Good day, ladies and gentlemen, welcome to the ASM International first quarter 2016 earnings conference call. For your information, today's call is being recorded. At this time, I would like to turn the call over to Victor Bareño, Director of Investor Relations. Please go ahead.
Thank you, Bertrand. ASM issued its 2016 first 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. These include, without limitation, statements relating to revenues, margins, cost reduction programs, liquidity, break even levels, strategies, and economic conditions. 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.
All forward-looking statements are based on information as of today, April 22nd, 2016, the company assumes no obligation to update these statements. With that, I will now turn the call over to Chuck del Prado, President and CEO.
Victor, thank you, welcome everybody to today's 2016 Q1 conference call. Thank you all for attending. Before I start with a review of the first quarter results, Peter van Bommel, our CFO, will first provide some explanations about our reporting and the change to IFRS. Peter?
Thank you, Chuck. As we announced on February 23, we have changed our quarterly reporting as of January 1, 2016, from U.S. GAAP to IFRS. The main difference between the results reported under IFRS and U.S. GAAP is in research and development expenses. As you might know, under U.S. GAAP, the research and development costs were expensed as incurred, but under IFRS, development expenses that meet certain criteria are required to be capitalized. The subsequent amortization and, if applicable, impairment of such capitalized development costs are included in R&D expenses. In 2015, R&D expenses amounted to EUR 90 million under IFRS and EUR 95 million under U.S. GAAP. The difference in R&D expenses is also the main explanation for the difference between the operating and the net result in 2015 under IFRS and under U.S. GAAP.
Excluding the write-off of the remaining 450 millimeter assets, which was EUR 3 million under U.S. GAAP and EUR 13 million under IFRS, the R&D expenses amounted to EUR 92 million under U.S. GAAP and EUR 77 million under IFRS. The capitalization of development costs is included in the cash flow from investing activities. In 2015, capitalization amounted to EUR 30 million. Free cash flow is the same under U.S. GAAP as well as under IFRS. In the balance sheet, the main difference concerns the capitalized development cost under IFRS, which stood at EUR 72 million at the end of December 2015, with a corresponding deferred tax liability of EUR 11 million. This year, in 2016, we still publish comparable results under U.S. GAAP, which can be found also in the annex of this quarter's earnings release, where we also show the differences between the results under U.S. GAAP and IFRS.
As from 2017, only results based on IFRS will be reported.
Thank you, Peter. Let's now review our first quarter financial results. Revenue in the first quarter amounted to EUR 142 million, a decrease of 2% compared to EUR 145 million in the fourth quarter, and a decrease of 12% compared to EUR 162 million in the first quarter of 2015. Revenue in the quarter was slightly above the midpoint of our guidance, which was a range of EUR 135 million-EUR 145 million. Our ALD business continued to be the key revenue driver. By customer segment, revenue in the quarter was led by memory, still building on the strength in 2015, followed by logic and foundry. The gross margin remained at the solid level of 43.9% in the first quarter, slightly down from the 44.8% in the fourth quarter, but up from 43.1% in the first quarter of last year. The slight variations in the gross margin are mainly explained by mix differences.
SG&A expenses decreased by 2% compared to the previous quarter. Reported R&D expenses decreased by 44% compared to the fourth quarter. As Peter just explained, the main differences between IFRS and U.S. GAAP concerns the R&D expenses. The main reason for the sequential decrease in R&D expenses was the fact that the fourth quarter included impairment charges of EUR 16 million, of which EUR 13 million for the write-off of the remaining 450 millimeter assets. In the first quarters of 2015 and 2016, there were no impairment charges. Amortization of capitalized development expenses amounted to EUR 4 million in the first quarter. The capitalization of development expenses amounted to EUR 7 million during the quarter.
The total R&D expenditure, excluding amortization and impairment, but including capitalization of development expenses, amounted to EUR 24 million in the quarter, down 5% from the fourth quarter and up 17% compared to the first quarter of last year. The year-on-year growth in the total R&D expenditure is, next to currency movements, explained by an increase in customer requests for new applications and engagements similar to last quarter. We generated operating income of EUR 19 million in the first quarter with an operating margin of 13.2%. This compares to operating income of EUR 17 million and an operating margin of 12% in the fourth quarter, excluding the one-off write-off charge. Financing result in the quarter was EUR 11 million negative and mainly consisted of a translation loss.
As a reminder, we hold a substantial part of our cash balances in U.S. dollars and the translational effects of currency changes is included in the financial result. Looking at ASMPT, results from investments which reflected our 40% share of the net earnings from ASMPT amounted to EUR 6 million for the quarter, down from EUR 13 million in the first quarter of 2015. In the fourth quarter of last year, the result from investment was EUR 2 million and EUR 4 million excluding the one-offs that were included in the ASMPT results in that quarter. These figures exclude the ongoing amortization charge, which amounted to EUR 7 million in the first quarter. For the full year, this charge is expected to be approximately EUR 27 million. In the first quarter, ASMPT sales fell quarter-on-quarter by 2% to HKD 2.9 billion.
Compared to the first quarter of 2015, sales fell by 6%. ASMPT reported bookings of $409 million for the first quarter, an increase of 8% compared to the fourth quarter, and a decrease of 12% compared to the first quarter of last year. Turning back to ASMI consolidated operations. ASMI's net earnings on a normalized basis amounted to EUR 12 million in the first quarter, down from EUR 18 million in the fourth quarter. While operating profit improved compared to the fourth quarter, the net result was impacted by the EUR 11 million translation loss on cash held in foreign currencies in the first quarter. In the fourth quarter, we still recognized translation gain of EUR 6 million and the fourth quarter result also included a tax gain of EUR 5 million.
Our new orders in the first quarter were EUR 164 million, up 21% from EUR 135 million in Q4, and up slightly from the level a year ago. Orders were at the higher end of our guidance, and the guidance was between EUR 150 million and EUR 165 million. Orders were mainly driven by our ALD business. In terms of the other product lines, the Vertical Furnace also had a decent contribution to the order intake during the quarter. Looking at the breakdown in bookings by industry segment, logic represented the largest segment in the first quarter and showed a strong increase compared to the fourth quarter, driven by demand related to the 10 nanometer technology node. The memory sector, which led our bookings in the last six quarters, represented the second largest segment in the first quarter, roughly on par with the foundry segment.
Orders in the foundry sector were also driven by demands related to the 10 nanometer technology node. Orders in memory, both in DRAM and NAND flash, dropped compared to the fourth quarter. Now looking at our balance sheet and cash flow. At the end of March, the cash position decreased to EUR 416 million, down from EUR 447 million at the end of December. The decrease was mainly the result of EUR 12 million negative currency effects on the cash position and EUR 32 million in share buybacks, partly offset by positive free cash flow generated during the quarter. Net working capital stood at EUR 113 million at the end of March, up slightly from EUR 111 million at the end of the fourth quarter.
The number of outstanding days of working capital measured against quarterly sales increased slightly to 71 days at the end of the first quarter, compared to 69 days at the end of December. On the back of continued healthy profitability, we generated free cash flow of EUR 5 million during the quarter. In the first quarter, we spent EUR 32 million to repurchase almost 900,000 of our own shares as part of the EUR 100 million share buyback program that we announced last October. As of last week, we completed approximately 48% of the program. The number of outstanding basic shares decreased to approximately 61.3 million shares at the end of March, down from 61.7 million at the end of December and 62.6 million shares at the end of the first quarter 2015.
As announced last February, we have proposed a 20% increase in the dividend to EUR 0.70 per share for approval at our AGM, which is scheduled for the 25th of May. This marks the sixth consecutive year that we pay a significant dividend to our shareholders. Let's look at our ALD business in a little bit more detail. ALD continues to be a strong and fundamental growth driver for our company. As mentioned earlier, the start of 10 nanometer investments in logic foundry strongly supported our bookings during the quarter. ALD is an important enabler for logic and foundry customers to make this transition. Next to the high-k metal gate applications, customers require more precise and conformal deposition for several critical steps, such as for certain spacers and liners to build these advanced and complex FinFET structures. In addition, the shrink to 10 nanometer also drives demand for multiple patterning.
With more of the critical patterning steps at 10 nanometer requiring spacer-defined multiple patterning based on single wafer ALD. In total, the number of ALD layers for 10 nanometer, for which we have been selected, has increased substantially compared to the previous technology nodes. As customers have started to make the first investments in the volume ramp of 10 nanometer, our confidence has strengthened that with a continued solid and leading market share, we are well positioned for a significant increase in the share of wallet with key customers in the logic foundry segment. In the memory market, we already have a strong track record in multiple patterning, where 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.
At the next technology node, the 1x node, the number of layers that require ALD-based multiple patterning will further increase. We are well-placed to serve these increased patterning requirements of our DRAM customers. While DRAM spending for the industry as a whole is projected to be weak this year, we expect to benefit as soon as customers will invest in the 1x node transition, which we currently assume to start in the later part of 2016. In NAND flash, customer investments are increasingly geared towards 3D NAND. As we explained in previous calls, ALD-based patterning requirements are substantially less in 3D NAND compared to planars. At the same time, we are strongly focused on non-patterning applications in 3D NAND, and we expect that these applications will increasingly contribute to our revenue in the second half of 2016 and going into 2017.
As we already discussed with the release of our full-year results, in 2015, the ALD market increased again at a solid double-digit rate. Gartner and VLSI Research have recently estimated that the ALD market grew in excess of 20% in 2015, putting it among the fastest-growing market segments within the WFE market. We believe the ALD market, the market for single wafer and mini batch ALD, remains on track with our forecast to double over a three- to four-year period. That is from more than $600 million in 2014 to at least $1.2 billion by the 2017, 2018 timeframe. In summary, the prospects for the ALD market in the coming years continue to be strong. As a market leader, we believe we are well positioned to benefit. Next, I would like to spend a few words on Intel's Preferred Quality Supplier or PQS Award.
We were one of the companies that received this prestigious award last month, and we received it for our performance during 2015. As a supplier of ALD, PVD and diffusion equipment. Intel's PQS achievement requires outstanding performance in quality, cost, and availability, technology, customer service, as well as corporate responsibility aspects. Next to our long-standing technology partnership, this achievement reflects many years of focus on operational excellence, across all key areas of our business. We were very honored to receive this award from this very well-respected customer in the industry. At several occasions in the last couple of years, we already highlighted, particularly the actions that we have taken in the areas of manufacturing and the supply chain. But we also made substantial progress in other areas, such as the product development process, customer service, and talent management, which all contributed to our improved capabilities and results.
Going forward, operational excellence remains a key focus, and we expect that ongoing improvements in this area will support us in further broadening our engagements with key customers in this industry. Looking at the semiconductor end markets, conditions continued to be mixed during the quarter. With continuing worries about the macroeconomic environment, softness in the PC end markets, and slowing growth in smartphones, the semiconductor industry recorded negative year-over-year growth in the first quarter. On the positive side, for the industry in total, the excess inventory position seemed to have improved. Against this backdrop, market watchers such as Gartner and VLSI currently predict a low to mid-single-digit decrease for the wafer fab equipment market in 2016. Technology transitions are a key driver behind WFE spending this year. Looking at the different segments, it is expected that the spending in the logic foundry segment is healthy in 2016.
Key driver in this segment will be the transition to the 10 nanometer node. As far as the DRAM sector is concerned, market watchers still expect a significant double-digit drop in spending for this calendar year compared to the strong level in 2015. Compared to a weak first half, we assume customers to start initial 1x DRAM investments in the later part of the year. Although visibility for overall DRAM spending in the second half, at this moment in time, is still limited. NAND flash spending is forecasted to be up in 2016, with the majority of spending focused on 3D NAND. Let's now look at the company outlook, as we shared with you last night European time as part of our Q1 press release.
For Q2, we expect sales between EUR 130 million and EUR 140 million, while we expect an order intake of somewhere between EUR 145 million and EUR 165 million, both on a currency comparable level. Based upon the current visibility, we expect a much stronger second half as compared to the first half of 2016. The revenue outlook for Q2 is at EUR 10 million lower compared to the outlook we gave on Q2 with our full year earnings release in February, and the decrease relates to some shifts in revenue between quarters. We consider the underlying trends at the same time unchanged compared to two months ago. At this time, we're happy to answer any questions you may have.
All right, Bertrand, we are ready for the first question.
Thank you. Ladies and gentlemen, if you wish to ask a question at this point, please press star one on your telephone keypad. Please ensure that the mute function on your phone 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. Once again, ladies and gentlemen, please press star one to ask your question. We'll take our first question from Peter Olofsen with Kepler Cheuvreux. Please go ahead.
Yes, good afternoon. Chuck, I wanted to come back on two things you mentioned in your introduction. First, on the 10 nanometer ramp in logic foundry, you highlighted some of the driver for increased ALD intensity. Could you maybe quantify the impact? How much will the number of ALD steps increase compared to 16 nanometer FinFET? With regards to DRAM, you flagged the possibility we may see some initial 1x investments towards the end of this year. DRAM pricing is pretty weak right now. What gives you the confidence that we may actually see these investments in DRAM picking up again?
Okay. Peter, yeah, thanks for your questions. Okay, on 10 nanometer ramp, to quantify that, As shared before, we do see a very healthy traction in the logic foundry segment based on a few factors. First of all, as a result of more complex FinFET structures, we see additional demand for ALD. Second to that, as we mentioned before, we see strong demand occurring now for patterning on single wafer ALD in the logic foundry segment. That was not the case until 16, 14 nanometer segment. As a result of that, we see the amount of layers that we are involved in, and it differs a little bit by customer, but we see that increasing with really more than a handful of layers going from one node to the next.
That is an important driver, and based on that, we expect logic and foundry business to be even stronger in the second half than in the first half. That is very nice to see from a revenue point of view. I trust that this provides you a little bit more color on the logic foundry side. On the DRAM side, it's just based on the dialogues with our customers. In DRAM in general, I think in the first half, there's still some spending that we benefit from in the 20nm node, 2x nm node in the Q1, Q2 time frames. That is going to reduce significantly. We expect that towards the end of 2016, that really, the industry will have to start investing in the 1x nm node. That is an assumption we make at this moment in time, based on our assessment of the market.
The only thing we can say is that all our product development or our positioning of our products has been focused on that upcoming ramp. Yeah, we view that we are well positioned as soon as customers start to invest there. All those assumptions have been the basis for our statements on the forecast for the year.
Okay. I think you also mentioned that memory was leading in Q1 in terms of sales. With still some DRAM spending in Q2, will memory still be the largest sub-segment then in Q2 in terms of sales?
Could you repeat that one more time, Peter?
Well, you mentioned that memory in terms of sales, was the leading segment in Q1. You also said that there will still be some DRAM spending in Q2 related to 20 nanometer. Does that mean that in Q2, memory will still lead in terms of sales contribution?
No. I meant to say, especially if you look at the first half, the center of gravity lies in Q1. As of Q2, our view is that the logic foundry will really start to lead the momentum.
Okay. That's clear. Maybe on the ALD market, do you have any idea where you ended up in 2015 in terms of market share?
Yeah. That's an understandable question. I think in ALD, likely our market share has gone down somewhat and in percentage-wise. We have been very consistent on that message all along, that based on competition stepping up in the ALD market, that we would expect our percentage market share to go down somewhat. I think that is reflected in the market research data that is being shared on the ALD market. As such, that is not a surprise to us. There is some unfavorable currency impact in that number. Maybe if you would take that out, the market share loss would likely be a little less than the way it shows now. Still, there is some market share loss, but that is in line with how we predicted the competitive landscape to develop. We do think that our fundamental position in the market has not changed.
Our fundamental opportunities also for the next few years as a leader in ALD have not changed as a result of that reporting. What you also have to keep in mind, that we are still the broadest ALD provider in the market as a whole. There is competition here in a specific segment, specific customers, specific applications of the market. We are still by far the leader in terms of the broad number of applications that we have. Next to that, if you look at the ALD market, the single-wafer ALD market for 2016, yes, we do expect that the biggest driver for single-wafer ALD in 2016 could very well be logic foundry. If that really becomes true, likely our market share will increase in 2016.
Okay. That sounds quite positive. My final question on the outlook for the full year. In the presentation on your website, you refer to Gartner forecasts, which show a 2% decline this year for the wafer fab equipment market. Well, you've guided for a much stronger second half. Do you think your second half will be strong enough for ASMI to at least perform in line with the overall wafer fab equipment market?
Yes. There are basically two questions. First one is, how confident are we on the stronger second half? The second one is on the resulting WFE market share. Just to provide you a little bit more color, clearly you've seen a strong increase in our backlog in Q1. Based upon our guidance as provided for Q2, we expect a further increase of the backlog in Q2. With that, we expect to start the second half with a higher order backlog than we had at the beginning of the year and we have at this moment in time. Combined with that, we expect logic and foundry business to be stronger in the second half than in the first half. Our assumption now also is that memory also will increase sequentially in the second half. First of all, NAND flash.
We expect that in the second half and going into 2017, we expect the revenue contribution of 3D NAND for us to increase. The level with which that will happen depends on the speed of, let's say, yield ramp-up at specific customers in higher stacks. We made also certain assumptions on first investments in the 1x-nanometer node in DRAM as we just discussed. Taking that all into account, combined with the fact that memory orders on average tend to come in relatively late, mostly in the quarter that they also need the equipment. All that taken together has made us give you the guidance on the second half. That provides a little bit more color on how we came to our longer-term guidance.
Yes, in terms of WFE market, overall we are confident that we have the potential, in the next couple of years, to grow our position and share of the WFE market. For the 2016 calendar year specifically, as we said, we expect our market share in ALD. We would not be surprised if our market share in ALD would end up higher than in 2015. How our performance relative to the WFE market as a whole looks specifically at the end of this calendar year, that depends, of course, on the exact timing of investments of specific industry segments and the timing of specific customers. The bottom line for us is that we are as confident as we were three months and six months ago on the strategic positioning of the company and its products.
That will give us a good opportunity over the next couple of years, not specifically in one, two, or three quarters, give us a great opportunity to outgrow the market.
Okay. That's very helpful. Thank you.
We will now take our next question from Tammy Qiu with Berenberg. Please go ahead.
Hi, guys. Thank you for taking my question. To start, I would like to get some clarity on the foundry trend, because when I look at the momentum of the other guys, which is strong in logic and foundry industry, foundry order has been leading the trend over the past two quarters. From your perspective, I remember last quarter you were talking about the order momentum wasn't really driven by foundry. It was mainly driven by memory and followed by foundry and logic. This quarter, you are saying the order momentum is driven mainly by logic, then memory, then foundry. From your perspective, based on current visibility, is next quarter going to be a massive foundry quarter or is it something happening after? How should we view this trend going forward?
Yes. Well, the short answer is we do expect foundry to become much more visible in the next couple of quarters in terms of revenue and also in terms of bookings.
So from found-
Also, I can tell you that compared to, let's say, two months ago, our visibility on the logic foundry segment potential for the whole year has significantly improved. Based on that, we have become even more confident on their spending for the calendar year 2016.
Okay. Do you think the 10 nanometer spending from the foundry perspective will impact your order mainly from potentially Q3 and throughout beginning of 2017, or is it too optimistic?
Well, I don't want to give too much guidance, but it's clear that logic kicked in, the logic momentum in 10 nanometer kicked in a little bit earlier than the foundry momentum. That's both in terms of bookings as well as in terms of revenue. You see that in the course of the year, foundry will catch up. That's all I would like to say about it.
Okay. Last question is that, from foundry perspective, and also logic, I would say, you have been seeing competitors try to penetrate in this market. From the current visibility or feedback you have from customers, do you think they are using your competitor's ALD tools because they try to see what they are offering just for a diversification purpose, or they are seriously thinking about buying the tools from an alternative supplier?
Well, we have seen activity in, as we have said on earlier calls, we have seen activity in memory, and we have seen a clear activity in logic from competitors. Let's say in memory, some clear penetration from competitors happened at the 2x nm node already, and you see that partly reflected in the ALD market share numbers that were published by research firms. In the logic segment, it's very likely that in the 10 nanometer node, there will be some penetration from competition in certain areas. At the same time, as you know, as we shared before, our number of applications and our number of layers engagement is going to significantly increase, going from 16, 14 to 10. That is as a result of, as we shared when discussing the overall ALD market size, there's room for more players to benefit.
We don't necessarily suffer in terms of growth from competitors picking up some opportunities in the logic segment going to 10 nanometer. We're not that worried about that. We're focused on the successes that we are making towards 10, and based on that, building on that increased penetration level at 10 towards 7. That's what we are focused on. For sure, there will be some successes claimed by competitors in 10. That's fine.
Okay. Thank you, guys.
Yeah, you're welcome.
We will now take a question from Chetan Udeshi with JP Morgan. Please go ahead.
Yeah. Hi, Chuck. A few questions from my side. You are talking about second half to be much stronger than first half, but do you think the strength in second half will be strong enough to have flattish sales for the whole year as consensus is looking for at the moment? The second question is on your market share in ALD, which I found quite interesting that you are saying you expect market share to be higher this year versus last year. What is driving that? Is that new applications where you've seen greater adoption than some of your peers on logic side, or is it on memory side? If you could give us some more information on that, could be very helpful. Thanks.
Yeah, Chetan. On the first question, I tried to provide already some color on our guidance for the second half earlier in the Q&A. The only thing is, again, I'm not going to give any more quantitative guidance on the second half because we're just not used to doing that. The only thing I can repeat in a shorter version is that based on the backlog in Q1 and the guidance we gave for Q2, you can expect that we'll start the second half likely with a higher order backlog than we have now. That provides opportunity for growth in the second half compared to the first half. Secondly, we expect logic and foundry to be stronger in the second half. We made certain assumptions on memory for the second half.
Again, we see NAND flash developing traction in the course of the year and the engagement we have with customers in higher stacks. Of course, the volume depends on how quickly they can develop their yields to acceptable levels. We see definitely in the course of 2016 and going into 2017, that developing. Then again, if it's two or three months earlier or later, that's just too early for us to tell at this moment in time. For you and for us, the only thing that should matter ultimately is the company positioning itself well? Because based on that we should look at this company. In that respect, we feel good. Also for DRAM, again, the exact timing, we made certain assumptions, but it could differ one or two months earlier. It could go two or three months out. We don't know.
The key thing that should matter to us all is whether the company is well-positioned for the 1x-nanometer node with its equipment and has the right competitive position. There we feel that we have done our homework. That's all I can say on the outlook for the year. Then on market share ALD 2016. Well, maybe my answer was not clear enough earlier on, but it's based on the fact that we assume that in the single wafer ALD space, the biggest driver for ALD, even as demand in 2016, will be logic foundry. In logic foundry, our engagement is significantly increasing, going from 16, 14 to 10. Based on those two observations, we would not be surprised if ultimately at the end of the year, our ALD market share in single wafer ALD will have gone up.
Because the relative spending in memory is expected only to increase towards the end of the year in the single wafer ALD space. That's the reasoning behind our statement, Chetan.
Thanks. Thanks a lot.
Okay, you're welcome.
Our next question come from Philip Scholte with Kempen. Please go ahead.
Yes, good afternoon everybody. Following up on your confidence on your ALD share, you say that your confidence about your strategic position has strengthened. Can you talk a bit about why that exactly is? Is that actually driven or related to specific segments like logic foundry or memory? Is that just actually across the board? I can imagine maybe with specific designs or production tools that specific decisions have been taken. Can you talk maybe a little bit about that? My second question is regarding the outlook you provide for the second half, but the bookings outlook you give for the second quarter is actually still, well, let's say modest in that respect. How can we reconcile those two?
Philip, thank you for your question. It's difficult to add much more, because you said our strategic positioning. Again, we tried to give color earlier in this call on how we view our position in logic foundry. We are building a position in V-NAND, as we shared in this call and also shared in earlier calls. We view to be well-positioned for the next investment cycle in DRAM. Based on that, our view is that we have a good position. Otherwise I'm going to repeat everything. Then on the second quarter, the guidance on the second quarter, you said, "If I look at the second quarter order guidance, I cannot completely recognize." We tried.
In our opinion, it's most important not to only focus on the guidance for our Q2 orders, but to focus on the bigger picture that we try to give in answering the questions that were raised earlier. It's difficult for me to add much more.
Okay.
Marc?
Cool. Thank you.
You're welcome, Philip.
We will now take a question from Marc Hesselink with ABN AMRO. Please go ahead.
Yeah, thank you. Maybe firstly, maybe as a clarification on the guidance question. If I sum it up, is it correct that you say that logic foundry will be stronger in the second half of the year, NAND will be stronger in the second half of the year, and DRAM will also be stronger in the second half of the year? On, let's say the memory segment, it's a bit still uncertain how it's really going to turn out given the shorter lead times. Is it correct if I sum that up like that?
Yeah, Marc. I think revenue-wise, I think it's fair to say logic and foundry is expected to be stronger in the second half than in the first half. Based on our current visibility, we do expect DRAM to be stronger in the second half than in the first half, from a revenue point of view. From a NAND flash point of view, likely revenue will be higher, but that depends a little bit on the timing. It depends a little bit on the timing of how well, how quickly our customers can get their yield improvements on track for the higher stacks. That influences the timing of the NAND improvements in terms of revenue. In terms of bookings, it could show a little different pattern, but it's too early to tell that. I trust that answers your, provides you a little bit more color, Marc.
Yeah. It's very clear now.
Okay.
maybe the other question that I have is, you're still increasing the applications of ALD. Do we have to expect that also the R&D cost will continue to move up?
Yeah, as we already stated earlier, Marc, we are managing our R&D costs as an average in the low to mid-teens. When we see opportunities or when our customers come back to us with requests, then for sure we are going to facilitate that. We expect that's part and parcel of the reason why we have said, okay, also when our sales are increasing, we expect that R&D will gradually go up.
Okay, thanks. Final question is on looking beyond 10 nanometers in your current discussions, what do you expect for 7 nanometer? Do you expect still a lot of multiple patterning in that stage, or still a bit early to tell?
Well, based on what we know, You mean in logic foundry, yeah?
Yes.
Yeah. Logic foundry, well, we don't foresee that a dramatic reduction or so in 7 nanometer for multiple patterning, because I assume you were referring to EUV.
Yes, that's correct.
Yeah. EUV could, best case, hit the market at seven. If it hits the market, the overall expectation from everybody is that the impact will be limited, if at all, at 7 nanometer. That a stronger influence could happen at 5 nanometer. As we said before, then you should compare that not with the level of the patterning market today, but with level of the patterning market at that moment in time. That's way too early to assess now.
Okay, thank you.
Yes, you're welcome.
We will now move to Matheus Santos Silva with Morgan Stanley. Please go ahead.
Good afternoon. Thank you for taking my questions. Do you expect 2016 to be a slow year for the ALD market in general compared to 2014 and 2015? What are the main negative factors behind that development? Also, the second question. If we look towards 2017, what you believe will be the main drivers in terms of 10 nanometer DRAM or 3D NAND or planar NAND? Thank you.
Well, okay. On the ALD market as a whole, how will 2016 develop? We tried to share before, logic foundry will be likely the most important driver for the ALD market in 2016. With likely a contribution towards the end of the year of DRAM, and a gradually increasing contribution from vertical NAND. The logic foundry, number one, and DRAM and V-NAND likely increasing towards contribution towards the end of 2016. In 2017, it's going to be an interesting year because we expect the 10 nanometer ramp not to be finalized in 2017. We trust the memory markets will then develop in a more meaningful way compared to 2016. Of course, in this industry, a lot can change in six to nine months.
That is the current assumption that is being made of the market, that 2017 will be a stronger year for the industry as a whole, and as such, likely also for ALD in 2017 compared to 2016. Is that clear enough, Matheus?
That is clear. Thank you very much.
Okay. You are welcome.
We will now take a question from Hans Slob with Rabobank. Please go ahead.
Yes, thanks for taking my question. Firstly, do you expect that 3D NAND can be already a key contributor to your second half performance? Could you elaborate a little bit more on the number of 3D NAND applications you are developing and your wallet share? Secondly, how is ASM ALD technology positioned for the 3D XPoint technology, and when could this be impacting, let's say, your order intake?
Yeah, share of wallet and number of applications. I think I understand the question from your point of view, it's too early to elaborate on that in public. What we can say is, like we said before, in the NAND market, our engagement in planar was strongly focused on patterning-related applications. Now going to vertical NAND, the amount of patterning layers is significantly going down, our focus over the last couple of years in R&D engagement with customers has been strongly on developing traction in non-patterning related business. We trust that that is going to pay. The customers that we are engaged with, really there, we're working on multiple layers of non-sacrificial layer penetration as these customers will develop volume at higher stacks.
That indeed, again, depending on the timing of their ramps, the business volume, the dollar volume, will increase towards the end of the year and going into 2017. You were also referring to some developments on XPoint, CrossPoint, emerging memory. Yeah, it's too early to make, let's say, business comments, P&L related comments on that. The only thing we can say is that we are engaged in those developments with our customers, it really depends on when the customers of our customers will really make these markets take off. So far, the visibility on that is still limited. Again, our R&D engagements are there. From that point of view, we have done our homework and are ready to engage as soon as our customers' products get traction in the market.
Okay, thank you.
You're welcome, Hans.
We will now take a question from Jim Fontanelli with Arete. Please go ahead.
Yeah. Hi, good afternoon. I guess we're coming to the end of your time now, so I'll keep it reasonably quick. You talked a little bit about NAND engagement, and kind of renewing revenue opportunity for 3D NAND at 48 layer. Is it too early to talk about the relative opportunity size between 48 and 64 layer, given that clearly Samsung is going to be moving to 64 by the end of the year? It would be useful if you could, maybe not at a quantitative level, but certainly at a qualitative level, give us an idea of how you see the broader ALD opportunity at 64 layer versus 48 as a starting point.
We do expect in general, not on specific customers, but going from 48 to 64, that that is going to increase the potential market for us.
Within logic, you gave us a little bit of sort of quantitative guidance in talking about more than a handful of increase in your opportunities between 14, 16, and 10. How do you think about the magnitude of opportunity between 48 and 64?
Yeah. Jim, that's a very good question. It's too early for us to provide you color on that. We're learning a lot through our intense engagements with our customers now. I think also, let's say the final word is not out because quite a few customers are making now these current stacks work. So we know what kind of engagements we have on, let's say, for a next stack node, but it's far too early, not only for us, but also for our customers to decide what they will finally insert into their final product.
Okay, fair enough. For DRAM 1X, as you mentioned, there's one customer moving to 1X over the second half. I guess there's been process lockdown on that, right? You now have a clear idea of what layers you're exposed to for 1X, or is that still indecision?
Well, I think we have a reasonable visibility on what likely the needs are for 1X. Yeah, ultimately, the evidence comes when the POs are there. Of course, our customers, from a technology point of view are already pretty far in their development cycle, as some announcements in the market already have shown.
Do you think you can hold share from where you are at 20 to 1X? You talked about relative share opportunity in foundry and logic and increasing your share there. How do you see that for DRAM as we move to 1X and 1Y?
The only thing I can say is, as we said earlier in the call, that there is some healthy competition in the memory market. We do expect competition will be there also down the road. We view that we have a good opportunity to get a healthy chunk of the business in that node. I would like to leave it at that.
Maybe very quickly, just on a couple of potential opportunities outside of your traditional areas of business. One, if you could give us an update on where you think the roadmap is and sort of the potential commercial implementation of selective deposition, and whether you've seen any increased confidence in that, maybe over the last quarter or over the last half. Secondly, whether you're looking at additional ALD opportunities outside of semi. For example, OLED encapsulation is an obvious one, whether that's something that you're spending any R&D money on.
Jim, I don't want to go too deep into, let's say, revealing our specific R&D programs. I think both your questions are very good. General answer I can give is that our primary focus is semiconductors. That is the primary focus of the company. You were also asking some questions on selective and so on. I don't want to go into too much detail in an investor conference call on specific R&D programs. I trust that you do respect that, although I also very much respect your deep knowledge of the industry.
Sure. No worries. I can understand. Do you think?
Sorry. We have to move on.
Yeah, fair enough.
Okay. Jim, I propose that maybe further questions you have, you follow up with Victor offline.
Yeah, no worries. I appreciate your time. Thank you.
Okay. Thank you.
Our last question today comes from Stéphane Houri with Natixis. Please go ahead.
Hello, can you hear me?
We can hear you very well, Stéphane .
Okay. Thank you. Actually, I've got two questions. The first one is a kind of a housekeeping question. We've seen some negative impact on Forex in Q1 on your net cash position because it's in USD. Will we have the same kind of impact going forward? That's the first question. The second question would be a bit different than has been asked before about the full-year guidance. What is the kind of level of maximum turnover you can generate with your current organization on a quarterly basis? Thank you.
Well, let's start, Stéphane , with the last question. Our belief is that this moment in time, there's no constraint in terms of capacity to meet, let's say, any potential demand this year or next year. Yeah? Let's focus on this year. We don't see that that could be a constraint for the company. That's on the second question. On the first question, Pieter?
Let me answer that question then, Stéphane . As you might remember from previous calls, we have said several times, that we are basically a dollar company reporting in euros. That is one of the reasons why we keep most of our cash in US dollars. As you might recall, what has happened in the past quarter, the average development of the dollar as compared to the fourth quarter was relatively stable. That is the reason why when you look to our sales and our result numbers, which we account for that against the average dollar development. That's not the case with balance sheet positions. The balance sheet position, especially for the cash hold in dollars
You saw that the U.S. dollar against the EUR was developing towards the end of the quarter, less favorable. While we had a U.S. dollar-EUR at the end of December last year of 109, we have now a U.S. dollar-EUR at the end of March of 1.14. When you have then that translation difference, you book that as a result. That has been a loss of EUR 11 million, and that could fluctuate over time. When I had to do the counting today, you might recall that the U.S. dollar is a little bit more favorable, so that has a positive thing. We think that, given the sort of company that we are, that we have to keep that cash in U.S. dollars. That will show movements quarter-on-quarter, because it's simply a translation difference. I trust that that answered the question.
Absolutely. The last point, could you give us a quick update, if you can, on your position on the 40% stake you have in ASMPT? Thank you.
There's no change in the position of the company with respect to our stake in ASMPT.
All right. That's very clear. Thank you very much.
You're welcome.
As we have no further question, I would like to hand back the call over to Chuck for any additional or closing remarks.
All right. Well, I would like to thank you all for the extensive amount of questions that there were today. I trust that we were able to answer them as well as we could. Of course, as always, thank you very much for attending today, and please feel free to contact us through Victor Bareño on any further questions that you may have based on the call or on any other information as part of the press release that we shared overnight. Thank you again, and I trust we stay in touch. Okay, have a nice day. Bye-bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.