of EUR 19,000,000 and an operating margin of 13% in the Q1. Financing results in the quarter was €10,000,000 positive and mainly consisted of €8,000,000 translation profit. As a reminder, we hold a substantial part of our cash balances in U. S. Dollars and the translational effects of currency changes are included in the financial results.
On let's look at ASMPT for a moment. Results from investments, which reflects our 39% share of the net earnings from ACE MPT, amounted to €16,000,000 for the quarter, up from €6,000,000 in the Q1 of this year. The HMPT results include a provision for restructuring of €9,000,000 of which €4,000,000 is attributable to the HMI results. And those restructuring costs are related to the relocation of manufacturing operations in China. In the Q2 of last year, result from investment was €20,000,000 These figures exclude the ongoing amortization charge, which amounted to €7,000,000 in the Q2.
For the full year, this charge is expected to be approximately €27,000,000 In the Q2, ASMPT sales increased quarter on quarter by 28% to HKD3.7 billion compared to the Q2 of 2015, sales declined by 2%. Asia MPT reported bookings of USD561 1,000,000 for the 2nd quarter, an increase of 37% compared to the 1st quarter and an increase of 14%, 1 4% compared to the Q2 of last year. So let's now turn back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to €42,000,000 in the 2nd quarter, up from €12,000,000 in the first quarter. While operating profit decreased compared to the Q1, the net result showed improvement due to an €8,000,000 translation gain on cash held in foreign currencies.
In the Q1, we recognized a translation loss of €11,000,000 Our new orders in the Q2 were €159,000,000 down 3% from €164,000,000 in Q1. Orders were within our guidance of a range between €145,000,000 €165,000,000 Orders were mainly driven by our ALD business. Looking at our bookings. LogicFoundry represented the largest segment in the Q2 and showed a strong increase compared to the Q1, driven by demand related to the 10 nanometer technology launch. Orders in the logic sector decreased compared to the Q1, while foundry orders strongly increased.
On the balance sheet and cash flow. At the end of June, the cash position decreased to €370,000,000 down from €416,000,000 at the end of March. The decrease was mainly the result of 30 €7,000,000 in dividend payments and €25,000,000 in share buybacks, partly offset by €7,000,000 dividend received from PT and the positive currency effects on the cash position. Net working capital stood at €130,000,000 at the end of March. At the end at up from SEK113,000,000 at the end of the first quarter.
I think that's a mistake. I think correction. So net working capital stood at €130,000,000 at the end of June, up from €113,000,000 at the end of the Q1. Apology for that error. This increase was mainly caused by higher accounts receivable position due to strong sales towards the end of the quarter.
The number of outstanding days of working capital measured against quarterly sales increased to 85 days at the end of the second quarter compared to 71 days at the end of March. In the Q2, we spent €25,000,000 repurchase approximately 650,000 of our own shares as part of the €100,000,000 share buyback program that we announced last October. As of last week, we completed approximately 70% of the program. And as the press release showed, up to the end of June, it was around 65% of the program. The number of outstanding basic shares decreased to approximately 60 700,000 shares at the end of June, down from 61,300,000 shares at the end of March and 61,900,000 at the end of the Q2 of last year.
So let's now look in a little bit more detail to our ALD business. As mentioned earlier in this call, 10 nanometer investments in logicfoundry strongly supported our bookings during the quarter. Single wafer ALD is a critical and enabling technology for logic foundry customers to make the transition to 10 nanometer. Next to high ks metal gate applications, more precise and conformal deposition is needed for several other critical process steps to build these advanced infrastructures. As we have mentioned before, the shrink to 10 nanometer resulted in the qualification of our single wafer XBA tool for low temperature ALD patterning applications in the logicfoundry segment.
In addition, we have developed new applications. As an example of such an innovative ALD application that we highlighted at our technology seminar earlier this month at Semicon West is the use of ALD metal oxide heart mass in the 10 nanometer node. This is just one example where ALD technology supports our customers in addressing the challenges of ever smaller geometries in 3 d device structures. Consequently, the number of ALD layers for 10 nanometer for which we have been selected has increasingly has increased substantial compared to the 1416 nanometer technology node, which we believe positions us well for a significant increase in the share of wallet with key customers in the LogicFoundry segment. Longer term, the introduction of new materials and architectures such as gate all around will further increase the ALD opportunity, we believe, in the logicfoundry sector.
In the memory market, our ALD equipment has supported key customers in the ramp of several technology generations. Multiple patterning continues to be a key enabler for customers in the DRAM sector in their move to the 1x technology node, especially with some of our most recent single wafer ALD process and hardware innovations. We are well positioned to serve these increased patterning requirements of our DRAM customers as soon as demand for capacity in this industry segment picks up. In NAND flash, customer investments are largely geared now towards 3 d NAND. There is little need for multiple patterning related chain wafer ALD capacity, which up until last year was a solid driver for us in planar NAND.
In the current 3 d NAND devices that are in high volume, the number of new single wafer applications, non patterning applications, has also been limited so far. With next device generations, we expect single wafer ALD to be required for a growing number of applications. Our XP8 ALD tool has recently been qualified for several nonfastening related applications in 3 d net. We expect that these applications will increasingly contribute to our revenue in 2017. At the same time, we are strongly focused on further expanding the number of applications in 3 d net.
Looking at the next few years, we remain confident that ALD continues to be an attractive growth market. Looking at the market environment as a whole, the semiconductor looking at the semiconductor end markets, conditions continue to be mixed. Worries about the global macroeconomic environment and Brexit persist. Softness in the PC and tablet markets and slowing growth in smartphones and continued oversupply in memory devices will result in the year 2016 of 3% decline in the semiconductor industry. On the positive side, the drop in pricing in certain segments seems to be bottoming out, and some of the chipmakers are becoming more positive about the rest of the year.
With regard to the equipment market in which we operate, a key positive in 2016 wafer fab equipment spending outlook are technology transitions. In the LogicFoundries segment, the leading companies are investing in equipment for the 10 nanometer node. Another key wafer fab equipment spending driver in 2016 is the transition to 3 d NAND memory. The NAND end markets and NAND end market is strongly driven by solid state drives, in particular for data centers. In contrast, spending for the DRAM sector, which was very strong in 2015, continues to be weak and is now not expected to improve throughout 2016.
The most recent forecast for 2016 wafer fab equipment from Gartner of DSR Research reflect a roughly flat year, which compares to a low to mid single digit decrease still expected earlier in the year. As far as the single wafer ALD market is concerned, 2015 has shown strong growth. While we estimate this growth to continue, whereby the single wafer ALD equipment market will double in the period 2015 to 2018, 2019, as we believe. And as we shared already in the AGM presentation in May, we do expect the single wafer ALD market to show a double digit decline in 2016 caused by a low demand in memory, which will not be offset by the strong increase in the logicfoundry segment. Our single wafer ALD market share is expected to show an increase in 2016.
We expect the single wafer ALD market to strongly improve again in 2017. To provide our these NAND market is shifting, as we discussed before, from planar NAND to 3 d NAND, and this shift will significantly reduce the demand for additional multiple patterning related single wave ALD capacity. Non patterning related single wave ALD demand is expected to gradually increase as next generation three d NAND is going to ramp into high volume. And in memory, DRAM industry capacity demand was high in 2015 and has declined strongly in 2016. And based on current visibility, the demand for new DRAM related single wave rail DG capacity is believed to recover earliest in the course of 2017.
In LogicFoundry, the transition to 10 nanometer technology node fuels substantially higher single wafer ALD equipment demand than in the previous nodes. So based on that, now let's look at our short term outlook that we also shared in our press release for Q3, we expect sales between €135,000,000 €150,000,000 while we expect an order intake of somewhere between €100,000,000 100,000,000 and EUR 130,000,000 both on a currency comparable level, and we expect a stronger second half in terms of sales as compared to the first half of twenty sixteen. At this point, we are happy to answer any questions that you may have. Okay.
So we would 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, Elaine, we're ready for the first question.
Our first question today is from Peter Olofsen from Kepler Cheuvreux. Your line is open.
Good afternoon, gentlemen. First question on the H2 outlook. You gave an outlook, so I assume you have some visibility on Q4. I'm trying to understand what your expectations are for Q4. Do you basically expect to ship your end Q3 backlog?
Or do you also foresee some turns business for Q4? And then related to 3 d NAND, from previous calls, I had the impression that we could already see some traction from you in the 3 d Nav market later this year. But now it seems it's more 2017. Is that because the rents by your customers have been pushed out? Or because it's not at the 4864 stack devices, but only at a more advanced type of 3 d NAND.
Okay, Peter. Yes, clear. On Q4, yes, well, it's clear that we now if you combine our outlook, our statement on our guidance on Q3 with our you should combine our statement on Q3 with our statement on the second half because we now do expect a stronger second half in terms of revenue. And this is, as you may have noticed, it's somewhat of a revision. We said a much stronger second half in Q1, and now we say a stronger second half.
So that is somewhat of a change compared to 3 months ago. At the same time, we still expect logicfoundry to increase from the first half to the second half in terms of revenue. And on memory, yes, that's still to be defined whether memory is able to match the demand for the first half. That really depends on timing of further vNAND demand, and that we will only get a better picture on that in the course of this quarter. And that is related to these and that comes back to your other question, to your second question.
If you look at the 3 d NAND segment, then yes, basically, the most of the 3 d NAND spending currently is done in the current mainstream HVM is done in the current mainstream HVM activities. And we have said in earlier calls that we are not part of the current mainstream HVM activities in 3 d NAND. And so we are the capacity demand for the new activities in 3 d NAND, so the noncurrent mainstream ATM activities that we are engaged on has basically been delayed by 3 to 6 months, a little bit depending on what customer you talk about.
But could you then be more precise at you say next generation 3 d NAND, but I'm still struggling a little bit to understand Yes.
It's next generation. It's the next generation for that specific customer, yes? So it is not necessarily, let's say, a new node in the industry because we are not allowed to talk about specific customers, but it is, let's say, the most advanced node for that specific customer. So we are engaged with several customers, and for them, it's their most advanced three d NAND node. And what you do see is that depending on the customer, their ramp is 3 to 6 months delayed, and that impacts our outlook.
But it has there has not been a change in our, let's say, outlook for those customers as soon as they ramp, yes, because also we have quite a number of seeding machines for their, let's say, initial wafer starts that they have been building. Those tools, that installed base has been building throughout this year so far according to plan.
Okay. That's helpful. Maybe coming back on the comment on the outlook, just to understand it. If I look at the current backlog, that's around EUR 175,000,000, but that will decline in Q2 sorry, in Q3, given that the order intake will be below the sales level. It then the end Q3 backlog, will that be a good indicator for your Q4 sales?
Or could you do better in terms of sales?
Let me try to answer that, Peter.
When you look to the backlog that we have at the end of June, so it's highly likely that the whole backlog will be delivered in the course of 16. That's normally the case. Moreover, when you look to the bookings that you will receive in the Q3 or so much of those will be delivered in the course of this year. Last but not least, orders which will come in, in the course of the Q4, a part of that will also benefit to the sales turnover in for the whole of 2016. So only a part will be delivered in 2016 2017.
So I think that gives you that the color that you were looking for.
Yes, yes, it is. And maybe one follow-up on gross margins. I have the impression that in terms of revenue mix, there will be a shift from more memory in H1 to more logicfoundry in H2. Will that affect your gross margin? No.
I think that as far as gross margin is concerned, the same strategy we have set in all our calls in the last quarters that the margin the gross margin of the different product or product lines is not that doesn't show a big difference. There are certain applications for certain customers which have a lower margin or a higher margin than others. But in general, that's the margins are more or less the same for most of the customers.
Okay. Thank you.
Yes, you're welcome.
We will now take our next question from Matthias Santacerta from Morgan Stanley.
Hi, gentlemen. So one question more on memory. So it's a bit similar to previous call question. What is the demand for NAND to drive the ALD market again? So is it simply migration to smaller nodes?
Or is it more building stacks on top of each other? And what could be the potential time frame for that? And second question, so we see that ASML seem to have more and more traction on EUV. Is that something that could help NAND to go back to planer again and to benefit to you guys?
Okay. So to start with your last question, we don't believe that changes in the schedule of EUV will influence our forecast on NAND revenue. So that's we and to dive into your first question, to give you a little bit more color on the NAND markets as it relates to our single wafer ALD business. We do think that already in 2016, the demand for 3 d NAND related single wafer ALD will outgrow the demand for planar NAND related single wafer ALD. And we don't think that any schedule changes for EUV or so will impact that.
And yes, we do our opinion is that our belief is that with next generation higher stack devices, that the complexity of these structures will increase. And that as a result of that, the need for single wafer ALD will increase. And of course, the speed with which 3 d NAND will contribute to our sales will, of course, depend on the success of our customers to ramp the yield of upcoming versions of 3 d NAND devices. It's not completely in our control. The best thing we can do is engage with them in the intense way we have been doing for the last couple of years.
And then based on that, we trust that the payoff will come. And based on that, we our current estimate is also that we do expect a strong double digit percentage increase in market size, single wafer ALD market size year on year looking at the 3 d NAND segment. So based on, let's say, the relationships and the R and D engagements that we have been building with several three d NAND customers over the last couple of years. I trust that answers your questions, Matthias.
Yes. One follow-up. So do you think planar NAND will come back? And is there some planar NAND, for example, in your long term guidance for $1,500,000,000 in 'eighteen, 'nineteen? We no,
we did let's put it this way, plainer than that, it's not instrumental in the estimates that we used to get to our estimate for the growth of the ALD market in the next 3 to 4 years. It has not played an instrumental role.
We will now take our next question from Tamaki Berenberg.
Hi Chuck and Pete. Thank you for taking my question. The first one is actually, I have a big picture question. As a smaller semi equipment company compared to your peers, your performance is definitely seems more volatile than them and everyone has been seeing DRAM related weakness. So just wondering from a big picture perspective and long term strategy perspective, do you think you are still better off as a smaller niche focused player instead of being a part of the large company?
That's the first question. And the second question, I have a follow-up on 3NAND.
Okay, Tammy, yes. So the first question is very simple. We don't think it is a factor at all from a fundamental point of view. And this is just a matter of timing of specific parts of the industry, specific customers. But you see that regardless of that those dynamics, if you look at the P and L from a distance, it's still a very healthy P and L, healthy gross margins, healthy bottom line, Just a timing issue and we should not get too nervous about that.
Okay. And the second question is about 3 gs NAND. Basically, all the other equipment makers have been reporting good 3 gs NAND momentum and some of them have been talking up the 3 gs NAND capacity requirement for this year. And you have mentioned that your version of 3 year NAND is delayed by 3 to 6 months. I'm just wondering, is that because of technically it's difficult to release that new version of design?
Or it is that the chip maker is actually realizing they can use ALD at a later stage instead of now?
I think it's Tammy, it just has to do with 2 factors. First of all, the fact and again, we have been very consistent in our message on this for several quarters. It's not something that we explained to you now because our numbers are somewhat worse maybe than the industry as a whole. We have always said that our engagement in 3 d NAND, and that's what I after the fact regret, but we started 3 or 4 years ago with that engagement, yes? And we were until that time mainly focused on the planar NAND, DRAM and the whole logicfoundry segment.
And you know the inception of new technologies takes 3 to 4 years from, let's say, the initial engagement with customers. So as a result of that, we have just not been engaged in ATM with, let's say, the mainstream Atrium activities at this moment in time in 2016. But we do expect that as, let's say, the engagement of our customers to their new nodes is going to Atrium. But finally, our engagement that at least, as we said, started 3, 4 years ago, finally are going to pay off. So in that respect, we are indeed delayed compared to some of our peers.
And as a result of that, we yes, we don't perform in 3 d NAND in a similar way as our peers at this point in time.
But is that 3 to 6 months delay because of their design delay? Or it's because
No, no, no. Yes, let's just to add that. It's just so we now are dependent on how quickly they can get their design, their current designs to decent volumes based on the speed with which they can optimize their yields. And that basically so the 3 to 6 months only has to do with that. It has nothing to do with our technology, the qualification of our technology.
There are no, as far as we know, no issues in that respect. It just has to do with their overall device yield. And as far as we know, that has nothing not specifically to do with our ALD technology.
Okay. And last question is, basically, it is early August. What is the opportunity for ALD demand from foundry and logic market to be turned out to be better than expected or DRAM market start to kind of recover slowly towards the end of the year? Do you see any chance for that to happen? Or do you think this year is pretty much can be concluded as a double digit down year?
Year? Yes. I
think the biggest impact, of course, is that DRAM. And as you compare it to, let's say, the outlook that we made, let's say, a few months ago, the delay of DRAM from later in the second half moving out to earliest in the course of 2017, that has, of course, a big has had a big impact. And then the delay of, let's say, HVM ramp of 3 d NAND, as we discussed through several questions early on, has had an impact. At the same time, our logic foundry has been pleasantly strong, very pleasantly strong. And of course, what we are doing to optimize the result as much as we can for the year is, of course, to yes, to push the demand and the capacity for logic and foundry as best as we can and try to get any upside possible in terms of timing of 3 d NAND ramping with our current engagement as much as possible to benefit from that as much as possible.
And that's the only thing that could change our outlook in a favorable way. The DRAM part, we don't expect to change in any way. That's basically the color we can give, TENNY. And we are looking, of course, at any other opportunities longer term we may have in 3 d NAND. There's so much happening there.
And through our engagements in ALD, we're looking at what opportunities longer term there are to engage in a stronger way from a company point of view in 3 d NAT. But that will not likely affect the bottom line for this year.
Okay. Thank you.
Okay. You're welcome, Tanja.
Our next question is from Chetan Udeshi from JPMorgan.
Yes. Hi. This is Sandeep Deshpande.
Just a couple of questions, if
I may. Firstly, on the memory market, if you this year, you're seeing some impact on the transition to NAND. But with EUV happening, at the moment, DRAM is using multiple patching, which is possibly using some of your ALD technologies. Will that have an impact in the future on when DRAM begins to switch in 2018, 2019 to EUV, will that have an impact on your ALD demand? And then secondly, with regard to market share in ALD, you're saying that despite the issues in 3 d NAND and DRAM, your market share remains stable this year.
One of your competitors who is also trying to break into the ALD market says that they are gaining share in some processes. Can you just comment on overall where how your position is at this point in terms of the new processes that are coming in, which will possibly use ARD and how you see your positioning in those processes using ARD? Thank you.
Yes, yes. Okay. It's a clear question. Well, first, on the market share, let's start with the last question. First, We have shared with you before that in logicfoundry, the switch from 16, 14 to 10 has for us been much more significant than the switch from 20 to 16, 14.
As a result of that, we have been gaining a substantially higher number of ALD layers at the 10 nanometer node. And as a consequence, a higher share of wallet in the LogicFoundry segment, we believe. And at the same time, there is also a mix effect because our market share in memory is strong, but somewhat lower than in logicfoundry likely. And for 2016, the memory part of ALD market is clearly dropping in a significant way. So those two factors together make us believe that our market share in 2016, regardless from announcements on new products that some of our competitors are making, our market share likely will increase in 2016.
So some of the introductions and our commitments that competitors are making relate to mainly to longer term future. Then your question on EUV. Yes, I would like to relate it to maybe the our predictions on the ALD market as a whole. And if our predictions that the market has a bright future towards 2018 2019. And yes, we in those projections, put it this way, the patterning part has a contribution.
But in our current estimates, it's not the driving factor in those forecasts. So for us, whatever happens in EUV is not, in our opinion, going to change our view, our fundamental view that there is big growth opportunities for the single wafer ALD market in the next 3 to 4 years. Does that answer your question?
Yes. Thank you.
Okay. You're welcome.
We will now take our next question from Jim Fontanelli from RSA.
Yes, good afternoon. Thank you. A couple of questions. One, I wanted to dig a little deeper into your order guidance for the Q3 and understand exactly what the drivers of that are insofar as I understand your commentary around memory. But specifically, if we look at the logic and foundry market, specifically TSMC and Intel, they still have the majority of their budget to spend in the second half to get to full year guided CapEx.
And it looks to be in the region of a $0.70 sequential increase in CapEx spend in the second half for both of those players to get to their guided number for the year. And against that backdrop, it's surprising to see your new order number down so strongly to the midpoint. So I'd like to give a little bit more color around that and why you're not seeing order flow from those 2 big customers. And then secondly, I wanted to understand in your commentary around 10 nanometer logic market share, whether within that you are including 7 nanometers because clearly, we're seeing some main playing, I guess, within the industry around nodes, both TSMC 7 is effectively an extension of 10. And I want to understand whether within your market your strong market share predictions for 10 nanometer, you are also including the soft 7 for the foundry players, which is effectively an extension of 10 with no change in litho or little change in litho.
Yes. So yes, you said no order flow in first question, no order flow in logicfoundry.
That's not
what we try to get across with you because we definitely expect order flow in the second half of the year. You may not like the order guidance for Q3, but the only thing I can say beyond the formal guidance that we gave through our press release is that we don't expect the Logic foundry order flow to disappear in the second half. On the contrary, and what we did say is that we do expect logicfoundry revenues sales to be stronger in the second half than in the first half. So related to your 7 nanometer, we absolutely have strong activities ongoing with the Foundry segment on their 7 nanometer program. There are even tools already on the floor with our customers that are working on 7 nanometer programs.
And indeed, it's very likely that in case that segment would accelerate introduction of 7 nanometer that we could see traction further traction of that in 2017. But that depends on the timing of our customers. The only thing we can do is to prepare ourselves with all the ALD, let's say, solutions that we have available to accommodate our customers. And I think from that point of view, we are in very good shape.
Okay. Maybe just a follow-up on your first answer there around logicfoundry orders. Yes, I don't think I was implying that you weren't going to see any logicfoundry orders at all. I was just wondering why you weren't seeing or apparently not seeing a strong I mean, orders for the Q3 should be reflecting CapEx spent over the second half for the logic and foundry sector. And I understand DRAM is slightly down sequentially.
I'm just trying to get a better feel for how half on half your order flow from LogicFoundry is looking.
Yes. One way you also should take into account is that there is also LogicFoundry activity present in the current order book in the backlog that has not been delivered yet. So that's what you have to take into account. And what you also have to take into account that activity level in logic, foundry also differs quarter by quarter. It's not necessarily a linear pattern.
Or I can confirm you, it is definitely not a linear pattern. So Q1 looks different than Q2, and Q3 could look different than Q4. That's what you all have to take into account.
Sure. And but I guess your the implication for guidance for 2017, which is the BLV market overall is going to see a strong increase into 2017 for all the reasons you've outlined, then the implication now, I guess, is we should start to see order flow for that, obviously, not in the Q3, but probably in the 4th or Q1. Is that a fair implication?
I can follow your reasoning, but we're just not used to give order guidance beyond 1 quarter.
Okay. Thank you. Yes.
You're We will now have our next question from Philippe Golde, Kempen.
Yes, good afternoon everybody. You are guiding for a strong improvement in the total ALD market in 2017. And I was wondering what kind of visibility you actually have on that and what your expectations maybe also per segment are in that? What do you really need for that to really happen? And I was also wondering whether you expect to maybe grow your market share further in that year with that strong growth?
And my second question is actually related to your reiterated or expectations for the total market by 2018 2019. Why do you believe that this development that you announced today is actually not impacting the timing of that doubling in those next couple of years?
All right. Okay. So first of all, what visibility you have on 2017? Yes, of course, it's yes, the visibility of today and based on the relationships we have. And to provide a little bit more color, we do expect our assumptions there are that LogicFoundry will continue to contribute in 2017 on further building at 10 nanometer capacity and also working on 7 nanometer, yes, especially the foundry segment, preparing for 7 nanometer.
We took that all into account in our assumptions for the single wafer ALD market for 2017. We do assume that the DRAM market will recover to some extent in 2017. And we do expect that the VNAND, as we discussed earlier, that there is a double digit percentage increase in the contribution of BNAND to the single wafer ALD segment also year on year. So that has driven our statement on the 2017 market. Then the second question is on, yes, on the doubling of the market.
What we can say there is that we at this moment in time, with the visibility we have now, we are still confident that the LOD market's potential to double is we are still confident that, that is will happen. And but the key is that we are believe in the structural growth drivers. Based on the applications that the different industry segments likely will need as they go to the next generations of their devices. What is difficult, of course, for us to predict, and this year provides evidence for that, is that yes, the market performance in a specific year is more difficult to predict and dependent on specific timing, on customer investments. And as we have seen indeed this year, for instance, with the timing of the DRAM investments that are pushed out completely of the year.
So in that respect, yes, are we 100% sure that timing wise, we are right on the statements, the amount of color that we try to give to the market on the ALD potential. No, we're not completely sure. But we think it gives a good feel to the market of what the potential of single wafer ALD is compared to the baseline of 2015. And that view as of today has not changed as a result of, let's say, the overnight press release.
Right. And a quick follow-up, if I may, on the first one actually, if I hear you talk about the logic continuing to contribute strongly, that sounds to me like you may be able to maintain your market share under those assumptions in 2017?
I think that's too early. That's too early to say. And we think there's a strong contribution of logicfoundry, yes, the combination in 2017. Dynamics between Logic and Foundry can differ also per part of the year or by quarter. And we feel confident that we are in a good position to benefit from the demand in that segment.
What the contribution will be from some of our competitors in 2017 It's difficult to predict in detail. But we feel confident, again, that based on the stronger relationship that we have built from 2016, 2014 to 2010, that we are also in a good position to build on that towards 7. And yes, based on that, it translates a good traction in that part of the market into also a good performance in our OIBDA.
Okay.
Thank you. The strong contribution of that segment for our P and L. All right.
Cool. Thanks.
Our next question is from Mark Hesselink, ABN Emerald.
Yes, thank you. First one, maybe some explanation in the if I'm correct and what you have said already is that your market share is better in logic. And in memory, there is some competition. Is there a difference in memory on the DRAM side or the V NAND side on where the competition is and where do you see them? And secondly, the second question is on your R and D cost.
We've seen it in Senegal last again and some new applications. Do you expect this to continue that you invest to continue to invest in new applications? Is that something you're planning to speed up with the expected growth going into next year? Or should we see something more similar that we see at the moment?
Now as you okay, so we'll start with your last question. Well, you can see based on our R and D levels that we continue to invest in R and D and that you should read that we continue to invest in staying and leading innovative company in this industry. And we don't let ourselves get distracted by, let's say, these kind of quarterly deviations in our performance. We have a clear strategic road map from an R and D point of view in our engagements with our customers, and we're holding on to that. And yes, of course, our ambition is to even accelerate the time to market of new solutions.
So that's one. Then the other question is of competition in DRAM versus VNAND. Yes, as we said, VNAND market is signal wafer ALD V NAND market is hardly there. So and DRAM has had significant volume in the past. So that's where we experience most of the competition if you compare these two memory segments.
Okay. Then but maybe then as a follow-up, in your in what you see when your discussions with your clients going forward, do you think that competition will have also some traction in the VNAND area? Or do you think there's more like what you're seeing right now in Logic that you're way ahead of the competition?
There's too early to tell, but I would be surprised if some of our competitors will not also be focused on the V NAND segment. The only thing we can the only thing we use for our estimates is we try to estimate for ourselves the size of the single wafer ALD market and the contribution to the whole single wafer ALD market as a whole by year. And we try to assess our bottom up potential with the different customers year by year. And we will learn more as we go. Okay?
You're welcome.
Our next question is from Jonathan Reiss, Apis Capital.
Yes, hello. Maybe two questions on some other things. Maybe how you see development going forward of your other business, especially Epitaxy, the right part. I might remember you also forecast the growth opportunities there going forward. So for what do you see for the second half or for the coming 2 years in this space?
And yesterday in the call of Besi, Besi Schroederscheid of VSLI said, say, expect assembly equipment market in the next 2 years to quote double digit. So far, you can maybe give us a light on this. Should we therefore expect even better years ahead for ASMPP? Hello?
Yes. For PT, I think yes, for PT, I think yes, we really have focus on the way they reported themselves. What we like about their reporting is that their sales has gone up significantly. Their bookings have gone up significantly, both strong double digit numbers. So yes, and their position in quite a few segments of the market has improved.
Their margin has improved. Of course, there is also some volatility in the margin. But there are a few good elements in their report. But how their market how that market will evolve going into next year, I think it's for us, as an investor in them, too early to draw any conclusions. And I think also for them, for themselves.
But maybe your only a short follow on on this, but you feel that they have maybe improved their positioning because they lost some market shares in the past producing, say, AMSO way back?
So I think in certain markets, they have clearly we think they have improved their position. And maybe, yes, we can follow-up on some of your questions through Investor Relations. But I think for a great level of detail, I propose we refer you to their own press release. But in some markets, in some of their products, we view that they really have improved their position, and they also explained that, that in parts of the LED market, they have done a lot better. In parts of the CIS market, they have done a lot better.
So in general, their back end equipment, they have been performing pretty well, both in terms of top line and in terms of margin development.
Okay?
So I trust that provides some more color. Yes. And the other questions on the other product lines, I think in Epi and channel. Epi this year so far has been developing favorably. So at a much lower level than, of course, ALD, but it has been developing favorably.
The vertical furnace has had continued healthy, stable contribution to both top line and bottom line. And we're very eager on our other product lines on PCV, epi and furnace looking at we're very focused looking at inflection points ongoing in several parts of the market to see how we can engage and benefit from that in the next couple of years. But it's too early to share any more details in an investor conference call on that. But I can guarantee you that we are very focused on it. And as soon as we see any contribution to the P and L, we will share it with this audience.
Okay. Thanks a lot.
Yes. You're welcome.
We will now have our next question from Robert Sanders, Deutsche Bank.
Yes. Good afternoon, gentlemen. I just had a question, just a follow-up really on 3 d NAND. You flagged 3 d NAND device yield issues as contributing to a delay. I was just wondering how many customers that relates to?
Yes. The only thing I want to say is a few, but I don't want to say too much more.
Okay. And then just following up on 64 Layer and beyond. I mean, if you let's say, you ship into a couple now, how many can you ship into out of the big five looking ahead to 2017, 2018 of the 3 d NAND guys? Thanks.
How many can you have? Can you repeat your question?
Yes. I was just saying, when you think about the big five three d net guys that are out there, clearly your content or the amount of applications you're shipping into are fairly small today. But when you look ahead to 64 layer and beyond, how many of those big five do you think you get a reasonable contribution into?
Our mission, of course, is to get engaged with all of them. We are engaged with all of them in one way or another. And what we were talking about in terms of, let's say, short term revenue contribution, it's a few. But we are engaged with all of them, with all 5 of them in one way or another.
Okay. Thanks.
Yes. You're welcome.
Our next question is from Sedwan De Jong, NIBC.
Good afternoon, gentlemen. A few questions left. Maybe to get an idea on the revenue segmentation of the first half, Could you give some more color on what part was DBM, what part was NAND, what part was LogicFoundry? Then maybe looking somewhat further into the future with the push outs that we've seen in 2016 in DRAM orders, should we also expect that for 2017, you will be able to grow faster than the market. And finally, moving towards getting all around structure, which we're already mentioning earlier in the call.
We're talking now about beyond 2019, I think. But what implications could that have for ALB in your view? And at Semicon, we have also heard there were implications for Epi as well probably in that area. Could you maybe add a little color on that as well for further questions?
Can you repeat the second question one more time?
The second question was on 2017. With the push outs that we've seen in DRAM for this year, is it fair to assume that in 2017, you will be able to grow faster than the market?
Okay. All right. So on LogicFoundry revenue distribution. Again, like we expect overall the second half to be stronger than the first half. And we also expect and we also shared in the call that logicfoundry, we expect second half to be stronger than the first half.
So that's an important driver for, let's say, the overall sales of the company to become stronger. And I can say about the different segments. In our current forecast, we expect that to be the case for both individual segments also, yes, for Logic and Foundry for each of them also, yes? So that's on that question. Yes.
And then yes, you said on the market development. I don't want to go too much into whether we can of course, our ambition is to outgrow the market. If the single wafer ALB market is going to grow in a significant way, and it's going to significantly outgrow the WFE market in 2017. And there's a great opportunity for us to do so also, yes? But I don't want to run ahead and give financial guidance for 2017.
There is a fair chance on that.
We are aiming to do so. If again, if a single wafer ALD market will significantly outgrow the overall UAV market, we have a great chance to do so. So then on gate all around, yes, that's earliest going to play a role as of, let's say, 5 nanometer. But again, earliest depending on what our customers ultimately do. But we do see indeed also beyond ALD in areas like Epi.
Also indeed there is potential also for those product areas to grow further beyond the current market sizes. So you're right on that. All right.
Okay. You're welcome.
Our next question is from Jagwar Bajwa, Arete Research.
Hi, guys. Thanks for taking the questions. Could you just clarify how you see the catalysts for DRAM and NAND orders coming back? Is that 18 nanometer DRAM capacity being added? And is it 64 layer to 3 d NAND?
Can you repeat one more time?
So I just wanted to understand the drivers that will catalyze your DRAM and NAND orders. Is that 18 nanometer for DRAM market and 64 layers for 3 d NAND market?
Okay. Now I understand. I'm sure you were not talking about end user drivers, but what nodes were Orders, yes. Yes, yes, yes. Okay.
So for DRAM, it could be 18, it could be in principle, 1x node, 18 is the next node. But it depends on what strategy our customers will choose, whether they will choose 2018 as the next node or whether they will, based on the delay in 2016, will skip 2018 and go to 2016. But it is definitely the 1x node, yes? That will be the next node. Beyond 2021, that has been the latest real meaningful volume note that we have been engaged in.
So that's for DRAM case. And then for NAND, it can be a mix. It can be a mix between 4864.
Okay, great. And maybe just on Logic and Foundry. When I look at the backlog and sales so far that you've had, has that come from is that quite concentrated among your customers? Or is that quite broad adoption for 10 nanometer so far for your orders? And then also, if I look at the foundry market, roughly we could expect that to maybe get to around 250 ks wafers at peak capacity.
Is there any indication to kind of go by to how many tools you've shipped so far and how much capacity maybe you are through that process node?
So the 250 ks for what segment were you talking about?
For foundry, I mean typically we see around that size as a peak wafers node, 250 ks wafers a month. I mean, can you give us any indication of how many tools you've shipped into the foundry segment so far? 15 nanometer that is.
Yes. We're not used to giving the amount of tools, but I our perception is that we are far away from the foundry segment to reaching 250 ks wafer starts a month as far as our intelligence can tell for that specific note.
Right.
Yes. So that's that provides you more color. That's and it's maybe helpful for you. And then logicfoundry, the amount of players. Well, it's clear that only a few players basically define the strong demand in that combined segment.
It's only a handful that defines that demand.
And can I just maybe sneak in one more? For 10 when you look across those players, the small number of players, I mean, generally, are you finding a consistent level of content for ALD across those customers? Or do you find that actually some of them are adopting ALD in more quantity than others? Thanks.
For Foundry, your question was related to foundry?
For logic and foundry, I mean, we're seeing quite a few differences now between the process made at 10 nanometer, I guess, and the way that these designs are being done. Are you finding the ALD is quite a consistent the amount of ALD used is quite consistent in terms of the number of layers? Or is actually is there a kind of a direct amount?
No. Yes. There's a difference between the customers. There are different ways of implementation. Of course, there are similarities, but there are also clear differences and also in the clear differences in the amount of layers.
Okay. Thank you.
Yes. You're welcome.
As there are no further questions, I would like to turn the call back to the speaker for any additional or closing remarks.
Okay. Well, I would like to I thank you. This was quite a dynamic quarterly release, also a healthy dynamic call. I trust it has provided you more color and it has also contributed to the healthy credibility and trust in the company's performance. And please follow on, follow-up on any remaining questions you may have through our Investor Relations channel And looking forward to meeting quite a few of you on one of our next roadshows.
Thanks again for your attendance also on behalf of Peter van Lommel and Handwasserdrup. Thank you very much again.
That will now conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now