Good day, and welcome to the ASM International Q1 Results Call. At this time, I would like to turn the conference over to Mary Jo Deakhouse. Please go ahead, madam.
Thank you, Theresa. ASM issued its 2015 Q1 results last evening. For those of you who have not seen the press release, it is accessible on the website, asm.com. Also available on the website are the latest investor presentation and the 2014 annual report. 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 ASMI press releases and filings with the U. S. Securities and Exchange Commission on Form 20F 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, April 20 4, 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. Please go ahead, sir.
Thank you, Mario, and welcome to everybody today on the call. Before we start the review of our Q1 financial results, I would like to inform you all that this is a pretty historic moment. It's the last conference call that Mary Joedichouse is hosting for us. Starting with the Q2 2015 earnings call, which will be held on July 30. This conference call will be hosted by our Director of Investor Relations, Victor Beranjo.
Mary Jo has served ASMI for over 30 years, three-zero years, as our primary contact in the U. S. For analysts and investors. And I would like here on behalf of the whole company and the investor community to take this opportunity, Mary Jo, to thank you for your commitment to the company for all these years. And of course, we'll pay separate attention outside this call on this also.
So after this message, let's now review our Q1 financial results. Revenue in the Q1 increased to €162,000,000 up 30% from the 4th quarter and slightly exceeding our guidance for a range of €150,000,000 to €160,000,000 Compared to the Q1 of 2014, revenue increased 7%. Our combined ALD and PALD business continues to be the key driver behind the increase in revenue. By market segment, 1st quarter revenue was led by memory customers, both DRAM and NAND flash. The gross margin remained at a solid level of 43.3 percent in the Q1, which compares to 43.0 percent in the Q4 of last year and 43.7% in the quarter of 2014.
SG and A expenses decreased by 1% compared to the previous quarter. R and D expenses increased by 10% compared to the 4th quarter. Apart from a currency impact during the quarter, this increase is also part of our aim to keep R and D relatively stable as a percentage of revenue over time. We generated operating income of €29,000,000 in the Q1 with an operating margin of 17.6%. This compares to operating income of €30,000,000 in the 4th quarter and €33,000,000 in the Q1 of last year.
Financing result in the quarter was €28,000,000 positive and mainly consisted of a translation gain. In the Q4 of last year, the financing result included a translation gain of €8,000,000 As a reminder, a substantial part of ASMI's cash position is denominated in U. S. Dollar and the significant appreciation of this currency in recent quarters led to the aforementioned translation gains. Results from investments, which reflects our 40% share of the net earnings from ASMPT, improved to €13,000,000 for the quarter, up from €6,000,000 in the year ago period.
In the Q4 of 2014, results from investments amounted to €9,000,000 and to €18,000,000 excluding a one off tax related item. These figures exclude the ongoing amortization charge, which amounted to €7,000,000 in the first quarter. For the full year, this charge is projected at approximately €27,000,000 The increase compared to 2014 is explained by the appreciation of the Hong Kong dollar. The Hong Kong dollar. In the Q1, ASMPT sales fell quarter on quarter by 11% to HKD3.1 billion reflecting the seasonal pattern in the back end industry.
Compared to the Q1 of last year, however, sales increased by 23%. ASMPT's net earnings on a 100% basis amounted to €34,000,000 in the Q1 compared to €23,000,000 including 1 offs and 45,000,000 dollars on an adjusted basis in the 4th quarter. ASMPT reported bookings of US469 $1,000,000 for the Q1, an increase of 30 6% compared to the Q4 and an increase of 15% compared to the Q1 of 2014. Now turning back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to €67,000,000 in the Q1, up from €27,000,000 in the Q4 and up from €33,000,000 in the Q1 of last year.
Our new orders in the Q1 our new orders remained at a strong level of €158,000,000 3% above the level in the 4th, in line with our guidance of between somewhere between €145,000,000 €165,000,000 Similar to revenue, orders were mainly driven by the combined ALD and PELD product lines. In terms of customer segments, bookings were led by the foundry segment and the memory segment. Let's now look at the balance sheet and cash flow. At the end of March, the cash position increased to €423,000,000 up from €386,000,000
at the end of
December. This increase was a result of positive currency effects on the cash position, positive free cash flow generated during the quarter and partly offset by cash spent on the share buyback. As discussed on earlier occasions, it is our policy to maintain a strong balance sheet and to use excess cash for the benefit of our shareholders. Net working capital increased to €123,000,000 at the end of March, up from €108,000,000 at the end of the Q4. However, this increase was mainly caused by currency translation differences.
On a currency comparable basis, working capital would have been €105,000,000 at the end of March. The number of outstanding days of working Q1, down from 78 days at the end of December. On the back of solid profitability and improved working and improved working capital efficiency, we generated a strong operating cash flow of €36,000,000 during the quarter, up from €7,000,000 in the prior quarter. In the Q1, we spent €28,000,000 to repurchase 737,000 of our own shares at an average price of nearly €38.5 per share. This is part of the €100,000,000 share buyback program that we announced last October.
An amount of €31,000,000 was settled during the quarter. At the end of March, we completed approximately 60% of the program and 70% as per today. The number of outstanding basic shares decreased to approximately 62,600,000 shares at the end of March, down from 63,000,000 at the end of December 63,700,000 at the end of the third quarter. As announced last month, we have proposed a 20% increase in the dividend to €0.60 per share for approval at our AGM, which is scheduled for May 21. This marks the 5th consecutive year that we pay a significant dividend.
So let's now look at our business. The strong momentum in the Q1 again shows that ALD is a solid growth driver for our company. ALD and PALD have become mainstream technologies that support our customers in staying on Moore's Law. And as we indicated earlier, in 2014, our combined ALD and PLD business accounted for more than half of our total equipment revenue. In the last quarters, we already highlighted the expansion of our customer base.
The leading manufacturers have already ramped multiple device generations based on our ALD and PLD products. For these industry leaders, we have become strategic partners in the development of ALD and PLD technologies. In the more recent periods, we have also penetrated new customers with our ALD and PLD products. In 2014, we recorded a substantial first time revenue contribution from a number of these new customers as they began ramping ALD and PLD in high volume manufacturing. Including the tool of record selections that we secured last year, we now supply our ALD and VLD products to all of the top 10 CapEx spenders in our industry.
We believe this successful growth of our customer base as well as our expansion to new ALD and PLD application demonstrates the competitiveness of our products. As discussed during our last results conference call, we expect our addressable part of the ALD and PLD market, the single wafer and mini batch part of that market to double over the next 3 to 4 years. That is doubling compared to a baseline of more than US600 $1,000,000 in 2014. Taking this 3 4 year horizon, we see a number of strong market drivers. In memory, we see a continued and growing need for advanced multiple patterning solutions.
And as most listeners are probably aware, we have strong position with our PLD technology for spacer defined double patterning. In the Logic and Foundry segments, the transition to FinFET devices will provide significant opportunities for the ALD and PELD market in general. Over the next 3 to 4 years, we expect that successive generations of FinFET devices will require a steady increase in the number of ALD and PLD process steps. This includes ALD and PLD process steps arising from the expected increased need for multiple patterning in advanced logic and foundry processes. In short, prospects for our ALD markets in the coming years are strong.
And as a market leader, we believe we are well positioned to benefit. So looking at the market environment and specifically at the semiconductor end markets, conditions have recently been mixed. Against this backdrop, market watchers such as Gartner and VSI Research predict slower, but still positive mid single digit growth for the wafer fab equipment market in 2015. In the LogicFoundry segment sector, equipment spending in 2015 is expected to be driven by high volume manufacturing investments in the 16 and 14 nanometer nodes and to a lesser extent on development tools for the 10 nanometer node. In the memory market, the strength of last year has carried over into this year.
Spending and memory in 2015 so far looks healthy in DRAM on the 20 nanometer node and on NAND flash on 18, 16 nanometer. But the timing of these investments seems somewhat weighted towards the first half of this year. So let's now look at our outlook as we also shared with you in our press release overnight. On a currency comparable level, we expect Q2 sales to be between €180,000,000 €200,000,000 while the Q2 order intake is expected to be in the range of between somewhere between €160,000,000 €180,000,000 And for the second half of twenty fifteen, the current visibility remains limited. At this point, we are happy to take
We will now take our first question from Peter Olafson from Kepler Cheuvreux.
Good afternoon. I have two questions. First on the gross margin and then on the memory side of the business. Starting with the gross margin, it has been around 43% for some 4 or 5 quarters in a row now. Is this as good as it gets?
Or is there potentially some further upside to the gross margin? And then on the memory side of the business, listening to some of your customers and some of your peers, it seems that it's generally expected that 3 d NAND related spending is expected to pick up in the second half of the year. Could you talk about how ASMI is exposed to 3 d NAND? Which of your product lines may be involved? And what kind of applications should we think of?
Let me start with the gross margin, Peter. First of all, as what we said in previous calls, we expect that we will do gross margins in the high 30s in a downturn to the low to mid 40s in an upturn. That still stands. Maybe it's good to give you a little bit of color on what happens in Q1 in our gross margin because we have seen 2 opposite effects. The positive effect was of course with the high sales and also the forecast that we have provided for the Q2.
The high loading of a factory. So that worked very well. However, the negative factor that we have seen, especially in Q1 was the relatively weak mix in our in the products that we have delivered. We have shipped quite some systems to new customers with relatively low margins. So that's a little bit of the mix back.
So that is opposite of the 43% that you have seen in previous quarters where we mostly had a rich mix in combination with the loading, which was reasonable but was not at the high side. I think that gives you the color where you were looking for.
Yes. And then maybe one thing to clarify. There was no meaningful impact from currencies on the gross margin?
No, no, no. That's completely neutral. We basically have a translation difference only the translation differences. So what we also have disclosed in our Q report is what the impact is on the different lines as well as the sales side as the gross margin is on the different cost lines. When you calculate that through then you will find out that there is only a translation issue.
Okay. That's fair.
Okay. So then on Peter then on 3 d NAND. Yes, indeed, it is possible that 3 d NAND will gain some traction towards the end of the year. At the same time, we also would like to emphasize that, yes, it clearly has shown that the transition towards 3 d NAND from planar has taken much longer. And so we still have to see how rapidly that transition now will take place as soon as it starts to accelerate a little bit towards the end of the year.
That's a remark we would like to make upfront. At the same time, when that transition happens as that transition happens, it will have a mixed impact on the company. On one hand, the amount of double patterning will significantly go down. So that is a negative implication to us. At the same time, new ALD applications will pop up going towards 3 d NAND.
And we as we have shared with you before, we have strengthened our engagement in R and D with 3 d NAND over the last, let's say, 2 years. We expect that going into next year also high volume penetration of V NAND will show up in our P and L. It may not go with at the same aggressive immediately be at the same level as the double patterning demand in planer. But we are confident that it will show up in our P and L step by step increasing as of next year. So and that is just based on the fact that, yes, through our ALD engagement with memory throughout the years, our relationships on the R and D level with these customers is very, very good, which offers us also an opportunity to build on that towards, let's say, the VNAND trends that the industry is showing now.
Okay. But at this stage, you are not willing to talk about which specific applications you may be targeting?
No, no, no, no. And I no. And I also don't know if by the time we will get into that market, we would be very specific on all the applications. But we will try to share with you as much as we think is responsible also in terms of the competitive landscape that we operate in. But at this moment, it's too early, Peter, to share that.
But for us, it's very, very clear on what applications we are engaged. And we also have clearly identified specific applications that we expect next year to go into
3 d NAND dependent on the number of stacks in the 3 d NAND device? Because it seems that there are several generations of 3 d non devices in development. And with each generation, the number of stacks will go up. Should you benefit from the number of layers going up?
Yes. I think it's more a matter of that our focus has in time increased on vertical NAND. It's just our R and D focus has increased because we have put more intellectual bandwidth in that area. And as a result of that, the step towards 48 will enable us to really start to play a role in a meaningful way in the VNAND space.
Okay. Thank you.
Okay. You're welcome.
Thank you. Our next question comes from Tammy Qiu from Berenberg.
Hi, guys. Thank you for taking my question. First one is that I would like to understand Elizabeth from your side, what's the impact is from TSMC and Intel's CapEx cut? Because from my understanding multipathme is pretty much still a foundry and logic dominant technique? And also the second question is that, from your perspective looking at what your competitors have been saying on Monday evening, what's your view in terms of their progress into this ALD market?
And what advantage do you think you have against them?
Okay. Okay. So first of all, Tammy, on TSMC and Intel CapEx cuts, well, I think let's put it this way. Our we have our engagement with these customers and also our planning, our sales forecast, our bookings forecast is 4 to 6 quarters out. And let's put it this way, the recent announcement of these customers has not significantly in a meaningful way changed our projection for the remainder of this year.
We basically, we already had a certain view on the level of engagement in current and future notes that they would make. So these public announcements did not necessarily change our view on that. So that's an answer on the first part of your question. Then on the competitive landscape, yes, I think what you can say and I've repeated that in many calls on the competition in over the last few quarters, yes, this market is developing into a sizable market, the ALD market, and competition is here and there stepping up. And yes, that's what we are facing.
And sometimes competition is looking for applications that we are not that much focused on at this moment in time. And in other areas, it is the drive of our customers for reduced cost of ownership. And yes, and based upon which, there is also an incentive to bring in a second supplier to create, yes, a healthy playing field. And that's just what we are seeing. And in that way, the developments are not, well, necessarily different from our view 3 months ago.
And yes, I think also if you look at our revenue and bookings performance in Q1 and our guidance for Q2 on sales and bookings. And yes, you can also see that the development of the company is going in is still moving in the right direction because of the fact that this market in general is growing and will keep growing in the next couple of years. Again, we expect this market to double very likely in the next 3 to 4 years and there's room for more than 1 player. And at the same time, we maintain having our ambition to maintain a leader in this part of the market has not changed.
Okay. Thank you, guys. Last question. On your 2 design, because from what I understand is that your competitors having a different design or tool design compared to your ALD tool. Do you think from architecture perspective, your pumping design is more favored by the chip making instead of their spacious design, just purely from architecture perspective?
Yes. I think that I think our customers have to decide that. But and also design also benefits also depend on what specific applications the customer is using it for. What we know is that without, let's say, going into a detailed review of the designs of our competition is that we have 15 years of experience in this ALD business that we have done over the 15 years a lot of CIP on our hardware, on our process technology that we have the broadest engagement in ALD in the industry with the top 10 across the broadest range of applications. So yes, we are very focused to learn from that.
But it could very well be that for a specific application, a competitor may have a favorable design. That is very well possible. But again, we it doesn't change the comments we made a few minutes ago that we are confident that we have a design, relationships with our customers at a strategic level based upon which we really believe we can grow in the coming years. And we believe we can stay a leader in this part of the industry. But there will be room for competition to also grow in this area.
It would be naive to assume that that is not going to happen. And that's just consistent with what we said all along. I trust, Tammy, that that answers your question.
Yes, yes, it does. Okay. Thank you, guys.
Thank you. We will now take our next question from Chetan Udzain from JPMorgan.
Yes. It's Chetan Udeshi from JPMorgan. A few questions. Firstly, Chuck, when you reported full year results a couple of months ago, you didn't I mean, you gave guidance for Q1 as well as gave some indications on Q2 as well. So but you are not commenting on second half, third quarter specifically at this point.
So can you just talk about what is different this time? Is it just that the visibility is too low for you to make any comments on Q3 at this point in time? And secondly, you also mentioned in your prepared remarks that you're already doing some work on 10 nanometers with some of your customers. Can you shed some light on how do you see in terms of like for like increase in terms of ALD penetration at 10 nanometers compared to maybe 14, 16? Is there any increase you see because of new applications, etcetera?
Okay, Chetan. Okay. Yes. Thank you for the questions. So first on yes, the second half of twenty fifteen, Well, the best way probably to answer is that, of course, our guidance for Q2, we view is we believe is pretty strong.
We have a strong sales outlook for €180,000,000 between €180,000,000 and €200,000,000 That is a bit helped also by delayed some delayed revenue recognition of earlier tool deliveries and NPOs from some of our customers. If you look at Q2, also we have a strong bookings outlook €160,000,000 to €180,000,000 And that is somewhat helped also we believe it will also be somewhat helped by some pull ins, some pull in POs likely from Q3 into Q2 from customers that would like those tools a little earlier. So taking that into account, the dynamics of Q2 and looking at the second half, for Q3, it's very likely that we will have pretty healthy sales driven by the strong bookings guidance that we have provided to the market for Q2. Bookings in Q3 likely could be lower in a meaningful way. They could be significantly lower than Q2 based on two factors.
First of all, based on the pull ins from certain customers of bookings from Q3 into Q2, as we mentioned, but also that some customers are digesting capacity maybe in part of the second half that they have built over the former quarters. So based on that, the second half as a whole, in terms of sales, may show a similar pattern likely as the second half of twenty fourteen versus the first half of 2014 that it is somewhat weaker than also this year in the second half than in the first half. But in terms of bookings beyond Q3, looking for we are looking forward to a next round of investments that logic, foundry and memory are expected to be are preparing by that moment in time for next technology nodes. And yes, we have to see whether customers will already materially put place those orders in Q4 or that they will wait until Q1 in terms of bookings. But we do know that we are well positioned for that.
And that ties to your second part of your question, to 10 nanometer engagement. Well, in yes, in our opinion, in logicfoundry, we are very confident that the amount of applications that we will be engaged on will significantly increase going from 16, 14 to 10. And that's across the board.
Understood. And are you engaged with more than one customer on 10 nanometer? Or is it only with leading logic player at this point in time at 10?
No, it was more than 1.
Okay.
Thank you.
With basically all the key players.
Thank
you. Okay. You're welcome.
Thank you. Our next question comes from Jim Fontanale from Arete Research.
Yes. Thanks for taking my question. So maybe just a few to run through. Firstly, could you talk about the theme of reuse? Obviously, that's been quite a significant part of your peers' commentary over the reporting season thus far and quite a structural change from what we've seen through prior cycles.
Could you talk about the impact on ASMI? I'm guessing, given ALD is a new technology, only been in there a couple of nodes, the reuse is not going to be impacting you significantly, but it would be useful to get your thoughts on that. Secondly, could you talk about where you see the delta for the second half? You've obviously just given some color on potentially sequentially down second half versus first half. It would be interesting to get a feel for where you think the delta is in the second half.
Again, your peer group commentary has pointed to relatively flat logic, foundry and NAND spending and a tailing off of DRAM. It would be interesting to see whether that is the delta for you. And then thirdly, it would be interesting to understand when we look at 10 and when we look at 7 nanometers, where you think the key areas of opportunity lie for you? Is it primarily within Foundry and Logic for multi patterning? Is it the fact that by the time we get to that point, we'll probably be up at 64 pair NAND and you can start reintroducing LD significantly into that?
Where the key drivers for you key understand
the first understand the first part of your question. You asked 3 questions. But the first part of your question, could you repeat that?
Yes. It was to get your view on reuse. So there's been a lot of tool reuse from node to node, particularly from 28 and 20 nanometers down into 14, 16. So effectively tools being transferred across from node to node and therefore not generating new orders. It would be interesting to understand whether that's part of the order trend that you guys are having to deal with at the moment or whether because ALD is such a new technology that reuse is not a factor in how you're thinking about revenues and orders over the next 12 months?
Okay. So on equipment reuse, well, it's somewhat new. Yes, it, of course, allows our customers to extend and optimize their investments. But and so we have in some areas, it's part of our product portfolio. We have run into it, and we are able to service our customers in the right way.
In ALD, we have not seen reuse in a meaningful way as it's a relatively new market and it's growing so aggressively that there is basically no time to really or little time to consider reuse. It's more expansion of capacity. So and also is the pattern on reuse going to change in a meaningful way in the coming quarters? Then our current visibility is no. So then on your question on the second half, I think, again, we're now we gave clear guidance on Q2, and we gave quite a lot of color on the second half.
And I think it's too early to go into more detail on that. I trust we gave enough color. So then on 10 nanometer, yes, the key areas, it's a combination. It's a combination of patterning demand, but also new applications that pop up in 3 d FinFET areas that require our customers that drive our customers towards ALD because just traditional CVD, PVD technologies run out of steam. And that's and we have engaged with the customers on those 10 nanometer needs for at least 2 years, if not more, already in providing them solutions in developing their end user and customer devices.
So I think we know pretty well what very likely will go into Atrium next year.
And looking at the 10 nanometer and 7 nanometer road map from your customers and particularly if you think about Intel, they are talking about selective potentially using selective deposition at 7, but definitely at 5 nanometers. Is that something you're engaging with specifically with Intelon?
In general, I can say we absolutely are now already engaged in developments in general with our customers beyond the next technology node, because basically selections for the next technology node are already in their final stages. Customers in 1 or 2 quarters are about to make equipment may put their orders in place. So automatically, that means that R and D for the nodes beyond the next nodes are already ongoing in a very intensive way. And we are definitely a player there.
And maybe just a last question, if I may. On the Logic and Foundry side, clearly, there is significant use of double patenting and multi patenting going forward, but it's primarily being focused on litho etch, litho etch. Do you see any movement towards spacer defined double patenting and therefore ALD use away from LethoEdge, LethoEdge, which is not an ALD user. Do you see any do you see that trend unfolding either in your foundry customer base or logic customer base?
Yes. We if your question is if we see patterning applications developing beyond memory into logicfoundry, then the answer is yes.
Okay. Thank
you. Okay. You're welcome.
Thank you. As there's no more further questions in the queue, that will conclude today's question and answer session. I would like now to turn the call back over to Chuck Delgado for any additional or closing remarks.
Well, I would like to thank you all very much for your attendance today and for your questions. Any follow-up questions, of course, you may have, you can share with us through Victor Berrienjo, our Investor Relations Officer. And looking forward to staying in touch, meeting you at shareholder meeting in May or during one of our roadshows upcoming roadshows. Thank you again for attending today and have a good day or a good evening. Thank you very much.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.