Good day. Welcome to the ASM International 2015 Q2 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Victor Bareño, Director of Investor Relations. Please go ahead, sir.
Thank you, Liana. ASM issued its 2015 second 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 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-K for more information on the risk factors that could affect results.
All forward-looking statements are based on information as of today, July 30th, 2015. 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. Thanks to everyone for attending our second quarter 2015 results conference call, and for your continuing interest in the company. After a review of operations, Peter van Bommel, our CFO, will join me in answering your questions, of course. Let's start with a review of our second quarter financial results. Performance was again solid in the second quarter, with revenue, gross margins, and operating profit at the highest level ever for our front-end operations. Revenue in the second quarter increased to a new record, up 24% from the first quarter and up 35% compared to the second quarter last year. At EUR 201 million, revenue in the quarter was slightly above the top end of the range of EUR 180 million-EUR 200 million 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 first quarter of 2015 and 42.3% in the second quarter of last year. The increase was driven by relatively strong product mix and further efficiency improvements. SG&A expenses rose by 16% compared to the previous quarter and by 24% year-on-year. As a percentage of revenue, SG&A dropped to 12% compared to 13% in both the first quarter of 2015 and the year ago period. R&D expenses increased by 15% sequentially and by 52% compared to the second quarter last year. As a percentage of sales, R&D amounted to 12% in the quarter, down from 13% in the first quarter and up from 10% in the year ago period.
Apart from a currency impact, the increase in R&D was primarily driven by requests from customers related to new opportunities, similar as in previous quarters. The second quarter results also included a relatively small restructuring charge of half a million EUR. Operating results increased strongly to EUR 42 million in the second quarter with an operating margin of 21%. This compares to operating income of EUR 29 million in the first quarter and EUR 27 million in the second quarter of last year. Financing result in the quarter was EUR 12 million negative and primarily consisted of a translation loss of a similar size. In the first quarter of this year, the financing result still included a translation gain of EUR 28 million. As a reminder, a substantial part of ASMI's cash balance is held in US dollar.
The translation loss in the second quarter mainly reflected the depreciation of the US 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 EUR 21 million for the quarter, up from EUR 13 million in the first quarter and EUR 16 million in the year ago period. These figures exclude the ongoing amortization charge, which amounted to almost EUR 7 million in the second quarter. For the full year, this charge is projected at EUR 27 million. ASMPT sales increased in the second quarter to HKD 3.8 billion, up 22% from the first quarter of this year and up 9% compared to the second quarter of last year.
ASMPT reported bookings of EUR 494 million for the second quarter, an increase of 6% compared to the first 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. Turning back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to EUR 47 million in the second quarter, down from EUR 66 million in the first quarter and up from EUR 40 million in the second quarter of last year. The EUR 40 million drop in the translation result 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 EUR 39 million to EUR 59 million.
Our new orders in the second quarter continued to be solid at a level of EUR 167 million, up 5% from the first quarter and up 39% year-on-year, and within the expected range of between €160 and €180 million. 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 the cash flow. The cash position decreased to €363 million at the end of June, compared to EUR 423 million 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 million at the end of June, up from EUR 123 million at the end of the first quarter. This increase was mainly due to an increase in the account receivables, 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 EUR 11 million in operating cash flow, down from €36 million 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 second quarter, we completed the €100 million share buyback program. We spent the remaining part of €40 million to repurchase approximately 900,000 of our own shares. Since we announced the program last October, we have bought back a total of nearly 2.6 million shares at an average price of €38.55 per share. The number of outstanding basic shares decreased to approximately 61.9 million at the end of June, which compares to 62.6 million shares at the end of March and 63.7 million shares at the end of the third quarter of last year. That was just before we started the buyback program.
In addition, we paid €33 million 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 ASMPT during the quarter amounted to €25 million. We announce 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 second quarter again shows that ALD is a solid growth driver for our company. Today, ALD has become a critical and enabling technology for the manufacture 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-K solutions have now been extended for four device generations. As highlighted during earlier calls, we have steadily expanded our customer base in the past one to two years beyond the leading device manufacturers. We now supply our ALD products, our ALD solutions, to all of the top 10 CapEx vendors in our industry. The strong increase in our ALD products revenue in the second 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 ALD-doped oxides for fin doping in the 14 nanometer node. This is just one example where ALD technology supports our customers in addressing the challenges of ever smaller geometries in 3D 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.
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 3D NAND compared to planar NAND likely to increase towards the later part of the year.
In the logic foundry sector, equipment spending in the second half of this year is expected to be at a lower level than the first half. Spending is expected to primarily focus on development tools for 10 nanometer. Let's now look at the detailed outlook we gave as part of our press release overnight. For Q3, we expect sales to be between EUR 155 million and EUR 170 million on a currency comparable level. The Q3 order intake on a currency comparable level is expected to be in a range of between EUR 130 million and EUR 150 million. Beyond Q3, the visibility 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. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Once again, please press star one to ask a question. We take our first question from Peter Olofsen with Kepler Cheuvreux. Please go ahead.
Good afternoon, gentlemen. A couple of questions, starting with memory. I think in the Q1 call, you talked about 3D NAND, where you were seeing several potential applications for ALD. It seems that some of the NAND makers are going to ramp 48-layer 3D NAND going into next year, and also some of your peers seem to have some attraction 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. Yeah. As we said before, compared to planar NAND, current generations of 3D NAND are still relatively light on ALD in our view. We also see that the need for ALD is likely to increase indeed in future generations of 3D NAND. We have been very focused on increasing our presence with those customers based on the much better position that we have built in memory over the last five years through the expansion of our existing ALD applications. As a result of that, Peter, our belief is that based on those engagements, that we expect an increase of our revenue for 3D NAND applications going into next year. We don't expect 3D NAND to be a significant contributor to the P&L in the second half of this year.
Okay, that's clear. 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?
Yeah. You clearly follow the trends very well in the industry and, of course, we have to be aware of these trends also. Our customers don't allow us to talk about specific programs with them. The best way to answer the question as a result is that, if 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. 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. My final question on the logic foundry side of the business. Where do we stand in terms of equipment selection for the 10-nanometer node? Have these selections already been made, or are the evaluations still going on?
Well, in principle, it's clear that if you look at the 10-nanometer node investments, for logic and foundry, we don't expect those to hit the P&L this year. Looking at the timing of those customers at this moment in time, we expect those to mostly hit a high volume. I'm talking about high volume investments in the course of 2016 for 10-nanometer, for logic and foundry. At the same time, although that is the case, a lot of those customers are already pretty far in their selection because they are in a series pretty far, 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. We think we have a pretty good view of what our position is in those customers preparing for that node.
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 16, 14, we believe will significantly increase. I trust that answers your question.
Maybe to clarify, the number of applications you are involved in, that will increase?
Yes. Compared to 16, 14.
Okay. 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?
Yeah. The question is that the number of applications is going up. At the same time, we see companies like Lam, AMAT, also looking to get a bigger share in the ALD market. If you take 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. Again, we have said that when I talk about the ALD market, that taking 2014 as a baseline, that in three to four years, we expect that market to double. From $600 million to over $1.2 billion. At the same time, we also said that competition is starting to focus more and more on those markets. It is logical that competition also here and there will increase their piece of the pie. 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. I think competitors may go through an improved position, but we are eager to maintain our position as a leader in this industry. Yeah?
Okay.
I trust that answers your question.
Yes, it does. Thank you.
Okay, Peter. You are welcome.
Thank you. We take our next question from Maxime Mallet 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 digesting in order in Q3, I guess that's what your guidance shows. That's for Q4 or Q1, you see a rebound coming from logic foundries, from what you just said about nanometer exposure 2016 story. Flash NAND is not expected to contribute so much in H2, DRAM is expected to go down. Your first take on Q4 order intake here, is it that it should remain at around a flat-ish level compared to Q3?
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 color we gave with regard to specific numbers is on Q3. 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. 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 V-NAND. We also said that our penetration in V-NAND, any increase in revenue there will not show before next year.
I think you should combine those data points yourself, and that combined with logic and foundry, where we expect that the investments in 10 in high-volume manufacturing, for high-volume manufacturing, will only start to happen in the course of 2016. The exact timing there, I think all the equipment makers are anxiously looking for a more detailed forecast from our customers. 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 node in DRAM, in logic and foundry, and that we gradually increase our presence in V-NAND. From that point of view, we believe that we have been taking the right actions and that we can build on that going into 2016 and 2017.
Thanks. You mentioned that the weight of Asia is growing and new customers notably are taking more space. Could you give original split of your sales and also the weight of your top 3 customers in H1 of this year?
I don't know how to answer your question in the best way, from the top of my head, again, in our dialogue with our investors, we always try to show what the top 3 of our revenue, our top 3, what the percentage of total revenue is of our top 3, and what the total percentage of revenue is of our top 10 as part of our total revenue. We also indicated that our top 3 pretty much aligns with the top 3 in the industry. Our top 10 also pretty well aligns with the top 10 in our industry. I think that is something that we achieved since 2012 for the top 3. That 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.
That since 2014, also the representation of the remainder of the top 10 is much more in line with the industry than ever before. I think that indicates how well, especially with our ALD product lines, we have been penetrating the complete top 10 ranked in terms of CapEx spending. Based on that, you should be able to derive the geographical spending.
Okay, thanks. One last question my side, it was regarding your margins, notably your gross margin, which is [uncertain] in Q2, and you mentioned some product mix positive impact. With sales going down in H2, what should we think about the gross margin evolution and also regarding OpEx? In absolute terms, it has increased significantly, even if in relative term it's a bit below. What do you see for the remaining of the year?
I can only repeat what I've said in previous calls. When you look to the gross margin, we have always said that in an upturn, we expect low to mid-40s. We were happy to show now after being on a 43% level for quite some quarters, that we indeed are able to go really to the mid-40s or the 45%. That was caused, is 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, 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. Further efficiency was also visible in the second quarter. That is the color I think that I can give about the gross margin.
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, the cost OpEx is strongly impacted by currency movements. 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&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&D spending. We perceive that as well as investments in our future. In SG&A, we have seen some cost. It's a combination of two things. It's a combination of a few one-offs that we had in Q2.
On the other hand, we have some slightly higher cost going into 2015, which is also in line with early indications that we always have given. We expect SG&A to increase a little bit over time, but it's relatively stable within the year. The only reason for the delta between Q1 and Q2 this year was given by the fact that we had some changes in our long-term incentive program in the company. That meant that for one quarter, we had not to provide for those costs. That was the biggest change from quarter to quarter plus the one-offs that I mentioned. I think that should give you sufficient color for making the calculations by yourself.
Yes. Very helpful. Thank you.
Thank you. We take our next question from Chetan Udeshi with J.P. Morgan.
Hello. Can you hear me?
Yes, we can hear you very well, Chetan.
Yeah. I had two questions. First was, you've answered previously that you expect competition to take some share in mid-term, I just wanted to hear your thoughts on new tool announcement from AMAT where they are claiming to have a structurally different and better architecture for ALD than conventional tools. Any thoughts there? Secondly, any feeling you could give in terms of what your customers are thinking overall 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. CapEx Q4, Q1. Okay. I'll start with the Applied question that you asked. 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 one, two years already. Only the public announcement was done in May. Of course, we try to watch what competitors are doing continuously. The introduction of the tool was not new to us, but we don't underestimate any of our competitors.
This is just part, Chetan, 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.
Again, we are trying to anticipate these steps from competitors as well as we can. We are focused to maintain leadership position in ALD, and we believe in the strengths of our ALD offerings. That has not changed in the last two months.
CapEx.
Okay, on the CapEx. You were asking for a little bit more color on Q4, Q1. 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 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. Most of the time, those decisions are being made pretty short in advance, and then equipment makers are expected to anticipate very quickly. 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. As we said, for us as a company, we don't expect to show a positive impact of that until we are in the next calendar year. For logic and foundry, the key thing there is when do the investments and the bookings really kick in for the 10-nanometer node? The visibility we have now is that very likely that will happen in the course of 2016 and not in the remainder of this year. The question is, how quickly in 2016 will that happen?
Again, there we are ready when our customers are ready, and we anticipate that in logic foundry, we will be able to increase the number of ALD applications that we are engaged in compared to 2014, 2016. We believe that we are in a very good position there. It's just a matter of timing, indeed.
Thank you, Chuck. It's very helpful.
Okay. You're welcome.
Thank you. We take our next question from Tammy Qiu 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 kick in. Does that mean 14 and 16 has already been done from an equipment perspective, at least from ALD perspective? Also is regarding the tool designs. From your experience, what's the factor or specification they care the most about ALD? Is that throughput? Because we know that's actual, the bottleneck for ALD, or is that they care more about the precision level of ALD without thinking about the throughput. Last one is that, what's your thoughts on further share buyback? Thank you.
Okay, Tammy. Thank you for your question. On 16, 14, we do see there is some business represented for 16, 14 in the second half for logic foundry. It's not significant. It's like we said before, memory has so far been a stronger driver. It's been the strongest driver in the first half, or in the later part of 2014, and basically also in the first half of 2015, memory has been the leading driver for us. Although foundry picked up somewhat in bookings Q1 and then some deliveries going into Q2. But it has been modest compared to the contribution of memory. We don't expect that to change in a meaningful way in the second half of the year. The ALD specs. Which specs are important? That's not 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 CVD, PVD cannot accommodate anymore. At the same time, if the price tag to it is too high for a customer, then they may try in whatever way to extend the existing deposition technology. In that respect, throughput, cost of ownership, all aspects of cost of ownership are important. You cannot ignore any of those aspects. At the same time, of course, when some ALD applications get a little bit more mature, then, of course, cost becomes even more important than when an application is initially inserted. That's about the color I can give you.
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, that's on that part, Peter can talk too.
I can. The question, of course, let me broaden a little bit, because the share buyback, we just finished a share buyback program of the EUR 100 million, as you have seen in our announcements. We always have stated that excess cash, and we have given indication that excess cash should be an amount which is substantial above the EUR 300 million 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 EUR 360 million approximately of cash at the end of June.
We will review periodically as what we have done in the past periods, if this would lead on a certain moment to a substantial excess cash amount, 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. By how much are you already specced in on the potential 10 nanometer process? In other words, what's the threat of your competitors actually eating into your market share at 10 nanometer? Is actually the threat more even below that note? My second question is, are you willing to maybe specify a little bit more the breakdown in ALD between what I call your two main applications, as in the metal gate and the spacer-defined multiple 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, Philip, with your last question. I think, currently, patterning and the FinFET high-k metal gate area, those combined are in the lead compared to the other applications at this moment in time. Yeah. That is the answer to that, and we just don't want to provide more color on that to the market as a whole. Yeah, 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. In my perception, the same question was asked earlier in the call. The 10 nanometer logic foundry insertion is currently expected by the market to happen in the course of 2016.
Customers are expected to be pretty far along in, let's say, developing their device structure and associated process structure and the required equipment to do so. It does not mean that they may make some changes in the last phase of their development. I don't expect them to change, let's say, 50% or even 40% of their current path, in the last six months of their development program. 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.
Yeah. Okay. Thank you.
Yeah. Okay. You're welcome.
Thank you. We're taking our next question from Jaguar Bajwa with Arete Research.
Hi. Thanks for taking my question. The question is on your SAM expansion, which you expect over the next three to four years. When we think about the logic and foundry market, that covers up to 2018, your three to four-year guide. 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 spacer-defined multiple patterning. Can you give us a guide as to how much of your incremental EUR 600 million in addressable market is as a proportion for multi-patterning applications versus other applications you're talking about?
I understand that you would like us to provide more color, we are continuously investigating ourselves, how can we guide you or our audience, in a better way going forward. We will take this input also, this question also to see how we can 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 three, four years out, to EUR 1.2 billion and beyond. It is a very significant contributor, the patterning market. We are still in that projection. It's partly because 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.
We're also learning as we speak with you and others on this call. Okay, I hope that that's.
Okay. Yeah, just one more. On 3D NAND, what point and layer count does your addressable market for ALD and 3D NAND get to similar levels, as you saw in planar NAND? Are we looking at higher than 48 layers? Is 48 layers pretty similar-
Yeah
to what you were seeing in planar?
Yeah, that's a good question. Well, there are two elements to the question. One is, the patterning part, which is now of course, a very important component in planar NAND for us. That part is going to reduce significantly. 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 3D NAND. What we are mainly working on now with our customers are completely different applications. Completely different applications that are in going from 32 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 what in that part of the market.
Okay, great. 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. Two quarters probably of orders. I'm just wondering how we see the 10-nanometer progression and maybe the length of that.
Yeah, 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.
Yeah. Okay.
Yeah. Okay, just on that then, with 16/14, has that played out to how you were expecting? Were you expecting that to be a longer
In terms of number of applications, there were no surprises at all. 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 slightly better. There were not two big surprises there. We always viewed already a year ago, we knew that the step from, even before 14/16 started, we knew that the step towards 10, we believed 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.
Thank you. 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. Given that 20 nanometer has a cost benefit over the older node, one would assume the DRAM makers to continue these conversions. What do you expect? Where do you think your customers are in terms of converting their capacity to 20 nanometer? It seems there's still a lot of upside there. It would be interesting to hear your thoughts on that.
Maybe looking at 2016, if we were to see a shift in the mix from PEALD for spacer-defined double patterning to new ALD applications for 3D 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. Initially on, DRAM 20, the only thing we can say is that the cycles of DRAM have been between different nodes, have been pretty consistent so far. The timing between the different nodes. We don't see any indication why this time that would be different. 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. That's the only thing we can say, Peter, about it. There's not much more to add. 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. On the PEALD gross margins?
Yeah, let me give that some color. What we have indicated in earlier cases is that we expect low to mid 40% 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. 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. As you have seen from the previous periods, I think we are rather fine with confirming what we have said earlier, that even when that would be the case, that we would stick to the low to mid-40% gross margin guidance that we have given in earlier times.
Okay. That is very helpful. Maybe one final question. 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 will you just grow with the installed base?
Services, indeed, if you grow your installed base, then services grows. 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. 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.
Yeah.
Thank you. 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. Peter and I, we trust that we have provided you some more color on the status of the company at this moment in time. 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.