At this time, I would like to turn the conference over to Victor Barranio, Director of Investor Relations. Please go ahead sir.
Thank you, Liana. ASM issued its 2015 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, aazm.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 vary materially from those expressed or implied in such statements.
These include without limitation statements relating to revenues, margins, cost reduction programs, liquidity, breakeven levels, strategies and economic conditions. Please refer to the ASM press releases and filings with the U. S. Securities and Exchange Commission on Form 20 F and 6 ks for more information on the risk factors that could affect results. All forward looking statements are based on information as of today, July 30, 2015, and the company assumes no obligation to update these statements.
I will now turn the call over to Chuck Del Prado, President and CEO. Chuck?
Thank you, Victor, and thanks to everyone for attending our Q2 2015 results conference call and for your continuing interest in the company. After a review of operations, Peter von Bulma, our CFO, will join me in answering your questions, of course. So let's start with a review of our Q2 financial results. Performance was again solid in the 2nd quarter with revenue, gross margins and operating profit at the highest level ever for front end operations. Revenue in the 2nd quarter increased to a new record, up 24% from the 1st quarter and up 35 percent compared to the Q2 last year.
At €201,000,000 revenue in the quarter was slightly above the top end of the range of €180,000,000 to €200,000,000 that we had guided for. Our ALD businesses again drove the increase. By customer segment, the revenue stream was led by memory, particularly DRAM followed by foundry and then logic. The gross margin increased to 45.1%, also a new record high and up from 43.3% in the Q1 of 2015 and 42.3% in the Q2 of last year. The increase was driven by relatively strong product mix and further efficiency improvements.
SG and A expenses rose by 16% compared to the previous quarter and by 24% year on year. However, as a percentage of revenue, SG and A dropped to 12% compared to 13 percent in both the Q1 of 2015 and the year ago period. R and D expenses increased by 15% sequentially and by 52% compared to the Q2 last year. As a percentage of sales, R and D amounted to 12% in the quarter, down from 13% in the Q1 and up from 10% in the year ago period. Apart from a currency impact, the increase in R and D was primarily driven by requests from customers related to new opportunities, similar as in previous quarters.
The 2nd quarter results also included restructuring charge of €500,000 Operating result increased strongly to €42,000,000 in the 2nd quarter with an operating margin of 21%. This compares to operating income of 29 $1,000,000 in the Q1 and $27,000,000 in the Q2 of last year. Financing result in the quarter was €12,000,000 negative and primarily consisted of a translation loss of a similar size. In the Q1 of this year, the financing result still included a translation gain of €28,000,000 As a reminder, a substantial part of ASMI's cash balance is held in U. S.
Dollar. The translation loss in the 2nd quarter mainly reflected the depreciation of the U. S. Dollar at the end of this period as compared to the end of March. Results from investments, which reflects our share of approximately 40% of the net earnings from ASMPT, improved to €21,000,000 for the quarter, up from €13,000,000 in the first quarter €16,000,000 in the year ago period.
These figures exclude the ongoing amortization charge, which amounted to almost €7,000,000 in the Q2. For the full year, this charge is projected at €27,000,000 ASMPT sales increased in the 2nd quarter to HKD3.8 billion dollars up 22% from the Q1 of this year and up 9% compared to the Q2 of last year. ASMPT reported bookings of US494 million dollars for the 2nd quarter, an increase of 6% compared to the 1st quarter, but a decrease of 22% year on year. This decrease was mainly caused by a sizable order in Q2 of last year from one particular customer. Now turning back to ASMI's consolidated operations.
ASMI's net earnings on a normalized basis amounted to €47,000,000 in the 2nd quarter, down from €66,000,000 in the 1st quarter and up from 40 up from €40,000,000 in the 2nd quarter of last year. The €40,000,000 drop in the translation results from Q1 to Q2, as mentioned, is the main reason for the sequential decrease in net earnings. Without translation results, the net earnings on a normalized basis would have increased from €39,000,000 to €59,000,000 Our new orders in the 2nd quarter continued to be solid at a level of €167,000,000 up 5% from the 1st quarter and up 39% year on year and was in the expected range of between €160,000,000 €180,000,000 Similar to revenue, orders were mainly driven by atomic layer deposition. In terms of customer segments, bookings were led by the memory sector, followed by foundry and then logic. Within memory, bookings were spread among multiple customers in the DRAM segment and to a lesser extent NAND flash.
Let's now look at the balance sheet and cash flow. The cash position decreased to €363,000,000 at the end of June compared to €423,000,000 at the end of March. This decrease was primarily the result of the cash spent on the share buyback and also dividend paid to ASMI shareholders and negative currency effects, partly offset by the dividend received from ASMPT. On an absolute basis, net working capital rose to €149,000,000 at the end of June, up from €123,000,000 at the end of the first quarter. This increase was mainly due to an increase which in turn was caused by the higher revenue level.
The number of outstanding days of working capital measured against quarterly sales decreased slightly from 68 days at the end of March to 67 days at the end of the second quarter. We generated €11,000,000 in operating cash flow, down from €36,000,000 in the prior quarter. On the positive side, operating profitability increased substantially, but this was largely offset by the earlier mentioned increase in working capital. During the Q2, we completed the €100,000,000 share buyback program. We spent the remaining part of €40,000,000 to repurchase approximately 900,000 of our own shares.
Since we announced the program last October, we have bought back a total of nearly 2,600,000 shares at an average price of €38.55 per share. The number of outstanding basic shares decreased to approximately 61,900,000 at the end of June, which compares to 62 point 6,000,000 62,600,000 shares at the end of March and 63,700,000 shares at the end of the Q3 of last year, just before and that was just before we started the buyback program. In addition, we paid €33,000,000 in dividends during the quarter after the shareholders meeting in May approved our proposal for a 20% increase in dividend per share. Dividends received from May's MPT during the quarter amounted to €25,000,000 So we announced today our intention to delist our ordinary shares in the U. S.
From NASDAQ. We have taken this decision because of the low and declining trading volume. We plan to have these shares traded on the OTC market in the U. S. After delisting from NASDAQ, ASMI will continue to maintain the level of disclosure expected by the international financial markets.
Let's now look a little closer at our ALD business. The strong performance in the Q2 again shows that ALD is a solid growth driver for our company. Today, ALD has become a critical and enabling technology for the manufacturer of virtually all leading edge logic and memory devices. ALD supports our customers to stay on Moore's Law and to transition to the next technology nodes. In the memory sector, our ALD solutions for multiple patterning have supported the further scaling of DRAM and NAND flash devices over the last several years.
For logic devices, our ALD high ks solutions have now been extended for 4 device generations. As highlighted during earlier calls, we have steadily expanded our customer base in the past 1 to 2 years beyond the leading device manufacturers. We now supply our ALD products, our ALD solutions to all of the top 10 CapEx spenders in our industry. The strong increase in our ALD products revenue in the 2nd quarter was supported by a sizable contribution of several of these newer customers. With the advantage of more than 15 years of developing ALD, improving our technologies and building customer relationships, we are confident we have a strong ALD offering in place.
We remain sharply focused on further expansion of our pipeline of new ALD applications. An example of an innovative application that we highlighted at our technology seminar earlier this month at Semicon West is the use of PLD dopedoxides for fin doping in the 14 nanometer mode. This is just one example where ALD technology supports our customers in addressing the challenges of ever smaller geometries in 3 d device architectures. We expect that the number of ALD applications will continue to increase with the transition to the next technology nodes. In memory, we expect the spacer defined multiple patterning where we have a strong position with our ALD solutions will be a strong driver of ALD market growth.
Spacer based multiple patterning, which has so far mainly been used in memory segment of the market, is also on the roadmap of customers in the foundry and logic sector. We believe we are well placed to address these growing patterning opportunities in the logic and foundry segment as well. In addition to the patterning opportunities in logic and foundry, we expect that successive generations of FinFET devices will require a steady increase in the number of ALD based process steps. As a market leader, we believe our company has strong opportunities to benefit from continued solid growth in the ALD market in the next few years. So looking at the market environment, momentum in a number of key semiconductor end markets has recently weakened, evidenced by reduced growth expectations for the smartphone and PC markets, by increasing inventories in the semiconductor supply chain and by a weaker pricing environment in the DRAM sector.
Market watchers such as Gartner and VLSI have accordingly taken a somewhat more cautious view, projecting the wafer fab equipment market in 2015 to be somewhere in between flat and a low single digit growth. Memory spending in the second half of this year in DRAM on the 20 nanometer node is expected to be lower compared to the first half of the year, while spending in NAND flash is expected to stay at the level of the first half of the year with the share of 3 d NAND compared to planar NAND likely to increase towards the later part of the year. In the logicfoundry sector, equipment spending in the second half of this year is expected to be at a lower level than the first half and spending is expected to primarily focus on development tools for 10 nanometer. So let's now look at yes, the detailed outlook we gave as part of our press release overnight. For Q3, we expect sales to be between €155,000,000 €170,000,000 on a currency comparable level.
And the Q3 order intake on a currency comparable level is expected to be in the range of between 100 and is on timing of next technology nodes insertions of new equipment capacity is still limited. At this moment, we are happy to answer any questions that you may have.
Thank you. We
are now ready for the first question.
Thank you.
A couple of questions, starting with memory. I think in the Q1 call, you talked about 3 d NAND, where you were seeing several potential applications for ALD. It seems that some of the NAND makers are going to ramp 48 layer 3 d NAND going into next year. And also some of your peers seem to have some traction there going into the September quarter. When will we start to see this in the ASM numbers?
Is there already something in your Q3 sales and order guidance? Or is it something we will start to see going into next year?
Okay. Yes. As we said before, compared to planar NAND current generations of 3 d NAND are still relatively light on ALD in our view. But we also see that the need for ALD is likely to increase indeed in future generations of 3 d NAND. And we have been very, very focused on increasing our presence with those customers based on the much better position that we have built in memory over the last 5 years through the expansion of our existing ALD applications.
And as a result of that, Peter, our belief is that based on those engagements that we expect an increase of our revenue for 3 d NAND applications going into next year. But we don't expect 3 d NAND to be a significant contributor to the P and L in the second half of this year.
Okay. That's clear. And then maybe on the announcement earlier this week of a new memory technology, Micron and Intel. Is that a technology with specific process steps that may require ALD?
Yes. You clearly follow the trends very well in the industry. And of course, yes, we have to be aware of these trends also. And we, of course, our customers don't allow us to talk about specific programs with them. But the best way to answer the question as a result is that we look at next generation memory developments such as resistive memory and other technologies, the introduction of new materials and very often also deposition technologies play a very important role because as a result of those new materials, ALD can be an enabling technology to bring those materials into play.
And that is exactly those are exactly the developments that we are focusing on in our engagements with customers. That's I think the best way to answer it Peter without going into details on our specific engagements with customers.
Okay. That's clear. And then my final question on the logicfoundry side of the business. Where do we stand in terms of equipment selections for the 10 nanometer node? Have these selections already been made?
Or is it still are the evaluations still going on?
Yes. Well, in principle, it's clear that if you look at the 10 nanometer node investments, they for logic and foundry, we don't expect those to hit the P and L this year. Looking at the timing of those customers at this moment in time, we expect those to mostly hit high volume. I'm talking about high volume investments in the course of 2016 for 10 nanometer for logic and foundry. But at the same time, although that is the case, a lot of those customers are already pretty far in their selection because they are, well in a series pretty far in their, let's say, in their development and integration process of the devices that should hit the market that they should start building in high volume in the course of 2016.
So yes, so we think we have a pretty good view of what our position is in preparing for in those customers preparing for that node. And as a result of that, in general, our view is that we believe that the number of applications that we are engaged in with those customers for 10 compared to 2016, 14 we believe will significantly increase. I trust that answers your question.
Yes. Maybe to clarify, so the number of applications you are involved in, that will increase?
Yes compared to 16, 14.
Okay. And to what extent will you have to share these applications with other equipment vendors where you may have still been the single supplier at 14, 16? Could you repeat that one more time? Yes. The question is that the number of applications is going up.
At the same time, we see companies like LEM, AMET also looking to get a bigger share in the ALD market. So if you take the number the higher number of applications and market share developments, what then the net result will the overall opportunity be bigger than it was at the 14, 16 nanometer?
Well, of course, well, again, I we have said that we I'm not talking about the ALD market that taking 2014 as a baseline that in 3 to 4 years we expect that market to double, yes, from US600 million dollars to over US1.2 billion dollars Yes, at the same time so and we also said that competition is starting to focus more and more on those markets. So it is logical that competition also here and there will take will increase their piece of the pie. But since that market is going to double, we believe that we are in a great position to still outgrow the industry in the coming years through our leading position in ALD at this moment in time. So I think competitors may go through an improved position, but we are eager to maintain our position as a leader in this industry. Yes?
So I
hope that answers your question.
Yes, it does. Thank you.
Okay, Peter. You're welcome.
Thank you. And we take our next question from Maxime Malley with Natixis.
Good afternoon. Thanks for taking my question. First one would be regarding the order trend. You mentioned last quarter that you were expecting a digestering in order in Q3 and I guess that's what your guidance shows. But that's for Q4 or Q1, you see a rebound coming from logic foundries from what you just said about 10 nanometer, it was 2016, sorry.
Flash NAND is not expected to complete so much in H2 and DRAM is expected to go down. So your first take on Q4 order intake, is it that it should remain at around a flattish level compared to
Q3? I think it's I'm not going to give a more specific indication on Q4 because then we should have done that in the press release also. The only thing yes, the only color we gave is with regard to specific numbers is on Q3. And for the rest, the only guidance we gave is that we, in general, in the industry, expect the spending in memory, in DRAM especially to be lower in the second half than in the first half. And in flash for it to stay at the same level as the first half, that's what we expect, but with more of a shift from planar to Vnet.
And we also said that our penetration in VNAND, any, let's say, increase in revenue there will not show before next year. So I think you should combine those data points yourself. And that combined with logic and foundry, where we expect that yes, the investments in 10 in high volume manufacturing for high volume manufacturing will only start to happen in the course of 2016. And the exact timing there, I think all the equipment makers are anxiously looking for more detailed forecast from our customers. But for us, the key thing is besides the timing on whether it's quarter X or quarter Y, the key thing for us is just that we are well positioned, that we are well positioned for the next nodes in DRAM, in logic and foundry and that we gradually increase our, let's say, presence in VNET.
And from that point of view, we believe that we are have been taking the right actions and that we can build on that going into 20 16 'seventeen.
Thanks. Also you mentioned that the weight of Asia is going and new customer notably are taking more and more space. Could you give like original split of your sales and also the weight of your top 3 customer in H1 of
Yes.
I think we I don't know how to answer your question in the best way, but from the top of my head, again, we try in our dialogue with our investors. We always try to show what the top 3 in of our revenue our top 3, what the percentage of total revenue is of our top 3, what the total percentage of revenue is of our top 10 as part of our total revenue. And we also indicated that our top 3 pretty much aligns with the top 3 in the industry and our top 10 also pretty well aligns with the top 10 in our industry. And I think that is something that we achieved since 2012 for the top 3 that our spending in the percentage of spending of total revenue of our top 3 is much better in line with the spending of the top 3 in the industry as a whole. And that since 2014, also the representation of the remainder of the top 10 is much more in line with the industry than ever before.
So I think that indicates how well, especially with our ALD product lines, we have been penetrating the complete top 10 in terms of ranked in terms of CapEx spending. And based on that, you should be able to derive the geographical spending.
Okay. Thanks. And one last question on my side. It was regarding your margins, notably your gross margin, which is pretty high in Q2. And you mentioned some productivity impact.
With sales going down in H2, what should we think about the gross margin evolution and also regarding effects? In absolute term, it has increased significantly even if in relative term, it's a bit below. What also should we input? Or what do you see for the remaining year of the year?
I can only repeat what I've said in previous calls. I mean, when you look to the gross margin, then we have always said that in an upturn, we expect lowtomid-40s. Now we were happy to show now after being on the 43% level for quite some quarters that we indeed are able to go really to the mid-40s, so the 45%. That was caused as what we have written down also in our press announcement by a strong mix in the quarter. Mix as you might know from previous calls that can change within quarters.
We see also that gradually the improvements are coming in from all the logistics supply chain improvements that we have done. So further efficiency was also visible in the Q2. So that is the color I think that I can give about gross margins. So we're still sticking to what we always have said low to mid-40s, a little bit dependent on the exact mix and the actions that we are doing on the efficiency side. When you look to the cost, we are the cost OpEx is strongly impacted, so by currency movements.
So nearly half of the OpEx spendings in Q2 over Q2 last year, the increase on that is caused by currencies. We are spending more on R and D. That's also to facilitate what Chuck mentioned earlier. The inroads that we are making with more applications, more customers, which is eating up more of our R and D spending. So we perceive that as always investments in our future.
And in SG and A, we have seen some costs. It's a combination of 2 things. It's a combination of Q1 offs that we had in Q2. And on the other hand, we have some slightly higher costs going into the into 2015, which is also in line with early indications that we always have given. We expect SG and A to increase a little bit over time, but it's relatively stable in within the year.
The only reason for the delta between Q1 and Q2 this year was
given by the
fact that we introduced or that we changed we had some changes in our long term incentive program in the company. And that meant that for 1 quarter we had not to provide for those costs. So that was the biggest change from quarter to quarter in group plus the one offs that I mentioned. So I think that gives you should give you sufficient color for making the calculations by yourself.
Yes. Very helpful. Thank you.
Thank you. And we take our next question from Chetan Udeshi with JPMorgan.
Hello.
Can you hear me?
Yes, we can hear you very well.
Yes. Hi. I had two questions. First was you've answered previously that you expect competition to take some share in midterm, but I just wanted to hear your thoughts on new tool announcement from AMAT where they are claiming to have structurally different and better architecture for ALD than conventional tools? Any thoughts there?
And secondly, any feeling you could give in terms of what your customers are thinking overall in their in terms of their CapEx spending plan for say Q4 or early part of next year, not quantitatively, but in terms of qualitative comments? Thank
you. Okay. Okay. CapEx Q4, Q1. Okay.
So I'll start with the flight question that you asked. And well, we are I would like to say without going to do a design review of individual competitive tools, which this is not the forum for, of course. I think our answer to the competitive landscape did not change based on the announcement that they made. It would also be a little concerning if we would only learn of this tool as a result of that announcement in May because this tool has been in the field for 1, 2 years already and only the public announcement was done in May. So of course, we try to watch what competitors are doing continuously.
And so the tool was the introduction of the tool was not new to us, but we don't underestimate any of our competitors. And this is just part Chetan of, yes, of our statement that we made earlier that we have seen activity of competitors stepping up over the last couple of years. And that as a result of that in line with our expectations and which is logical that as a result of this market to increase to double in the next couple of years that in selected applications, selected parts of the market, some of these competitors will step up and here and there make some inroads. But and again, we are trying to anticipate these steps from competitors as well as we can. And we are focused to maintain a leadership position in ALD, and we believe in the strengths of our ALD offerings.
And that has not in the last 2 months. Okay. Then on the CapEx, yes, you would like you were asking for a little bit more color on Q4, Q1. Yes, we cannot add much more than what we already shared earlier in the call, the only thing I can repeat is that for DRAM, so far with the visibility we have now, we expect DRAM to at least in the 20 nanometer in the current node that spending will be lower in the second half compared to the first half and that it is still unclear how quickly the industry will really step up for significant investments in DRAM for, let's say, the 1x nodes. That is still unclear.
And most of the time, those decisions are being made pretty short in advance and then equipment makers are expected to anticipate very, very quickly. And the only thing we can do is that we have the right solutions in place for them to choose us. In flash, we talked about earlier, there is a transition ongoing from planar to V NAND. Some initial investments are being done already in the second half of this year, in Q3 and Q4. But as we said, for us as a company, we don't expect to show positive impact of that until we are in the next calendar year.
And for Logic and Foundry, yes, the key thing there is when do the investments and the bookings really kick in for the 10 nanometer node. And yes, the visibility we have now is very likely that will happen in the course of 2016 and not in the remainder of this year. And then the question is how quickly in 2016 will that happen? And again, there we are ready When our customers are ready and we anticipate that in logicfoundry, yes, we will be able to increase the number of applications, ALD applications that we are engaged in compared to 'fourteen, 'sixteen. We believe that we are in a very, very good position there.
So it's just a matter of timing indeed.
Thank you, Jack. It's very helpful.
Okay. You're welcome.
Thank you. We take our next question from Tammy Xu with Berenberg.
Hi, guys. Thank you for taking my question. My first one is on the cycle as well. You have mentioned that logic and foundry is heavily dependent on what the timing for 10 nanometer taken. So does that mean 14 and 16 has already been done from an equipment perspective at least from ALD perspective?
And also regarding the 2 designs, from your experience, what's the factor or specification they care about ALD? Is that throughput? Because we know that's actually the bottleneck for ALD? Or is that they care more about the position level of ALD without thinking about the throughput? And last one is that, what's your thoughts on further share buyback?
Thank you.
Okay, Tammy. Okay. Thank you for your question. So on yes, 2016, 14, yes, we do see some there is some business represented for 2016, 2014 in the second half for logicfoundry. But yes, it's not significant.
It's like we said before, memory has so far been a stronger driver. Has been a stronger driver in the yes, the strongest driver in the first half or in the yes, in the later part of 2014 and basically also in the first half of twenty fifteen, memory has been the leading driver for us, although foundry picked up somewhat in Q1 with bookings Q1 and some deliveries going into Q2. But it has been modest compared to the contribution of memory. We don't expect that to change significantly in we don't expect that to change in a meaningful way in the second half of the year. Then the ALD specs, yes, which specs are important?
Yes, it really I think and that's not to wave to get away with your question in an easy way, but all specs are important. Of course, technical specs are important and throughput specs are also important because technical specs are important when you go to smaller geometries or to more challenging new layers, which existing deposition technologies like CBD, PVD cannot accommodate anymore. But at the same time, if the price tag to it is too high a customer then they may try in whatever way to extend the existing deposition technology. So in that respect, throughput cost of ownership, all aspects of cost of ownership are important. So you cannot ignore any of those aspects.
At the same time, of course, when some ALD applications get a little bit more mature and of course, cost becomes even more important than when an application is initially inserted. So that's about the color I can give you. So we cannot afford in the development of our equipment and also in the CIP of our equipment, the continuous improvement programs on our equipment to ignore any of those aspects. Okay. So that's on that part and then Peter can talk to
I can. Yes.
The question, of course let me broaden a little bit because the share buyback we just finished the share buyback program of the €100,000,000 as you have seen in our announcements. We always have stated that excess cash and we have given indication substantial above the €300,000,000 and should be there for a longer period of time as we expect that we will use excess cash one way or another for the benefits of our shareholders. We have €360,000,000 approximately of cash at the end of June. So we will review on a periodically way as what we have done in the past periods. If this would lead on a certain moment to substantial excess cash amount and then we will decide on which way that we are going to use that for the benefits of our shareholders.
Okay. Thank you. Thank you. We take our next question from Philip Scholte with Kempen.
Yes. Good afternoon, everybody. I have a follow-up question on the potential threat to your market share in ALD maybe. As by how much are you already specked in on the potential 10 nanometer process? Or in other words, what's the threat of your competitors actually eating into your market share at 10 nanometer?
Or is actually the threat more even below that node? And my second question is, are you willing to maybe specify a little bit more the breakdown in ALD between what I call your 2 main applications as in the metal gate and the spacer defined double patterning versus the other applications? Is that already a sizable business within the ALD portfolio? Or is it still small?
Okay. Well, to start with your last question, I think currently patterning and the FinFET, high ks, Malagate area, those combined those combined are in the lead compared to the other applications at this moment in time. But yes, so that is the answer to that. And we just don't want to provide more color on that to the market as a whole. Then, yes, your question on 10 nanometer, I don't know how much more color I can give than we gave in earlier questions, which were basically similar to your question.
Because in my perception, the same question was asked earlier in the call. Again, the 10 nanometer logicfoundry insertion is currently expected by the market to happen in the course of 2016. Yes. So customers are expected to be pretty far along in, let's say, developing their device structure and associated process structure and required equipment to do so. But it does not mean that they may make some changes in the last phase of their development.
But I don't expect them to change, let's say, 50% or even 40% of their current path in the last 6 months of their development program. So and based on that, we make our own assessment of where we think we are in terms of our position in preparing for those customers to ramp. That's the best way to answer your question, Philip.
Yes. Okay. Thank you. Yes. Okay.
You're welcome.
Thank you. And we're taking our next question from Jagwab Bajava with Arete Research.
Hi. Thanks for taking my question. The question is on your SAM expansion, which you expect over the next 3 to 4 years. When we think about the logic and foundry market, that covers up to 2018, your 3 to 4 year guide. So when equipment suppliers are expecting 7 nanometer investment to start for the logic and foundry guys, which as I understand has a step up in space to define multi patterning.
Can you give us a guide as to how much of your incremental $600,000,000 in addressable market is as a proportion for multi patterning applications versus other applications you're talking about?
Yes. We have not I understand that you would like us to provide more color and we are continuously yes, investigating ourselves how can we guide you all, our audience, in a better way going forward. And we will take this input also, this question also to see how we can, yes, improve our overviews in the future. The only thing we can say at this moment in time that it is a very significant contributor to the doubling of the market from 2014 to 3, 4 years out to $1,200,000,000 and beyond. It is a very significant contributor, the veterinary market.
But we are still in that projection, it's partly because, yes, we don't want to share all the details immediately, but it's partly also that we are learning as we speak based on customer feedbacks about new applications that our customers are introducing and then trying ourselves to size those opportunities. So we're also learning as we speak with you and others on this call. Okay? I hope that that's
Yes. And so just one more on so on 3 d NAND, what point layer count does your addressable market for ALD and 3 d NAND get to similar levels as you saw in planar NAND? Are we looking at higher than 48 layers? Or is 48 layers pretty similar to what you're seeing in the container?
Yes. That's a good question. Well, there are 2 elements to the question. 1 is the patterning part, which is now, of course, a very important component for in planar NAND for us, that part is going to reduce significantly. And we've said that on quite a few calls over the last 12 months when we were asked about that.
That part is going to reduce significantly going from planar to 3 d NAND. And so what we are mainly working on now with our customers are completely different applications, completely different applications that are in going from 30 to higher bigger stacks will push our customers to use more ALD layers or other applications beyond ALD that we could serve the market on. That's what we are looking at in our dialogue with our customers and try to learn how we can grow our share of wallet in that part of the market.
Okay. Okay, great. And then just finally, I guess, when you look at 10 nanometer for the foundry and logic guys,
Do you
see that as a bigger opportunity than what you've seen at 16 and 14 nanometer? Because when I look at 16 and 14, it's been a pretty sharp and pretty quick transition. I mean, 2 quarters probably of orders. So I'm just wondering how we see the 10 nanometer progression and maybe the length of that.
Yes. I think it's a very good question. The short answer is the step from 16, 14 to 10, we view as a bigger opportunity than the step from 20 to 16. Interesting.
Okay. Yes.
Okay.
Okay. And just on that then, so was 2016, 2014, has that played out how you're expecting? Or were you expecting that to be a longer?
In terms of number of applications, it's there were no surprises at all. In terms of volume, well, in terms of volume, I think I cannot speak for the whole industry, but I think the industry as a whole might have expected initially. A year ago, might have initially expected that to be maybe a slight, slightly better, slightly better. But there were not 2 big surprises. There were not too big surprises there.
But we always viewed already a year ago, we knew to step from even before 2014, 2016 started, we knew that the step towards 10. We believe that to be a bigger opportunity for us than the step from 20% to 16%, 14%.
Great. Okay. Thank you very much.
Okay. You're welcome.
And we have a follow-up question from Peter Olofsen with Kepler Cheuvreux.
Yes, thanks. Actually a couple of follow ups. Coming back on the discussion on DRAM where you said that it's still unclear when spending on the 1x node may start. But given that 20 nanometer has a cost benefit over the older node, one would assume the DRAM makers to continue these conversions. So what do you expect?
Where do you think your customers are in terms of converting their capacity to 20 nanometer? It seems there is still a lot of upside there. So it will be interesting to hear your thoughts on that. And then maybe looking at 2016, if we were to see a shift in the mix from PEALD for space defined double patterning to new ALD applications for 3 d NAND, could that potentially affect your gross margin at least temporarily as there will be a higher share of new clients, new applications and you may have to go through some learning curve effect.
Okay. So initially on, yes, DRAM20, the only thing we can say is that the cycles of DRAM have pretty have been between different nodes have been pretty consistent so far, the timing between the different nodes. And we don't see any indication why this time that would be different. And for the second half of the year, our current visibility is that the investments in DRAM for 2x are expected to be lower than for the first half. And that's the only thing we can say, Peter, about it.
There's not much more to add. So I think significant meaningful investments in DRAM should come from investments in the next DRAM node. That's the most likely scenario with our current visibility. And then on the PLD gross margins?
Yes. Let me give that some color. I mean what we have indicated in earlier cases is that we expect lowtomidtomid-40s in an upturn. That takes into account also the eval tools. I try to give every quarter as well in our press announcement as in these calls some color on what's going on with the mix.
So it could lead on a certain moment when there would be a lot of new tools and a lot of new customers. It could put some pressure on the gross margin. But as you have seen from the previous period, I think from the previous periods, I think we are rather fine with confirming what we have said earlier that we we have said earlier that we even when that would be the case that we would stick to the low to mid-40s gross margin guidance that we have given in earlier times.
Okay. That is very helpful. Maybe one final question then. In at the Semicon West presentations of some of your peers and competitors, they were talking about growth opportunities in services. Do you consider that to be a growth opportunity for ASM as well?
Or really just grow with the installed base?
Services as indeed if you grow your installed base and services growth. We don't we would not we're not in a position now to present services as a meaningful other growth engine beyond the growth of the installed base at this moment in time. We're not ready to make similar statements.
Okay. But do you think that may put you at a disadvantage compared with some of your competitors also in selling equipment?
I don't think so.
Okay. Thank you. Thank
you. And as we have no further questions at this time, I would like to hand the call back over to your host today for any additional or closing remarks.
Okay. Thank you very much for the lively discussion today with all of you. And Peter and I, we trust that we have provided you some more color on the status of the company at this moment in time. And thank you very much for your continued interest in the company. And please feel free to follow-up with us through Victor or the team here in case you have any follow-up questions.
Thank you again and have a good day. Bye bye.
Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.