Good afternoon, everybody, and welcome to the first ever VAT Capital Markets Day. Unfortunately, we cannot be together here at SIX Convention Point because of the COVID pandemic. Nevertheless, we have some exciting news to share with you this afternoon. My name is Michel Gerber, and I'm the Head of Communications and Investor Relations at VAT. A media release summarizing today's important messages has been released this morning at 7 a.
M. And the presentation accompanying this webcast can also be downloaded from our website. First, a little housekeeping. Today's presentation and Q and A includes forward looking statements that are subject to risks and uncertainties. These forward looking statements are qualified in their entirety as there are certain factors that could cause results to differ materially from those anticipated.
Any statements containing herein that are not statements of historical fact, including statements containing the words beliefs, plans, anticipates, expects, estimates and similar expressions should be considered to be forward looking statements. Forward looking statements involve inherent known and unknown risk uncertainties and contingencies because they relate to events and depend on circumstances that may or may not occur in the future and may cause the actual results, performance or achievements of the company to be materially different from those expressed or implied by such forward looking statements. Many of these risks and uncertainties relate to factors that are beyond the company's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behavior of other market participants, the performance, security and reliability of the company's information technology systems political, economic and regulatory changes in the countries in which the company operates or in economic or technological trends or conditions. As a result, investors are cautioned not to place undue reliance on such forward looking statements. Except as otherwise required by law, VAT disclaims any intention or obligation to update any forward looking statements as a result of developments occurring after this presentation was made.
So with this housekeeping behind us, let me briefly outline the program for today. We will start with Mike Allison, CEO, who gives you an overview on VAT Group's overall ambition before handing over to Urs Gompner, our Head of the Semi Business and Joe Hegarty, Head of Sales and Services for a deeper dive into our semi business. We then have a short 10 minute break. We all know that it can be a pain being at these webcasts for a prolonged time. Before diving into the second part of today's event with Michael Zittkar, our Head of Core Technology.
He will be elaborating on our R and D and innovation efforts. Thomas Berden, our COO, will then give you an update on the operations before our CFO, Stefan Bergamyn, will close the loop with the financial. After these formal presentations, we will have a Q and A. So without further ado, let's dive into the exciting world of VAT, the global leaders in vacuum technology.
This is an increasing part of our daily life. And the future of transportation. VAT is always open to challenge conventional wisdom to foster new powerful ideas and solutions. BAT, passion, precision, purity.
So thank you, Michelle, and good afternoon, ladies and gentlemen. My name is Mike Allison, CEO of VAT, and it's my great pleasure to welcome you to our very first Capital Markets Day. It's a pity that our first event is not live, but we take the protection of our global stakeholders very seriously. So we decided to hold this first one online. We continue to navigate this terrible pandemic well and no interruption so far to our global operations during 2020, and we're using the learnings from this to make VAT even more secure for the future.
I very much hope that we can host you all in person at our next event. I'm joined today with some of the key members of my executive team, and I'm confident that they will provide you with a comprehensive overview on how VAT will deliver outstanding shareholder value over the next 5 years. Due to the time limitation, we will focus today on just 2 of the application sectors, semiconductor and service. But we will also give you a view into our innovation and operations group before rounding off with the financials. After the presentations, we will conclude with a Q and A session.
VAT is a pure play high precision valve company with 80% of our revenues coming from valves across semiconductor, display, solar and advanced industrials. Service now makes up 18% of our revenues. And as you know, we have a strong agenda to grow this further. Industry is our non valve segment, which contains industrial components and bellows. We are slowly reducing the unprofitable portion of these components based out of Romania.
And in 2021, we will roll the remainder, which is our Bellows business, under the Valve segment. This will make our financials simpler to understand. After our new ERP system is fully rolled out in 2022, we will likely add more segments to the reporting of our business. VAT has a history of delivering outstanding performance. And as we emerge from this recent down cycle and COVID crisis, we will deliver around 20% growth in 2020 and return our EBITDA percentage to over 30%.
We continue to drive operational improvements and transition our supply chain to best cost countries. Our Malaysia plant will grow 70% this year, while delivering at the very top end of customers' expectations with our latest high quality products. Despite the challenges this year, we have further increased our market share, especially in semi where we have reached approximately 70%. We continue to invest heavily in R and D and our IP portfolio gives us a strong platform and options to deliver future growth. We will continue to gain share in our core markets driven by our specification wins.
This is a real leading indicator of future growth. All in all, an incredible company delivering on every axis. 70% of our sales, product and services come from semiconductor. We really understand this business and we know precisely what it takes to win and delight our customers. Display solar and advanced industrials both make up approximately 12% of our sales with industry making up the remainder.
Our sales are distributed across the main semiconductor areas of the world, namely U. S, Europe and Asia, and these are supported by strong sales, applications and engineering channels. We have an application center in California, including a nanoparticle lab, which allows us test the latest products close to our customers. We are adding a new Japanese applications lab in 2021 and future Korean and Chinese application centers are planned. Being close to our customers is one of the key drivers of our success.
We have an unrivaled market share position and we have built this systematically over the last 5 years. In a few moments, you will learn from Urs Gartner, our Head of Semi and our Head of CoreTech, Michael Zicher, how we maintain this position. It takes a lot of work, but as you can see, despite a very attractive market segment, VAT is keeping the competition at bay. We are on average 7 to 8 times larger than our closest competitor and our share is increasing with the more complex technologies. Our strong focus across all customers, geographies and market segments gives us competition very little room for expansion.
So where do we play in the semi supply chain? We have a wide portfolio of valves and adjacent components, which we customize for our key customers, the OEMs, which you can see in the center column. VAT is present in all of them and enjoys high share with most of our product families. These OEMs then ship their systems to the device makers such as Samsung, TSMC and Intel, with the majority of chips now being made in Asia. We generally conduct most of our business through the OEMs apart from the service segment, where it is split roughly fifty-fifty between the OEMs and end users.
Let's now just spend a few minutes learning how VAT commands such a powerful position in our markets and why this makes us such a convincing value proposition for all our stakeholders. Our key advantages are as follows. 1st, we are the center of the greatest megatrends of our lifetimes, and these will drive sustainable long term growth for VAT. Obviously, digitalization is the most relevant one driving our business, but health care, mobility and renewables also offer interesting future growth potential. We are the undisputed leader in valves due to our technology, applications expertise, global scale and customer knowledge.
We have great people and we actively develop our talent to be the next leaders. We continually outperform the market and have a strong track record of keeping our commitments to our stakeholders. Looking first at the megatrends and the one I will focus on today is digitalization. We are seeing an unparalleled rise in new applications, which will continue to push silicon chip demand to double in the next 10 years. Chips are everywhere and every new trend or product is sure to have chips at its core.
It is not a question of if we will double, only a question of when. Last year, we handsets. Into these high end handsets. Artificial intelligence and big data are also driving all the chip application sectors at very high rates. It's an exciting market to be in and VAT is right at the epicenter.
This strong market growth is cascading down to the wafer fab equipment makers and then to VAT. The first growth dimension is the chip market, which we expect to grow up about 8% CAGR over the next 5 years to €643,000,000,000 and on to €1,000,000,000,000 by the end of the decade. This translates into very strong wafer fab equipment CapEx growth, which is the 2nd dimension of growth. You can see here on the center chart, the WFE, wafer fab equipment should grow at least 6% and the strongest growth coming at 7 nanometers and below, which is where we have the biggest competitive advantage. The sooner these new OEM platforms come to market, the quicker our share position will accelerate.
The 3rd dimension of growth is the increase in vacuum steps. We see this accelerating with the new processes such as EUV and ALD as well as the many more traditional etch and deposition steps. It's impossible to quantify the exact benefit to VAT, but these three dimensions together will allow us to outgrow wafer fab equipment by a few percentage points. The second advantage is our leadership in the industry. We are the undisputed market leaders.
This is achieved by our deep semiconductor expertise and our ability to deliver true customer value. We are the partner of choice. We have the most extensive portfolio of technologies over 140 valve series, 8,000 customized and 2,500 standard products. This is what allows us to win most of the time. We have deep applications know how allowing us to partner with our customers on their biggest technical challenge and then deliver fast customized solutions.
Finally, we have the ability to deliver all this on a global basis with high flexibility, up to 20% growth per quarter. And now with Malaysia in place, strong business continuity solutions on top of that. Altogether, these factors have driven our share to greater than 50 percent globally across all segments, a tremendous achievement for VAT. All this would not be possible without our 2,000 outstanding people driving our business. A special thanks goes out to them for their efforts during the COVID crisis.
Their relentless pursuit of safety first not only safeguarded our factory output for our customers, but also protected people in our local communities. We work hard to be inclusive and build up the talent of the future. And as you can see, our engagement score went up 11% in 2020 alone with 89% of the company participating in the survey. We have a very targeted talent and succession program to develop the leaders and innovators of the future. As you know, leadership and accountability drive performance and our inclusive, collaborative and team orientated Swiss culture helps drive that.
We call this one VAT and it's one of our core values. Finally, the last part of the VAT advantage is our strong record of financial excellence. At the IPO, we said to expect high single digit growth. We delivered 10.5% CAGR in the last 5 years. We delivered strong EBITDA performance across the cycle, not yet hitting the 33% we promised, but our future growth will take us there.
We delivered very solid free cash flow conversion and paid consistent dividends. Finally, our return on invested capital was a very healthy 29% to 48% across the cycle. Overall, strong performance in all market conditions and we will continue this in 2020 despite the COVID crisis. Our value creation for those shareholders buying in at the IPO has been spectacular, way outperforming the key indices and delivering over 300% growth for our shareholders. Okay.
Let's now turn our attention to our strategic priorities and what you should expect to see from VAT in the next 5 years. Our priorities are split into 4 areas. 1st is to gain market share in our core valve market and each of our segment managers have clear plans to execute on this. Today, you will hear how we plan to do that in our semi business. 2nd is to grow our service business and make this a highly profitable annuity stream for VAT.
This also has the benefits of giving us more resilience in the downturn. The third is to drive strong organic growth through adjacencies and roll out our new digital platform called Connected VAT. Finally, improving our operational footprint is a key priority, not just in delivering high performance for our customers, but also in providing a lower cost platform for VAT, which will yield stronger and more resilient financial returns. Let's now look at these in more detail. Looking first at market share gains.
As you have heard and will continue to hear from me in future years, new platform specification wins are the way we will manage our market share and deliver gains across all our segments. We are improving our hit rate percent and as our customers continue to move to the next generation tools, this will increase our share by at least 10 percentage points. Our increased efforts and investments in R and D, even through the recent downturn, are driving this innovation machine and our fast track development process ensures we deliver faster time to market for our customers. We are the only player in our segment who has the scale to keep driving this level of specification wins, and we will invest aggressively to drive the same process into our new adjacencies. We expect to gain share in the 3 sectors where we play today.
We just discussed the spectacular progress in Semiconductor segment, so let me focus for a few moments on the other application sectors, which we will not cover in detail today. Display is at a cyclical low at present, and we don't expect to see growth in this market until 2022 or 2023. But when it does recover, it will mostly be in the OLED sector, which has a higher valve content than LCD. We expect to gain significant share in this market as it recovers by following the exact same methodology as we do in semi and we have a high confidence on this due to the increasing complexity driven by OLED. As I explained before, complexity is good for VAT.
We are building a similarly strong portfolio of valves and display, and we will extend our digital platform to this area to ensure we provide strong differentiated solutions. Solar expects to see improved growth of 5% to 10% in the next few years, driven by the increasing green agenda. The cost per watt of PV, unsubsidized, has now reached a critical tipping point of cost parity with fossil fuels. This will drive increasing demand as well the conversion to a new technology called heterojunction, which substantially improves the efficiency and performance of the solar cells. This technology has a more complex OEM system architecture and will ultimately drive a much higher valve content for VAT.
As you know, this is an unpredictable and volatile market, so we are treading carefully, but it looks promising. Our advanced industrial, which includes general vacuum plus the industrial bellows business, generates close to CHF 100,000,000 today and it is a combination of very complex valve technology in the R and D market to more commoditized valves in the general industrial sector. Once again, we use our expertise in customization, technology portfolio and applications knowledge to drive share gains and to drive new adjacencies. We also see the opportunity to play in new sectors such as batteries, vacuum transportation and crystal pooling. COVID is making it difficult to penetrate these markets as we don't have strong relationships with these emerging new customers, but we expect this to gather pace again in 2021.
As you can see, there are many exciting opportunities for VAT to grow in other sectors other than semiconductor and we will cover these in more detail in the next Capital Markets Day. The second key priority is to grow our service business. The increasing installed base of valves creates a unique opportunity for us to grow And our Head of Service, Joe Hegarty, will show you later how he plans to deliver a sales growth of 9% CAGR over the next 5 years. The opportunities are within our grasp. We have the largest network of repair centers plus an exciting new portfolio of upgrade products, which will drive very strong market share gains and maintain strong profitability in this business.
This is a business close to my heart and I'm excited by the opportunities it provides us with. The 3rd priority is to move into profitable new adjacencies and to create new growth options for VAT. Over the last two years, I have highlighted my ambition to grow in adjacencies, but obviously without deflecting our focus on the core. We plan to do this with what I call connected adjacencies. We have developed a structured process to evaluate our customers' most critical challenge, which we see when engaging in our core valve design.
Normally, these are in some way connected to the valves or the applications around the valve, and we then look for solutions based around technologies, skills and competencies we have. We take these opportunities and evaluate the fit to VAT, that is our ability to win and the financial attractiveness of the business. If the business looks attractive, we follow our standard product development process and working with a key partner bring this to market. So far, we have isolated 3 areas to develop: motion components, advanced modules and upstream valves. We are well on our way with these adjacencies.
And as Urs Gantner will show you later, we expect to add around €150,000,000 of revenue within 5 years through these organic adjacencies. You can also see there are another 3 sets of products going through the same process. Not sure yet if they will make it to market, but at least one of them is looking interesting. We will follow this process across all our segments and also use it as the basis to make decisions in the future around inorganic opportunities. Our goal here is to develop the next set of products, which will propel VAT's future growth.
There is a very logical next step in the adjacencies story that is to create a new digital framework and platform for VAT. We plan to add sensors and analytics to all our VAT valve products and adjacencies and ultimately to allow connectivity between them. We will also use big data to help us improve our performance and develop stronger product performance and service options such as self tuning and auto learning. We are approaching this in a very systematic way through a 3 level capability model. Level 1 already developed in some of our products will provide a stronger diagnostic capability through software and sensors and will help our service group monetize the benefits of digital.
The second level, level 2, which is already being actively tested on our new motion components is designed to give our customer higher value and higher performing products. We see great opportunities here to improve our competitiveness, improve the adoption rate of new products and ultimately drive share gains. Level 3 is the most exciting one, but also the hardest to implement. This will ultimately allow connectivity between VAT components to a 3rd party component to provide stronger solutions or higher performance for our customers. As we go to sub-five nanometer platforms with smaller process windows, we believe this will be a way to significantly differentiate VAT and give our customers new levels of capability.
We also see this as a way of driving more targeted acquisitions. We're very early in this journey, but I am excited by the systematic way we are approaching it and the Finally, our 4th priority, Finally, our 4th priority is delivering on our profitability promise by transforming our supply chain and factory footprint. We plan to dramatically grow our best cost country operations from less than 20% to more than 50% by 2025. We also plan to move our supply chain to 50% of our spend in the same period. This gives us the ability to reduce cost as well as support our customers better and address the challenges that a very strong Swiss franc presents us with.
This is not an easy journey, but I am delighted that my new COO, Thomas Berdan is here today to explain how he will drive this transformation. So to wrap up my section, what does all this mean for VAT? From 2020 revenue guidance of approximately CHF 680,000,000 we expect to grow organically to around CHF 1,100,000,000 by 2025, driven by the high performing segments we play in, the share gains we will deliver and the new adjacencies that we will bring to market. Service will also play a major part in this journey. This is all based on a Swiss franc dollar ratio of 0.9.
Our operational transformation will also allow us to increase the EBITDA corridor to 30% to 35% during this period, providing even more cyclical resilience for VAT. We will also use our connected VAT platform to define inorganic opportunities, but this is not included in the CHF 1,100,000,000. It's an exciting journey and one that myself and the rest of my executive team are fully committed to delivering on. So now it's time to dig into our various business segments in a lot more detail. And my first speaker this afternoon is Urs Gantner, our Head of Semi, who will explain to you how he plans to capture the incredible opportunity in the semi sector.
Urs, please, the
floor is yours. Thank you, Mike. Good afternoon. Good afternoon, mittenand. My name is Urs Gantner.
I'm the Head of VAT Semi Business, working for VAT since 2004. I'm delighted today to have the opportunity to introduce you in more details to the VAT Semi business and with that the results of many years of passionate work from the fantastic global VAT team. Semiconductors, as you have seen, are everywhere and a constant companion in our life, at work, in our homes, irreplaceable when traveling, and soon even under our skin. Billions of transistors within a single chip work together to power the cutting edge digital devices we use or need today. 1 can say the semiconductor have become a building block of our modern society.
Earlier today, Mike showed you the exciting opportunities that are in front of us in semiconductor market, and we are working hard to ensure we take advantage of these megatrends. The long term outlook for our industry is fantastic. The global semiconductor sector's total revenues has just doubled in the last 20 years, and it is expected to double again to $1,000,000,000,000 in the next decade. The value growth goes together with a constant increase of the units of the ICs produced, leading to a sustainable growth of the wafer fab equipment and consequently of the components. This high-tech market environment is a perfect breeding ground for technology companies such as VAT.
The 2020 figures on this slide show that VAT is in the pole position to capture the opportunities of this future positive market environment. The sales of VAT's semi business are expected to grow by about 45% in 2020, further expanding our market share in the core wealth market to about 70%. 30% of the 2020 revenues are realized from products that had their market introduction during the last 4 years. What is hard to see from this number is the length of time it takes to get qualification in the semi market. This can take 1 to 2 years to get through the strict qualification that our customers and end users demand.
For us, the real critical factor is to track the success rate of new platform specification wins. We do this for every customer in every segment of the market. We have set up our key account model to maximize the efficiency of spec wins, and we continue to drive great success in this area. In the last years, we achieved a win rate greater than 80%. At all major wafer fab equipment OEMs, this is a leading indicator of our future share and predicts that we should achieve 80% share in the coming years as these new platforms reach value in the market.
Once launched in the market, a successful platform remains active for at least 15 years. And this is what makes VAT share so sticky or predictable. And as you know, from our market share trend, it holds strong even in a downturn. During the lifetime of the platform, there is a constant drive to optimize yield and the overall effectiveness. This opens up opportunities for our service group to provide high performance upgrades.
My colleague, Joe Hegarty, will elaborate on these opportunities later today. Semi is the largest business for deposition, etching, lithography and metrology through cooperation with all top 10 wafer fab equipment OEMs. And with that, BAT is number 1 in all applications, memory as well as the foundry and the logic business. Vacuum valves are mission critical across the whole wafer production process. And as just mentioned, our share is quite uniform over these applications.
In other words, this means that our valve business is technology and applications neutral. It doesn't matter which technology is ramping, we get the business. As presented in an earlier slide by Mike, the number of process steps in vacuum is increasing with every node size. So more vacuum is needed for leading edge chips and memory, which will drive the demand for VLT valves. VAT's core product lines include several vacuum valve types.
A representative selection is shown on the slide. Basically, these core valves can be divided into valves isolating chambers or tubes and valves controlling and maintaining a defined pressure in the vacuum chamber. In both cases, static and dynamic sealing against atmosphere is an additional key function. At this point, I thought it is worthwhile spending a minute or 2 illustrating where our products can be found on a typical wafer OEM tool. Let's do this by diving into a chip manufacturing fab and find the various VAT components and check their functions.
Semiconductors have become the building blocks of our modern society. They are everywhere and a constant companion in our life. Billions of transistors within a chip work together to power the cutting edge digital devices we use or need today. In such a microchip production fab, we observe hundreds of wafer fab equipment tools supporting an almost endless sequence of deposition, lithography, and etching steps with constant process monitoring. All machines have in common that the silicon wafer has to be moved into the vacuum system from the atmosphere and then be transferred to the various process chambers without contamination or adding nanoparticles.
VAT transfer valve solutions and modules secure this transfer in an efficient and reliable way. In the process chamber, the VAT control valves support the etch or deposition process by fast and precise control of the required process set points. The equipment in these chambers is exposed to extremely harsh environments, which deteriorates any material, especially the ceiling. Fast and reliable downstream pressure control systems are critical components for the yield and productivity in the wafer processing. VAT offers valve solutions in the entire gas flow path, enabling symmetrical flow and uniformity in the hot spot.
After one process is completed, the wafer is moved to the next chamber for a next process step or a post conditioning treatment and finally unloaded from the tool and transferred to the next wafer fab equipment tool. Besides the VAT core valve products in the wafer path and the process chamber, VAT offers integration in modules and launch new products in the wafer path and upstream area, leveraging VAT's core competencies and vacuum design, sealing technologies and ultrafast and precise motion control. The majority and increasing number of wafer production processes wafer
You now have a better understanding on where exactly our products are used in a chip manufacturing process and what they do. With so many different products in all areas of the fab, I'm sure you will believe me when I state that every microchip or let's say every single commercially manufactured transistor has seen hundreds of VLT products. From the animation, it becomes obvious that the wafer fab equipment OEMs are the main customers for VAT. However, since the main users of our products are the chip manufacturers, we spend a lot of time with them as well, understanding the future roadmaps to anticipate the industry needs for the next generation process technologies. This close collaboration with the chip manufacturers and the OEMs helps us to provide better and faster solutions and leads to our competitive advantage and finally, to an increased number of specification wins.
Let me elaborate briefly in the 3 main customer needs: speed, productivity and yield. Speed or in other words, time to market. While complexity is increasing on all fronts in the semiconductor industry, time to market is getting shorter and shorter. The required fast reaction and high flexibility in the product development and qualification need forward looking R and D initiatives and strong key account teams, including on-site application engineers, collaborating closely with our key customers. EIT is continuously investing in all these critical areas.
Michael Zikar, our Head of Core Technology will provide some more details on the R and D priorities later today. Productivity improvements is the second one. With each new platform or valve generation, our customers demand major productivity improvements. For example, manufacturing footprint reduction or increased lifetime of the components, leading to optimized cost of ownership. BAT drives Valve's integration since many years and with that reduces complexity for our customers.
Moreover, we are the only company in the market that can offer a full range of vacuum valve solutions as we move into the future. We will transition this into a complete digital portfolio, which will allow more connectivity. Yield improvement is the 3rd and for an engineer probably the most exciting customer need. Solving technical customer problems in this highly technical world is a challenging, but also a very exciting task. Our engineer strives for the optimal solution for our customers' biggest challenges in the field of high purity, long life sealing solution in harsh process environment and integrated plug and play vacuum design modules.
This way we allow our customers' engineering teams to focus on their core tasks and act as an engineering partner. As an example, BAT can count on more than 2 decades of research in critical fields, such as nano contamination, particle generation in valve operation and high purity value chain. And actually even 50 years experience in vacuum design and Seating Technology. The OEMs are continually developing new platforms and process chambers for the leading edge applications. The mechanical architecture of these tools tend to be similar to previous generations, but with huge challenges with regard to smaller and smaller process windows.
Not only can we offer our next generation valves, but we can also work with them to provide adjacent product solutions, especially in areas that are not well supported by small or less sophisticated suppliers. As shown at the beginning of my presentation, the VAT market share today reached 70% in the semi core wealth market. Given our unique capabilities, we achieved a 50% increase in specification wins over the last 2 years, which will translate into an increasing market share for our core valves. The last 2 years were exceptionally intense in this qualification due to the new OEM platforms supporting 7 and 5 nanometer processes. Based on these already achieved back wins, we secure on the next generation tools a market share of 5 percentage points in control and even 30 percentage points in transfer valves.
While the core valve business will remain the most important business area for semi, the new evolving technologies act as breeding ground for our growth opportunities in adjacent products. We analyzed several organic growth opportunities adjacent to our core wealth portfolio. Some of these future opportunities are still in a very early stage and not yet ready for the market. However, we identified 3 attractive adjacent opportunities with high ability to win: 1st motion component, upstream valves and the expansion of our current modules business into advanced modules. VAT has been offering modules for several years and the advanced modules initiative will now focus on additional functionality such as heating and cooling, superior vacuum performance based on surface treatment and optimized pump regimes for critical applications.
Our customers will benefit from new features and plug and play solution for load locks as well as pre- and post conditioning chambers. These advanced chambers also integrate with our transfer valves and form an ideal turnkey solution. We estimate that VAT can win CHF 50,000,000 to CHF 60,000,000 business with advanced modules by 2025. Let's now have a closer look on the other 2 adjacencies in the defined focus area. Motion components are definitely an attractive adjacent market for us with a CHF 60,000,000 growth potential in the coming 5 years and currently no clear leader in the market.
The existing healthy based motion business and the recent specification wins paved the way for us becoming the market leader by 2023 already. VAT Motion components are installed in different chambers, support the wafer pass and optimize the processes by simple shutters or highly sophisticated control of process equipment. The products are highly customized and a great opportunity to leverage VAT strengths in mechatronics and sealing technology. Our growth ambition in this application is strongly supported by specification wins over the last 2 years and a large project funnel. Many of our key OEMs are in qualification of these products.
With that, with the introduction of the next generation tools, the motion application will become an even more and prominent product family within VAT. Motion components belong to the digital product segment within VAT, where we see a lot of innovation potential in the future. The 3rd and youngest field of adjacent products can be summarized as upstream valves. Historically, VAT's strong market position is built on valves in the wafer pass and the downstream isolation and control solutions, mainly in process chambers. Our newly developed upstream valves allow us to address key requirements in performance and yield for leading edge semiconductor processes, particularly increasing the tool uptime in harsh process environment such as Plasma Clean.
These new solutions are again based on VAT key competencies such as precise and fast actuation, long life sealing solutions and integrated additional features as cooling and VLT's outstanding control algorithm. The upstream valve margin is not only interesting in the forward build, but also for performance and yield upgrades on existing wafer fab equipment. Moreover, it adds to the overall digital product family. Customer are very interested in our new performance features and will benefit from future connectivity options. We estimate the market size for VLT around $60,000,000 to $80,000,000 And we see us very well positioned for a CHF 20,000,000 organic growth by 2025.
So why we will win in these adjacencies? Well, first, we are using the high quality components already in use to build these new products. We will also use our machining and customization knowledge as well as our leading expertise in nanocontamination to deliver differentiated solutions. We will change the market with these products. We will introduce smarter and higher performing features, which will make VAT the standard.
There is also a huge opportunity here to drive higher and more automated production volumes with these components, which will ultimately allow us to achieve the right level of quality, cost and flexibility. To ensure business success, we are also putting the dedicated teams in place to drive and support the business. They will work with our existing account teams to penetrate the market and build our share. This is an exciting area for us and our team is 100% engaged in making it happen. To summarize, the VAT semi team is very proud to be the leading valve technology provider in the semiconductor equipment industry.
The market dynamics will offer high-tech companies such as VAT the prospect of sustained growth. On top of that, our strong ambition on the technology and engineering front will allow us to gain up to 10 percentage points market share in core valves, which will result in about 6% compound annual growth rates over the coming 5 years. Additionally, VAT will leverage its strong market position to extend market leadership to adjacent products such as motion components, upstream valves and advanced modules. Up to CHF100 1,000,000 in organic growth will result in additional 4% compound annual growth rate. In doing so, we are very confident we can deliver outstanding value and performance for our customers and as a result, strong returns for you, our shareholders.
These figures are very ambitious. I'm fully aware of that. But I'm confident that the excellent team we have put together here at VAT can harness this opportunity. We are in the right market and we have the right technologies and our dedication to innovation and solution will allow us to win. There is only one thing you have to remember from my talk today.
When it comes to vacuum technology, there is only one clear leader, that. What else. With that, I pass you back to Mike.
Thank you, Urs, for that fascinating look inside our semi segment. And I think you'll agree with me, ladies and gentlemen, he's going to be busy for the next 5 years delivering the a big part of VAT's growth. So our next speaker this afternoon is Joe Hagerty, who is going to talk to you about the service sector and show you how he's going to deliver a big part of VAT's growth in the next 5 years. Joe?
Thank you, Mike. Hello. My name is Joe Hagerty, and I'm the Head of Sales and Service at VAT. I joined VAT in 2018 after spending 30 years in the high vacuum industry, and I'm quite proud to be part of such a great organization. Today, I have the pleasure to talk to you about a very important part of our company, the Global Services Business Unit.
As you heard from Urs just now, VAT has the most reliable, high quality vacuum valves on the market. Our products are designed to go through millions of cycles and several years of high duty operation with little or no maintenance, except for the replacement of some consumable items. But even a VAT valve needs servicing eventually, and that is where our services team at VAT comes in. We define our services business in 3 major categories. The first is spare parts and gates.
A gate is our primary consumable item and is a portion of the valve that actually performs a sealing function when the gate is closed. As the gate is often exposed to the processes within a semiconductor chamber like etching or deposition, it must be replaced fairly regularly. This is an example of a gate here. It actually acts as the door or the window into a vacuum chamber system. This is designed to be replaced by the customer in the field and thus is considered a consumable item.
The repair portion of our business refers to the repair or refurbishment of our valves. Regular service is not required on all the valves, but is recommended on 35% to 40% of the valves that we sell, primarily transfer valves and control valves. We classify these as serviceable valves. A serviceable valve typically needs servicing every 5 to 7 years depending on the valve type and the process conditions. The final category of the portfolio is upgrades and retrofits and this is the really exciting part of our business going forward as we are currently bringing out a lot of new products to market.
Some quick definitions here. An upgrade is when we take a VAT valve in the field and replace it with a newer version VAT valve. A retrofit is when we take somebody else's valve out of the market in the field and replace it with a newer version from VAT. As you can see, services has performed quite well this year with 10% growth expected by year end and double the overall services market growth in the industry. This growth was achieved despite the COVID situation, which made it very difficult to visit customers and in many cases delayed installation of upgrades.
I think it's also worth noting that last year in the services market in the services market in that year as well. This shows a downturn resistant nature of our services business. I would also like to point out here our worldwide network of 8 service centers. Here, I would like to go into a little bit more detail. The VAT repair network is by far the largest such network in the industry for repairing of valves and this is a huge advantage when dealing with our largest customers.
We are able to leverage this network to secure global agreements with our key customers to take on their worldwide refurbishment demands. We can do this because we can guarantee that they will get the exact same service level in each of our facilities and do so using copy exactly original OEM parts. This is something no other repair supplier can provide in the industry. So the services business is very interesting because of the annuity stream of revenue that it can generate, as Mike mentioned before. So let's look at the expected revenue from each of these 3 main product streams over the 20 year life of a typical valve.
The valve will normally need consumables at least every 2 years or so. So over this 20 year period, this can add up to 2 times the value of the initial selling price of the valve or in some cases even more. Likewise, such a valve may need refurbishing every 6 years or so And this can contribute another 1.2x the initial price of the valve. Finally, Urs and his team in the semi business unit are continually designing better valves with more backward compatible features that improve yield and productivity for the customer. So there is a very good chance that the customer will want to upgrade his valve at some point within this 20 year period to bring his machine up to state of the art performance.
So in total, for every repairable valve sold, there could be up to 5x the value and potential service revenue downstream. I have to caution that the level of this annuity stream potential does depend very much on the valve type and process and can range anywhere from 2x to 8x depending on several different factors. We believe we are just at the starting point for growth and services and believe several factors are leaning in our favor. 1st, we have a rapidly expanding installed base of VAT valves to draw from. 2nd, we have been actively producing a retrofit portfolio of products to replace other third party valves already in the field and we are winning these opportunities at a very high rate.
3rd, this retrofit portfolio when matched with the upgrades of our own products provides our customers a lot of options for dramatically improving the performance of all of their equipment. I will talk about each of these in the next few slides. First, the install base. This chart shows the growth of the serviceable valves I defined earlier, I. E, those valves most likely needing regular servicing.
As you can see, we are rapidly approaching 1,200,000 such valves in the field. You can see this curve is definitely steepening driven by the WFE install base growth of about 4% to 5% and market share gains made by our semiconductor business unit. Currently, we are adding over 100,000 serviceable valves into the market every single year. Now when you look at this curve, it is important to understand we are delivering consumables pretty much across the entire 1,200,000 install base. But in terms of valve refurbishment, that typically doesn't happen until the valve has been in the field for 6 years or so.
So the effective install base for that portion of our service annuity is about 600,000 valves. Upgrades are typically done after the valve has been in the field on the order of 12 years or longer or roughly 400,000 valves is the targeted install base for our upgrades. But the good news is we are now moving into the steeper part of this curve and over the next several years in terms of these upgrades, we should see much higher growth. So, we should have a target rich environment in the upgrade side of the business for several years moving forward. But the good news is we are now moving into the steeper part of this curve over the several years in terms of these upgrades.
So we should have a target rich environment on the upgrade side in the coming years. So from these three streams together, there's a lot of potential downstream revenue from our installed base of VAT valves. But we also want to generate revenue even outside our own installed base. And that's where the retrofits come in. So again, a retrofit is when we replace a 3rd party valve with a VAT valve as shown here in this example.
We are actively generating a very large retrofit portfolio to swap out 3rd party products in the field and provide our customers with much improved performance. Primarily, this performance is in the form of increased yield, higher throughput and less unplanned downtime. And this is very exciting because it allows us to gain another valve sale we wouldn't have otherwise and we're also gaining the downstream service annuity revenue associated with that retrofitted valve. Typically, we also get a higher price for such retrofits as they normally are incorporating new features and functionality and are often sold in lower volume. As I mentioned, we are also designing a full portfolio of upgrade products for our own transfer valves and control valves across all OEM platforms.
And this is very powerful. Together these twin portfolios of both upgrades and retrofits allow us to go to a customer that may have 3 or 4 different platforms in their fab, and we are able to provide improved performance for all the valves, VAT or otherwise, on all the machines in his or her production floor. This is especially valuable for our customers when the fab is trying to go, for example, to a smaller node size or as often is the case, they are repurposing the fab and the machines for new applications or are relocating machines to a different fab. These situations all present great opportunities for our upgrades and retrofits And with such a large selection of these on offer, the customers know to call VAT when they need to drive up the performance of their equipment. Together, we believe the serviceable market for upgrades and retrofits combined is on the order of $500,000,000 So to summarize, we believe the services portion of our business is really set up for strong, consistent and profitable growth going forward.
We hope to significantly increase our market share in services to above 50% by 2025 and to be approaching $200,000,000 in sales at that point in time. Coupled with the relatively high profitability of the services business, this should bode well for VAT and our investors. We have a great worldwide team in our services business unit, and I'm very confident we can execute on these
deliver the growth that you've heard from Urs, Joe and myself. So with that, I'd like to introduce Michael Ziecher, who's Head of our Core Technology Group at BAT. Michael, floor is yours.
Thank you, Mike. Thank you, Mike. Good afternoon from my side. My name is Michael Zikar. I'm leading core technology at VAT, and I'd like to give you some insight into our R and D programs and preview on our future VAT technologies.
World class R and D and innovation are key success factors in our fast paced and challenging market. Over the past years, we have constantly strengthened our R and D workforce and expanded our core competencies to deliver next generation technologies, market leading valves and adjacent vacuum components. Our focused R and D spending reached about 6% of our sales volume in 2019. As a comparison, this equals about the valve sales volume of our closest competitors. 10% of our budget is used to focus on disruptive technologies and breakthrough innovation.
Our R and D team has grown to over 200 people. The innovation power of our engineers, scientists and related functions is the foundation of our strong R and D performance. The average VAT experience level of our R and D personnel is 8 years, and constant development of our global teams will increase VAT's problem solving skills for the future applications. To fulfill the high demand for new products, we increased our R and D spending through the down cycle in 2019. The numbers of project development projects rose to an all time high.
There, winning all the opportunities was and is a key priority of our global engineering teams. To measure the effectivity of our R and D work, we have introduced the metric of spec wins. In the past 3 years, we have doubled the amount of owned projects to over 90 spec wins in 2019. The success rate in new product development is higher than 80%. Our strong R and D investment translates to our industry leading portfolio and amounts to over 400 active patents and patent applications worldwide.
The importance of intellectual property and patents is rising with our growing market size and expanding markets. Having a strong IP protection of our product secures our freedom to operate and maintains exclusive rights to our technologies and products. Moreover, it protects our customers' developments by giving them IP's right security. During the past 20 years, we have continuously expanded our IP leadership in our field and built an outstanding patent position. As a result, VAT owns more vacuum valve technology related patents than all our main competitors combined, as you can see in the display chart.
Due to the 18 months publishing delay of patent applications, the data for 2019 2020 is not available yet. The average age of our active patents is about 8 years. This means that the average remaining patent lifetime is 12 years. Now let me explain how we translate our R and D work into next level of market growth. Our research programs are segmented in 3 main areas: 1st, Secure the Core, Enable Adjacent Growth and our digital transformation program, Connected VAT.
Expanding our leading position in our core markets is a key priority. A large amount of our R and D budget goes into the development of necessary advanced technologies to secure the success of our core products and markets. Now a number of adjacent components have very similar requirements to vacuum valves and steadily increasing technical specifications open options to rethink and redesign adjacent component spaces. I will show you example how we successfully leverage our core competencies to create adjacent product platforms. These new products allow us to build additional revenue streams, take better use of our assets and therefore accelerate profitable growth.
The last area is about the digital transformation of our products. Like in other industries, the semiconductor industry is increasingly implementing the benefits of Industry 4.0 applications and leverage data to improve productivity. VAT's goal is to lead digital transformation of vacuum components through our connected VAT program and to set the standard of digital connected vacuum components. A main ability of our R and D organization is to anticipate and capture future requirements and technical inflections in the industry ahead of time. This allows us to derive the right technology and product development programs.
For the past decade, the semiconductor industry has been the strongest driver for our innovation. The big technology drivers remain intact and require even better, cleaner, faster and highly customized vacuum solutions. Moore's Law has been revitalized by the insertion of EUV technology and technical challenges to our customers. Moving to the sub-five nanometer area requires components with higher intrinsic performance and product quality. For example, vibration of vacuum valves has to be minimized and part to part variability strongly reduced to ensure that the performance of every vacuum chamber matches perfectly with the 1st qualified chamber.
Our strong partnerships with industry leaders allow us to provide the required unique and customized solutions. Moving to smaller node sizes drives specifications to higher purity levels and prohibits the emission of nanoparticles from our valves. Here, we talk about particles that are smaller than the cross section of a human hair divided by the factor 1,000. Silicon wafers pass through our transfer valves and any particle landing on the wafer can destroy 1 or more chips decreasing wafer yield. We benefit from our strong investment into cleaning technologies and our unique particle lab delivering proven technologies for next node sizes.
Another strong driver for innovation is the symmetric flow requirements in Advanced Chamber Solutions. To fulfill this requirement, VAT has invented the symmetric control valve. Innovative vacuum design paired with our best in class control algorithms are strongly improving wafer process uniformity and have direct impact on wafer yield and throughput. A last big driver is the fast growth of super dynamic processes like atomic layer deposition and atomic layer etch. These new applications require a step change in control valve speed, accuracy and flow addressing perfectly VLT's combined core competencies.
Developing adjacent product platforms is allowing us to accelerate our growth. We have decided to play in adjacent fields that leverage our proven vacuum valve core competencies and our existing partnerships in the market. Solving our customers' high value problems helps them to reduce complexity and their time to market. Let me explain our approach on 2 examples, motion components and advanced modules. Both product platforms build on the same material and coating knowledge.
Both are fabricated by our advanced machining concept. Our engineers have the perfect methodologies to design and build such high quality vacuum components. Adjacent products have to fulfill the same cleaning and particle specification as valves. This is why they benefit from our existing high purity cleaning processes. Our mechatronic pin lifters are controlled by our proprietary motion control technology, the same that is used for pressure control valves.
This enables future connectivity and better functionality. Advanced modules now combine and incorporate our components into a compact assembly and deliver a higher level application. For example, where regular valves and load lock modules consist of passive components, advanced modules deliver an application like controlled pumping and venting or simple wafer conditioning functions. Component integration reduces tool complexity for our customers, deliver a compact design and superior system performance. In an actual example, we have reduced the module footprint by 26% and increased pump speed by 22%.
Semiconductor processes have become incredibly complex. Currently, over 1500 individual process steps are required to produce a high performance semiconductor chip. The manufacturing process alone takes up to 3 months. At the same time, the cost per wafer is increasing and amounts to $10,000 per wafer or more. Smart semiconductor fabs increasingly use production data to control and optimize the production yield.
We are seeing an increasing demand component performance data through the OEM as well as semiconductor fabs. Based on our innovation pipeline, we also estimate that over 50% of our new product developments will have digital features by 2025. To address this emerging need, we have introduced our connected VAT program with the goal to understand future digital use cases and to develop the required skills and technologies within VAT. Connected VAT combines 2 new opportunity streams. The first stream is driven by our increased supply of products, be it through market share wins or adjacent product growth.
The second one is the growth of our digital product portfolio. Main building blocks of the connected VAT programs are the integration and use of sensors, data and analytics to unveil new value adding and differentiating functionality from our digital products. These electrified products are based on our proprietary motion controller that already contains the necessary edge compute power as well as the communication to higher level systems. This connectivity allows the communication to relevant valve performance data to the OEM tool. Moreover, it enables connecting to the digital adjacent products, which ultimately leads to better system performance.
Connected VAT is a huge opportunity to develop a new series of connected products. We are currently preparing market tests for Level 1 features, delivering new diagnostics functions for our vacuum components. Level 1 features will be the foundation for predictive maintenance and future serviceability models. Level 2 features add intelligence to our products and unveil specific functionality beyond the actual use case of our components. These features are currently being developed and tested in our R and D lab.
Level 3 features use connectivity between components to increase system performance and promise a step change of product performance. First embodiments of such connected subsystems are being installed in our labs. Let me explain the technology on one of our new pin lifters. In the past, those products have been done pneumatic devices. These new products are equipped with fully mechatronic drives.
A first big advantage for our customers is that the motion of the lifter is fully customizable the actual application. Speed, acceleration, motion, stroke or vibration can be optimized to deliver optimal performance depending on the wafer requirement. Additionally, level 1 features enable predictive maintenance and include new functions like actuator wear out monitoring, motor condition monitoring, leakage indicator and the number of air functions. These features enable continuous condition monitoring of the component and display of warnings before the product fails on the tool. This functionality avoids running components to failure and helps the OEM improve uptime and throughput of the tool.
For VAT, level 1 functions improve component performance and reliability and open new advanced service models. As said before, Level 2 features are currently being developed. We do have 3 exciting new features ready for market testing and 6 more in preparation. Those features are perfectly suited to redefine the component performance level and support our value pricing initiative. Through the unique new functionality, the customer will benefit from faster setup and calibration time, improved wafer yield and get the option to differentiate the tool performance.
In terms of level 3, system solutions, we have 3 first great use cases defined. Those features will enable dynamic system tuning and adaptive systems, both big development topics in the market. These developments have the potential to set the new benchmark for system performance and connectivity. Both level 2 and 3 features have the potential to redefine our component markets through extended functionality and will improve our competitive position. Let me summarize.
My goal of the last 15 minutes was to convince you that our R and D team is well prepared to deliver the necessary improved Bioph technology for the sub-five nanometer era and beyond. There are many strong technology drivers on the horizon, and VAT has historically proven to outperform competition through innovation. Our IP position and spec win process are the backbone of our business unit's growth engine. We have successfully transferred our core competencies and spec win process into organic adjacencies, accelerating our future growth. Last not least, we are driving the digitalization of components through our connected VAT program.
Digitalization will help VAT to provide unique extended component performance. Moreover, the program helps us to develop stronger partnerships and scoping the technical content of future acquisitions. With that, I would like to hand over to Mike again.
So thank you, Michael, for that fascinating look at the innovation team within VAT. Next on our agenda, I'd like to introduce you to Thomas Burton, who is the COO of VAT. And he's going to give you an insight into our operations footprint and his plans for the next 5 years. Thomas?
Thank you, Mike, for the introduction. Hello, everyone. My name is Thomas Burden, and since October, I am responsible in the role as CEO for the operations within VAT. Let me now introduce to you on our operations strategy at BAT and how operations contributes to sustainable value creation. 1 of our key pillars, how we drive operational excellence is through our global and flexible footprint, on which I will elaborate in the next minutes.
Here are a few facts on our operations to give you some insights and what we have achieved recently. At first, we at VAT currently have 3 production sites and in total about 1400 employees who are working in our operations organization. This team has produced 250,000 valves in 2019 and thereby, we kept for our people the highest safety standards with a low number of occurrences in our factories. What is also worth mentioning is the fact that we commit to our customer a flexible and agile ramp up of minimum 20% per quarter. This year, we have significantly ramped up our factory output in our Malaysian plant by 70% versus last year, keeping our highest quality standards and delivered on our promises to our customers despite a partly difficult business environment due to the corona pandemic.
At the same time, we also increased the share of purchase volumes coming from best cost countries to 12%, which contributes to lower cost and leverages our cost position on a global level within our supply chain. Within our operations strategy, we have defined 3 key imperatives or so called must win battles on which we must succeed in the years to come in order to enable our profitable growth path and ensure our ambitious targets, which Mike has talked about earlier. 1st, we have to further optimize our global customer oriented supply chain and establish a flexible and competitive cost structure while growing our business and enlarging our footprint. Our localized footprint supports VAT's competitive cost structure, mainly with our Malaysian factory and a purchasing organization that sources with much intensified effort and in best cost countries around the globe. Our operation model supports the necessary flexibility, allows us to ramp up and down capacities according to the business needs.
This will be realized by leveraging our capacities with external partners on the one side and flexible working models within our operations on the other side. At the same time, we ensure projected growth by widely investing in necessary competencies and capacities always ready for the next ramp to serve our customers in a very cyclical environment. The second key imperative is focusing on an integrated approach that targets at seamless processes along the full value chain and making sure that we optimize our cost basis and our lead times. Of course, this goes along with our well known and outstanding quality and reliability our customers are used to for decades. In addition, the 3rd key element is focusing on shaping an effective and efficient global operations organization that is preparing and managing our projected growth.
We in VAT have a competency based business model so that we will further build up an international workforce and leadership team that can cope with the current challenges of necessary transformation and brings us on the next level. Especially new and differentiating manufacturing technologies and an increased spend on digitalization of our processes and equipment are priorities for us. Our lean philosophy ensures robust supply chain processes with minimum waste and focus on customer value. VAT's footprint consists of 3 fully fledged factories in Switzerland, Malaysia and Romania with a redundant and flexible setup that allows us to produce a broad spectrum of our products in both sides, thereby ensuring business continuity as required by our customers. Our Swiss factory is historically our technology driven lead factory whose setup is designed for high mix and a high degree of automation, whereas our cost efficient Malaysian plant that was recently expanded is so far set up for higher volumes and has started to build up global functions to support our increased effort for decentralization.
Our Romanian factory that is just as our Malaysian plant situated in a best cost country environment has the role of an internal and flexible supplier and serves as a hub for engineering and purchasing activities. With support and out of our Malaysian side, we are evaluating necessary options and get prepared to promptly build up supply chain structures in China when the right time comes. Let us now have a look at a video that gives you some insights on our Swiss and Malaysian plant and our great team.
BAT, Passion, Precision,
Within our defined strategic period until 2025, we are going to improve massively our cost position in our supply chain and therewith contributing bottom line to our profitability. While the factory output of our Swiss factory remains relatively stable, we will quintuple the output in our Malaysian factory, bringing the share in best cost country environment to roughly 50%. Our Malaysian plant is preparing for this growth by putting in place the necessary processes and structures supported with the investments needed to be ready for the next upward cycle. At the same time, we will also significantly reduce our purchase costs by sourcing more in and from best cost countries with high focus on Asia and Eastern Europe and therewith not only diversifying our global supplier base, but also ensuring business continuity for our customers. We have just recently concluded on and put in place for the first time a true global thoroughly defined sourcing strategy well embedded in our operations strategy.
This purchasing strategy holistically addresses all relevant aspects we need to transform our organization, such as short lead times, ride quality, managing supplier risk and costs, flexible agreements as well as an optionally and flexibly outsourcing parts of our processes on an as needed basis. Let me now briefly summarize what is important to memorize about the contribution of our operations organization to the overall success of VAT and what are our priorities in the forthcoming years. Based on a high performance in the last cycle, we continue our transformation and put high emphasis on our key topics: global footprint transformation, best cost country purchasing, operational excellence and lastly, structure and organization. We will and we have to accelerate our global footprint towards a true flexible and agile production network that is capable of leveraging the cyclicality of our business. With a clear focus on growing VAT's factory over proportionally in our Malaysian factory, we are going to be in a much better cost position, while at the same time reducing our lead times and being closer to our customers.
Supported is our growth ambition by our overarching VAT operational excellent program based on lean principles that will secure reliable productivity year on year and ensures a much higher supply chain resilience. And this eventually leads to not only a competitive advantage of our competitors, but also to an increased operational efficiency and higher customer responsiveness contributing to our ambitious EBITDA target range of 30% to 35%. Thank you. And with that, I hand it over again to Mike.
Thank you, Thomas, for that interesting look into our global footprint. So what you've seen now is our 2 key business areas, and you've seen our innovation group and lastly, our operations group. So what I'd like to do now is pass you on to our CFO, Stefan Bergeman, to conclude the numbers and give you an insight to what you would expect in the next 5 years. Stefan?
Thank you, Mike. Let us now turn in the last part of today's Virtual Capital Markets Day to the financial aspects of VAT. As you can see on this slide, the 1st 9 months of 2020 have seen a strong rebound from the cyclical downturn we experienced in 2019. Orders and sales both increased by some 26% over the previous year's period, driven by the recovery in our end markets, especially in semiconductor and services and our sustainable market share gains, bringing VAT's group market share across all industries to over 50%. For the full year, we have guided our sales to be some 19% higher compared to the 2019 or CHF678 1,000,000 at midpoint with an EBITDA margin that is expected to be greater than 30%.
This performance is further proof that VAT, also subject to cyclical the When VIT went public in April 2016, making the transition from a family owned company to a publicly listed enterprise, we gave some guidance on our midterm expectations for several financial parameters. Now, nearly 5 years later, we can proudly look back and state that we have delivered on our original value proposition. Our compounded annual growth rate between 2015 2020 reached 10% and is fully in line with our guidance of high single digit growth over the cycle. We also were able to maintain our profitability across this time between 27% 31%. Reaching 27% EBITDA margin in 2019, a year with nearly 20% sales decline, showed the progress we made in our flexible business model.
Remember, our tough margins in previous downturns of similar magnitudes was 23%. The fact that we have not yet reached our previous EBITDA margin goal of 33% yet is mainly due to the fact that we had this downturn in 2019 and, of course, also the headwind we got from the strong Swiss francs. As a result of VAT delivering on its promises, the VAT share price increased substantially since the IPO, outperforming not only the Swiss market index, but also beating the NASDAQ index by quite a margin. Shareholders who participated in the IPO and stayed invested have been able to realize a very substantial total return on their initial investment. So let me recap our value proposition.
It's based on 3 pillars: growth, profitability, capital allocations. Our growth will come, as you have heard before, from the general market growth, especially in wafer fab equipment being the fundament of our semi growth story. However, with our expected additional market share gains between 2020 to 20 25, we aim to grow faster. This fast growth is supported by the organic adjacencies in our semi business and a strong growth of our service business. Additional growth will come from the business units display solar and Advanced Industrials, 2 important market segments we will show to you in more detail at our next Capital Market Day in 2020 21.
Profitability, our second value pillar, is expected to remain on a constant high level, expected to be in a full year range between 30% to 35% over the cycle. The low end of the band is a full 3 percentage points higher than the full year trough levels we have seen in 2019 down cycle when we reported an EBITDA margin of 27%. This goal is achieved by further improvements of our operational excellence, where we continue to invest in optimized where we aim to be able to adjust our cost base quickly to changing market demands. This means we need to be able to quickly ramp up when customers require more volume and to be able to also ramp down again should the markets cool off. Our commitment in this area is that we can ramp up our output by 20% during any given quarter.
Our flexible cost structure with about 2 thirds being variable costs give us a good base resilience in downturns. Another important profitability driver will be our intensified efforts to strengthen the best cost country footprint in VAT. As you have heard from Thomas, one big driver of this will be the full ramp of our production facility in Malaysia to more than CHF 500,000,000 in sales with the adequate supply chain, but also in HAG, heavy earmarked supply chain topics for improvement. Now with growing sales and a high profitability over the cycle, VAT will continue to highly cash generative as we expect to convert on average between 60% to 65% of our EBITDA into free cash flow. This financial strength will allow us to further expand our clear innovation leadership in the industry we serve, constantly strengthening our IP portfolio on a sustainable basis.
This financial strength is another key for VAT to be able to react quickly on capacity adjustments so that we are always able to offer our customers an adequate production capacity with enough ramp reserves to handle also unexpected surges in demand. Our financial strengths will, in addition, allow us to potentially look for inorganic value creative adjacencies in the future. Here, we think of smaller technology bolt ons as a start with more sizable moves only in later years, if any. Having said this, returning cash back to our shareholders remain one of our key value propositions. We will continue to pay out up to 100 percent of our free cash flow to our shareholders as long as the leverage is around 1x net debt to EBITDA.
On this next slide, I summarize our new guidance for the time between 2020 to 2025. You see a number of confirmational tick marks where we are not changing our guidance from the one we gave at the time of the IPO in 2016. Net sales are expected to continue to grow at a high single digit pace, as you have heard from Mike, and other key metrics remain unchanged as well. This includes our CapEx envelope, which remains between 4% to 5% over the cycle, our goal to have around 20% of sales as working capital the leverage expressed as net debt over EBITDA, which we feel comfortable about at around onetime. Our dividend policy also remains unchanged, and we hope this will continue to please the financial community.
100% free cash flow to equity is earmarked for distribution to our shareholders as long as the leverage does not exceed 1. So where is the additional news? 1st, we continue to commit to a strong profitability, expecting the EBITDA margin to trade within a band of 30% to 35% of sales. This band assumes a constant U. S.
Dollar, Swiss franc FX level of 0.90:one and a cyclical downturn that would not exceed 20% of sales in a single year. At these levels, we expect to reach our previous EBITDA margin target of 33% at the level of around CHF800 1,000,000 in sales. We also have a strong commitment to our research and development expenses, which will be between 5% to 6% of sales over the cycle. Innovation is one key area of VAT's future success, and we will never compromise our ability to develop the leading edge technologies to help our customers reach their goals. Our strong EBITDA performance, coupled with our disciplined CapEx model, will allow VAT to continue to have a very strong free cash flow profile with an expected free cash flow conversion range of between 60% to 65% of EBITDA.
This free cash flow is the basis for our attractive dividend policy I mentioned before, giving our investors the confidence that VAT will continue to pay a good dividend. Last but not least, we have also introduced a return on capital employed measure, which we expect to be greater than 40% over the cycle. On this slide, you see our new margin guidance for the period between 2020 2025. Assuming an U. S.
Dollar Swiss franc exchange rate of 0.90 times, our EBITDA margin should always be between 30% 35%, regardless of where we are in the cycle, provided the decline is not more than 20% in any given year compared to the previous one. While operational efficiency improvements in our production hubs will contribute to this improvement, the most significant focus during the next 5 years will be our accelerated movement to best cost countries and the navigation of the U. S. Dollar challenges. We call this our flex model with which we have introduced a key planning and decision taking tool in order to better guide the VAT performance through the business cycles.
The Flex model is deeply rooted in our overall financial model, which in turn is driving our road map regarding investments and other key business decisions, such as personal structure with the appropriate split between time worker and permanent employees or the ideal networking capital levels, etcetera. The flex model will allow us to stay in the target profitability range even in cases of sudden sales changes of between plus or minus 20%. Historically, VAT has spent about 4% of sales on CapEx. During the period 2017 to 2018, VAT has executed a major expansion of its facility in Malaysia, increasing the CapEx as a percentage of sales to around 7% during this time. Today, VAT has a capacity potential of between €1,100,000,000 to €1,200,000,000 in sales, shared between HAG in Switzerland and Penang in Malaysia, as you have heard from Thomas earlier.
To get from the currently roughly CHF700 1,000,000 in sales to this full capacity potential, selected additional CapEx in our production locations is required. These investments include, in Switzerland, further factory automation and the build out of HAG as the group's technology center. In Malaysia, we will have to invest in additional machining and clean room capacities, plus the establishment of a research lab for application engineering. Last but not least, we will invest also in our facility, Narad, Romania, where we increased the overall capacity of this facility as our internal supplier. As a result, VAT is confident that the CapEx needs for the period between 2020 2025 will be on average in a range between 4% to 5% of sales.
Let me now turn to another very important aspect of VAT, our economic profit generation capabilities. On this chart, we have plotted the development of our invested capital, our net operating profit after tax as well as the corresponding return on invested capital in relation to our weighted average cost of capital. As you can see, our invested capital has gone up in the years 2017 2018 as the result of our roughly CHF 45,000,000 investment in our production facility in Penang, Malaysia. The NOPAD movement is reflecting the cyclical downturn in 2019. Our strategy to continue with the proven asset light model with only about onethree vertical integration and about twothree being sourced from outside will continue.
Hence, our invested capital is not expected to grow over proportionally in the coming years to enable our organic growth strategy. Therefore, we expect our return on invested capital to remain comfortably above 40% in the coming years. This is a substantial spread over our weighted average cost of capital of around 10%. This 10% have been taken from the 2019 impairment testing, and we believe that this is pretty sense the right level. With such a outperformance, VAT is able to create sustainable economic profits over the next couple of years and thus, also creating value for all our stakeholders and shareholders.
As I have shown you, VAT continues to have a very strong financial foundation that will allow us to capture all growth opportunities that are presented to us while at the same time also rewarding our shareholders. Going forward, we will continue to use our funds prudently and in the same buckets we have done in the past. This means that we first invest in organic growth of our company by investing the appropriate amounts into capacity, innovation and operational excellence. This approach will fuel our future high single digit group sales growth and our profitability and cash generation, which will allow us to honor one of our key value propositions, the sustainable reward of our shareholders with appropriate dividend. With this, I hope I have been able to show you the financial value creation potential of VAT.
And I would now like to hand the stage back to Mike for his closing remarks before we open for the Q and A session.
So thank you, Stefan, for that excellent summary of our financial goals for the next 5 years. What you've seen today is an outstanding company participating in exciting markets with the opportunity to outperform over the next 5 years. With our leading position in high end vacuum valves, VAT is best positioned to harness the megatrends and deliver significant above market growth. Many of the specification wins that will drive our share and future growth have already been secured. So we are confident that this, in conjunction with our new adjacencies will drive us to €1,100,000,000 over the next 5 years.
And this is without inorganic add ons. We have also shown you how we expect to secure a market leading EBITDA corridor of 30% to 35% with the transformation of our operations footprint and migration to best cost countries. All in all, it makes VAT a very convincing investment opportunity. As we look into 2021, what type of market outlook should you expect? Obviously, with the COVID pandemic still very present in our lives, we will not give a full year guidance at this point.
However, these are the estimates we see for our market segments at present. In semiconductor, we expect to see 5% to 10% growth, driven mostly by higher investments into memory, driven by 5 gs and data centric applications. We will grow above this level as our share gains and adjacencies take hold. In the service market, we expect to grow in the region of 4% to 6% as our installed base increases. But obviously, as Joe pointed out, we will grow closer to 9%.
In the Advanced Industrials, we will see a gradual recovery and expect a 3% to 4% market growth. Our share gains and movement into new sectors should add a few additional points of growth. Display will have a challenging year as we come off the LCD peak and we expect minus 10% to minus 20% market reductions with only the mobile OLED sector driving investment. As explained earlier, we do expect this to improve in 2022 or 2023. We will work hard to offset the reductions with share gains, but overall, we still expect our sales to reduce in 2021.
In solar, we expect approximately 10% market growth. Overall, we are optimistic about the year ahead and we'll continue to update you through the year. As a summary, I will leave you with our growth plan for the next 5 years. We are in the right segments. We have the right differentiated products, technologies and competencies.
Our road to CHF 1,100,000,000 is clear. We will likely see some market fluctuations, but you can be sure that we will do everything possible to meet these targets and perform for our global stakeholders. I would like to end by thanking my outstanding team for their contributions and excellent presentations today. With that, I will end the formal part of the day and move to the Q and A portion. Thank you very much.
Okay. Thank you very much, Mike. Before we now start with the Q and A, a couple of remarks. Today, you have the option to either ask your questions via the chat window in the webcast or ask them via the phone when you joined us on the conference call. Our operator has and limit your question to 2 questions at a time.
As for questions submitted by the chat function of the webcast, those questions will come directly to me, and I will read them out to our executive team for answering. With that, we are ready to start, and I ask Mike to come back here to the speakers' podium. Once we are set, we'll take the first question from the webcast.
Mike? Thank you.
Okay. So, Mike, the first question is from Sebastian Kuehne, submitted by the webcast. Sebastian asks M and A. It looks like VAT does not see major M and A opportunities in the market and will not drive growth through M and A, but only through organic business. Is that correct?
Do you look at any potential EMEA targets at the moment?
Okay. Thanks for that. What we wanted to present to you was our organic plan. That's a real plan. And I think you've seen today real actions and plans in place to achieve that organic growth target.
Of course, we'd like to do inorganic. We've set a framework in our connected VAT and how we would insert new components or technologies into VAT. And our job now is to find the right ones with the right criteria and the right value add to VAT. So we've structured a team to help us with inorganic acquisitions. We are looking hard at the market to define the right ones.
And I think in the future, you will see some level of inorganic activity from VAT. Thank you.
Thank you. Next question again from the webcast is from Reimer Rosenau at Helvetische Bank. What was the capacity utilization in Malaysia through 2020 on average by the end of the year? And how was the ramp up shaped over the year? Listening to your statement, the average utilization for the full year should still only have been around 25%.
Moreover, by how much can you still increase the capacity by optimizing measures, not investing a great deal anymore?
Okay. I'll take that one. Malaysia is at the start of a journey. We've invested heavily in there with the right infrastructure to grow and you saw the video today I think a fantastic capability we've got in place. This year we'll do just over €100,000,000 in Malaysia.
So that's about 25% of the total available capacity or closer to 20% actually. We think we can get to €500,000,000 out of that facility. And that's going to grow over the next 5 years as you saw in the presentation. We're putting our latest products there. They're the easiest to qualify and get accepted by the market.
And you will see Malaysia systematically growing over the next 5 years. Next year, we expect somewhere in the region of €170,000,000 So pretty steep growth on top of the already steep growth we had in 2020.
Okay. Thank you. We have a service related question from Leopold from Lazard Asset Management. Are your products supposed to be replaced regularly? And are they wear parts to some extent?
So what is the situation here?
So I'll pass that one on to Joe. Joe?
Yes. Thank you for that question. Yes, we do have some consumable items in the gates, in the valves, predominantly the gates and the Siegel kits. These can generally be replaced as early as every 6 months or 2 to 3 years depending on the process and the valve type. So that is part of the consumable stream that we have in our service revenue.
Okay. Then we have another question from Reopold. It deals with market share. Why is your market share higher on the next generation tool? What is it you can do that your competitors can't?
Well, I could speak all day on that topic, but I think I'll give Urs a chance to come in here.
Thanks for the opportunity here. So for sure, as we try to also to show in our presentations, the complexity is increasing and especially in the smaller nodes, complexity is increasing quite a bit. And this is the opportunity for VAT to bring in the latest technology. And as we also show, there is fortunately for us not too many competitors around. So we are the leader in technology.
And this is why we have most of we have a lot of spare claims on the latest tools.
I think maybe one other thing is the particle levels. In the latest generation, we see a need to have almost 0 contamination levels, and that also has a major, major impact. So they're really the key criteria.
Okay. We just got a question from Quang Lee from Columbia Threadneedle. It's about market share and service. Why is it just 37% versus the 50% to 70% percent in all industries or semi? Do customers service themselves other options?
Joel, would you take that one?
Yes, sure. Thanks for that question. Yes, there's no doubt we're actually playing catch up in terms of market share in services versus, say, the semi market share. There's quite a few reasons for that. In part, I think we're turning ourselves from a reactive service organization to a proactive one.
So we're doing a lot of work on building what I call a scalable product portfolio. A good example would be in repair, where we're trying to offer to customers gold, silver, bronze type repair packages upfront as part of a fixed priced refurbishment program. These are scalable types of products that we can bring to our customers. There's also no doubt that on the consumable side and the repair side, the barriers to entry into the market are much lower for competitors. So we have a lot of local competitors that position themselves close to the fabs that we have to compete with on basically a daily basis.
And so our way of countering that is to offer these OEM products, OEM original factory products from Malaysia and V8 and HOG. And couple that with our network of 8 worldwide service centers, that's something no other local repair shop can possibly match.
Before going to the callers on the conference call, two questions from Jorn Ifford, UBS. The first one, can you tell us what you expect is the multiplier for VAT valve usage per wafer production going down in node size from, let's say, 20 nanometers to 7 or 5 nanometers? And the second question would then be adjacent product. Is the €140,000,000 sales add on potential gradually materializing over the next 5 years? Or will it be rather back end loaded?
Sorry, could you repeat the second part? I was
So the adjacency, the adjacent product, the €140,000,000 in sales, is that materializing, let's say, linear over the 5 year period? Or do we expect a higher push towards the end of the period?
Yes. The starting with the second part first, the adjacency is definitely not linear. I think we've explained before that we focus on spec wins. And then we have an adoption period of 2 to 3 years before these hit high and we're winning a lot of individual spec wins and we're starting to see that grow. But it really compounds in 2023 to 2025 when a lot of these new adjacencies hit volume.
So the growth definitely will be higher in those few years. The first part of the question, the multiplier on VAT valves as it goes to different nodes. I mean, I think you have to take the overall multiplier roughly of WAVR fab CapEx. And there's various numbers out there. Every OEM has a different number for the Waver Fab CapEx multiplier.
It's around 1.2 to 1 point 4 typically as you go from generation to generation.
Okay. Thank you, Mike. And now operator, first question from the phone, please.
The first question from the phone comes from the line of Michael Firth with Sontobel. Please go ahead.
Yes. Hi, everyone. Thanks for the excellent presentations. Two questions from my side. In your slide on the semi business, you distinguish between the 6% growth of the business itself and 4% growth for adjacencies, I think.
The 6% underlying growth here, that seems to be already the market growth of the excess equipment market. And well, I would guess that you gain market share and that eventually vacuum processes are growing faster than the overall market. So how come that 6% number is well, it seems a bit conservative to me. Can you maybe put that in perspective? And then the second question I have, when you talk about connected VAT products, could you give us a sense of how much margin uplift you would expect from the superior value of Connect VAT products?
That's it from my side.
Okay. The first part of the question, semi wafer fab equipment CapEx is growing average 4% to 6% through the cycle. We pegged our growth the very top of that range. You may think it's a little conservative, but we're trying to give you a view out 5 years and we didn't want to be ultra aggressive on that. We did put in 4% total growth on adjacencies, which is quite aggressive.
So I think the combination of both of them, a 10% growth through the cycle is a pretty aggressive number. If the market grows faster, then we'll do better. But that's the balanced view that we have at present. On the connected VAT, I think it's too early yet to say what the margin uplift is. The first part of our program is to really secure the diagnostics and really help Joe with a new set of capabilities to increase the service intensity.
There is definitely an opportunity for Urs, and maybe you could say a few words on this as well, Urs, to improve our performance envelope of our products and maybe even offer a wider portfolio from a base product where we can compete on price in the market and then have a whole bunch of value added options that will improve our pricing. But I don't think we really understand yet what the total margin opportunity there is yet. Any thoughts on that, Urs?
Yes. As you mentioned, so I think the big portion will be that, first of all, you have to offer a complete portfolio to the market that is capable to be connected in the end. And then through the features, and then we have to learn a lot what the industry is also requiring. So we have to add value to our customers and to the end users other than if we don't find these ways to add value. Of course, it's not valid to bring that to the market, but we are quite confident.
What we have seen in our lab, you cannot see that. I can see that what is going on in our lab. We have we make great progress in bringing up new features.
Yes. One other point on the growth numbers. You have to take into account the FX situation also. We're certainly seeing a significant headwind this year, and we'll see a further headwind next year. And who knows where the dollar franc ratio is going to go in the years after that.
But we're already including, as you saw, a 0.9 ratio in our growth to €1,100,000,000 and that has a significant impact at least in 2021 and the baseline today in 2020.
The next question from the telephone comes from the line of Robert Sandler with Deutsche Bank. Please go ahead.
I've just got two questions about M and A and monitoringanalytics. So on M and A, when it comes to larger M and A, would you prefer to pay in equity to protect the dividend? Or would you be willing to pause the dividend and pay in cash or even lever up above the 1x level? That's my first question. The second question would just be thinking about the trend towards more sensors, in situ monitoring and analytics within the chamber, would you be willing to cooperate with other companies like InfraCon and Edwards to accelerate this trend?
Or would you prefer to develop your own internal capability? And what about interoperability of the data? Who develops the software? And of course, who owns the software is who owns the data is often a big challenge here, which is that the IDMs don't want to pay for data that you supply them back in the form of software?
Interesting questions. Let's take the M and A one first. I think for a larger M and A, it would likely be an equity deal. I think our investors, as I talk to you, the combination of a growth stock plus a solid dividend stock has a very, very strong appeal and we'd like to keep that up. Certainly for smaller tuck in technology acquisitions, we may pay that from cash or as you see leverage a little bit.
But think it really depends on the size of the deal. But we understand what you're looking for, and I think we try to optimize the returns for our global shareholders. On the question of connected, we are looking at that. Would we have some form of a connected infrastructure? I think you've got to understand that our customers, the OEMs already have a technology framework, a software framework, a We want to We want to enable our customers.
So the question is can we do something locally in our components that gives them a result faster or a higher level of performance. Maybe by having that localized at a millisecond level, you can perform much faster than from a system level host computer. So I think that's where we want to play. We want to augment our customers' roadmap. Now if there was an opportunity to bring in a 3rd party component and it really leveraged the performance that we could provide to our customers, then absolutely we would consider that.
And I think we've got a much stronger technology team. We've been hiring a lot of people with very strong process systems knowledge and architecture. And that's allowing us to look at those opportunities. For example, we've got many sensors and measurement devices running in our lab today, testing out the ability to provide additional inputs into our control valves to provide a better solution for customers. So that's the type of thing we're looking at.
So we wouldn't rule out connectivity to a 3rd party. But obviously, we'd rather have a technology tuck in or do an organic growth project to harvest that opportunity for VAT. Thank you.
The last question from the phone comes from the line of Sandeep Deshpande with JPMorgan. Please go
ahead. Yes, hi. Thanks for having me on. My question is, firstly, on the margin. I mean, your market share has been growing over the last few years.
And I mean, your market position is, I mean, unassailable in the world market. Why is it that the margins have not levered up on the back of this market position is my first question. And then the second question I have is, again, related to these to the costs as such, really. I mean, in terms of procurement, etcetera, as well as R and D, how do you see I mean, with this current currency situation that you face, will there is there an impact that you've put into margin from the currency situation? Or is it just merely a translation impact on the revenue?
Yes. First of all, on the share gain, well, especially this year, you have seen a tremendous change in the Swiss francs. So that's obviously impacting our margins hard. We're working very hard with our cost reduction and the move to best cost countries to offset that. And you'll see this year we'll deliver a strong EBITDA margin.
And I think, Stefan, this year more than 1%, 1.2% impact in EBITDA.
Yes. We had a negative impact of 1.2% on the EBITDA.
Right. So we've had to make up that level of EBITDA impact this year, and that's pretty significant. Now we'll see the similar magnitude of EBITDA margin to make up next year. So again, we're working very hard on the cost reductions and the moves out of Swiss franc currency to try to offset that. And we're pretty confident we can do that.
And the margin envelope we showed you, the EBITDA envelope of 30% to 35% is at CHF 0.9 to dollar ratio. So we're pretty confident that we can offset that. In semiconductor, you have to balance your approach to customers. Our customers want more value. They're spending more time looking at costs of our products and working with us on smarter designs to get their costs down.
So we have to have a collaborative approach to ensure that we can continue growing share, and we do that by providing our customers with more value. The second question on cost, yes, I mean, we're taking a huge amount of cost out of the supply chain. We're also out of our operations. I think Thomas elaborated on that today, the move of the supply chain, the move of the operations footprint. And that's the main driver behind is keeping the EBITDA margin intact.
Any comment Stefan or Thomas on any other part of that?
I think regarding FX, we have hedging policy in place that secures our net cash flows over the next 18 months. And as Mike mentioned, we were able to mitigate the negative FX impact by really drastic cost initiatives. And we will do it again in the next year.
Okay. Does that fully answer your question, San?
Yes, it does. I mean, just one thing. So essentially, you are getting impacted by the margin. And the reason your margins are flat or wherever they are at the moment is a lot to do with the currency rather than the business itself as such?
Yes, absolutely. The teams are doing a great job keeping pricing at a high level and in some cases growing that. And I think if the currency stabilized, we would certainly see an easier road ahead. But at the same time, we're working hard to move to best cost countries and also trying to get a better natural hedge in place. As you know, most semiconductor companies have a very high percent of their revenues in U.
S. Dollars, whereas a lot of our costs are other currencies like Swiss franc and euros, etcetera. So we're trying to do as much as we can to get a better balance there.
Understood. Thank you very much.
Okay. Thank you. So I come back to the webcast questions. And actually, there was a follow-up from Raimo from Helvetis Gevonk. We didn't really answer the second part of his questions, which was when we achieved the €500,000,000 of factory output in Malaysia, is there more we can do from Malaysia?
Or will we have to look at something completely greenfield or a big brownfield? Or what are our expectations there?
Sorry, I thought I'd answered that. So the we need to maintain high flexibility for our semiconductor customers. I think you saw in the slides today that we need the ability to ramp up to 20% to 25% a quarter. So we've constantly got to look at our footprint and ensure we're ready for the next wave. I think when we get to 800,000,000 €850,000,000 €900,000,000 we really need to think hard about the next location.
We telegraphed a little bit today that we will be ready to move into China if the regulatory needs we had to manufacture from a local content standpoint in China. We're going to be ready to do that with supply chain, with some resources. It's not a cheaper place to operate, but we may have to go there at some point. So we'll be ready for that. The current factory limitation in Malaysia is about €500,000,000 with the current building, assembly space, etcetera.
So we would either have to build another module in Malaysia, which we're looking at just from a long term planning approach or we go somewhere else. But I think it makes sense the more campuses you have around the world, the higher your fixed costs get. So certainly, if we could stay with the Swiss and a Malaysia campus, it makes a lot of sense. But again, the we're looking carefully at the Chinese market and how the geopolitics plays out. And if necessary, we would put some form of assembly plant in China.
So hopefully, that answers it this time.
Next question is from Mike Ray from BlackRock. It's a service related question. Many drivers you have discussed today?
George, do you want to take that one?
Sure. No, for sure. The margins, of course, are quite good in service overall. And our plan is really to try to stabilize those margins above the 40% as a general rule. And again, we have a lot of competition out there in the service market, probably a lot higher than we do on the valves as a whole.
And that certainly plays a part. That's where a lot of the upgrades come in and the retrofits because those being fairly high value, high margin sales also lead to downstream sales from the consumables. So we're able to often tie in the consumables with some kind of IP on those upgrades. And that's one of the things we'd like to do is really protect some of our downstream service revenue with clever IP that we built into the valves and that's what Urs and his team are working on quite diligently. We have that, we can actually secure good margins downstream.
Yes. I think also the wider product portfolio that you've developed to capture back some of this market share is not as rich in margin as some of the earlier products we had. But you could argue we were cherry picking at that point, and we weren't really focused on a full market set of products. So I think staying above 40% is super important, as Joe pointed out. It's a real driver for our business.
And hopefully, we can push a bit harder than that. So that's our plan.
Okay. Next question is from Amis Lambertaudier. It's kind of like an R and D technical question. In terms of your connected products offering, OEMs such as Applied Material are already offering integrated manufacturing solutions as well as advanced process controls to optimize production to shape or scrape, I don't know. How would what VAT connected pro ducts fit into these solutions?
Will you be partnering with the OEMs?
Yes. I think we I'll give Michael a chance to comment on this. But I think I started with the statement earlier that in no way would we want to compete with our customers. All we want to do is enable them. There's a lot that's going to have to be done on a localized level.
You can't compute ever thing in a central computer in any type of environment. You're going to have to do a lot more edge calculations. And I think that's what we're looking at is how can we do more localized computation and results to enrich the ability of the OEM to have better process control, to better process performance. So do you want to maybe elaborate a little bit?
Yes. And just to add to that, I mean, we are seeing actually a lot of very dynamic processes coming up. And here, it's going to be like in some aspects, it's going to be beneficial to do like computation on the edge compute side, where we also leverage our own controller technology. And like this, we want to add value. I mean, it doesn't make sense to do something which our customer can do better.
So we're really trying to see to have a differentiated advantage there and deliver new functionality that is not possible or not in such a good way to do that de centrally.
Yes. I think you saw today in the motion component example that we had 4 or 5 performance features built into that motion component. Now our customer hasn't specified that. Our customer hasn't developed that. We've developed that.
And that will provide them with a different result. It will still have the same function of moving the waiver up and down, but it will also give them different types of data and data they didn't have before to make a different decision about what's happening in the chamber. So that's the type of thing I'm meaning. We will help the customer get a better result. The customers are all moving fast into digital platforms.
You've seen announcements from most of the large OEMs about that. And they will want us to add their own sensors on our products, which we will do. But we want to stay ahead of that curve and try to make sure that we've got the most competitive highest performing products that also connect to some level. And I think there's a great opportunity for us to accelerate our customers' roadmaps there.
Thank you, Mike and Michael. And our next question is from Patrick Lauger, Credit Suisse. And I must say, it's a really technical question. So I'm glad I have you guys here. R and D side, long term, when the industry adopts 2 nanometers, the technology is likely to change from FinFET to gate all around GAA architecture.
With GAA, what are the biggest step changes in chip manufacturing we can expect, whether it's on litho or deposition? What are the benefits or the risks from this transition for VAT?
Great question. The good news is that all of these processes are going to have more and more vacuum chambers. That's the one thing you do know. As you go to these next transistor structures, we are going to see a lot more ALD, different types of ALD. You're going to see EUV being used on, I would imagine somewhere 8 to 10 levels versus what we have today, maybe even more than 8 to 10.
You're going to see new resist lithography processes come to market. For example, we're going to move from wet to dry probably in resist technologies. Metrology is going to be almost exclusively under vacuum. The industry is running out of resolution in terms of process windows. So pretty much all the metrology's equipment within a fab will be under vacuum.
That's why you've got this increasing vacuum content as you go from node to node. It's hard for us to predict exactly what that's going to mean in terms of additional growth opportunities. There are so many different vectors in the industry that we've got to try to aggregate them into one number. But maybe again, Michael or Urs, do you want to say any more on that topic?
Yes. I could add something to it. I mean, the main question is what gate all around and EUV means for us and our products and our technologies. And what we see is a tremendous trend to high purity. I mean, we heard a lot about particles, but also chemical contamination will increase.
And we're going to see lots of new specifications there, and only a few companies will be actually capable to do these products. So the entry barriers are going to increase, and I think this is where we can excel and also support like the topics like chamber matching, like that every product needs to be the same as the qualified ones. And I think we're in a perfect position to deliver the right products here.
And I think, Urs, you also engage with the end users in a lot of these discussions as well as OEMs. Those guys are very interested in ensuring we have the knowledge of what they're going to need in the long term. Do you want to comment on that?
Yes, definitely. This is very important that we see Otsuka well ahead what's going on. And often there is not a clear specification. That's why I need such guys like Michael Zicar and his team that they also anticipate what kind of I think there is where we are at is very strong that we have this purity and to achieve this particle levels in the field. So, I think there is where we are at least very strong that we have this global team.
We are connected to OEMs and to the fabs with our engineering close to the older customers. I think this is one of the big benefits we see.
Yes. And even to measure that size of particle on a silicon wafer today costs about $5,000,000 to $6,000,000 So the particle lab that we invested in, in California, we have the ability to measure at that scale. And that's something our competitors don't have. Okay. Next question.
Okay. There is an interesting question from Sebastian again, more explanatory, I think. Does specification win mean that VAT, not only VAT, gets the deal, the whole deal with an OEM? Or can several competitors have specification wins for the same type of valve or, let's say, platform?
I'd love to say that we don't allow our competitors to compete, but I don't think that's correct. Urs, do you want to comment on that?
Well, every company, I think, needs competition. And this also is a driver for a company and to be more innovative than the other. Of course, we don't know every time what our customers are qualifying, specifying. But as I also mentioned, speed is very important. So we have to anticipate what's coming next.
We have to be very fast in customization of our products. And this is one of the key strengths. So it's open market. And I think we have a very, very high share of our specification wins. I think more than 80% we presented today.
And this is also because of this global infrastructure we have is engineering close to the and working close with our customer. I think this is also the key.
So they try hard, but typically, we get the specification when.
Next question is from Nikolay Sebeldin from CCS Service S. A. What are the plans of VAT AG for leveraging its market positions through diversification into different vacuum products or maybe even industries? Maybe a chance to talk a little bit also about the advanced industrial or display opportunities we have?
Yes. I think in semiconductor, I think Urs and Michael showed very clear where we think the initial adjacencies are. We also highlighted another 3 on that chart today that we're also looking at. They're in the early stages of market understanding and business development plans. So we see quite a rich environment in adjacencies within the silicon chamber.
Looking beyond the semiconductor world, we're really starting to get our advanced industrial business up and running. It's been a tricky year this year because we couldn't travel. And when you don't when you're not the incumbent in an industry or there's a new growth industry, it's quite hard to really get an understanding of that market if you can't go travel, visit customer, look at technology. But we see a lot of interesting emerging market. I mentioned in a previous call about lithium ion batteries, a lot's changing in that market from stand alone production to batch processing to And the next generation battery plants will all be in line.
We see opportunities there, but it's pretty hard right now to go and really fully penetrate them. But that's one area of growth we see. Come up with Hyperloop. The next stage of that come up with Hyperloop. The next stage of that platform is they're going to put in I think a 3 kilometer test track and that's going to have vacuum valves in it.
And this is a long term project, but we have to think long term. When you go back to EUV, EUV started in the '90s, right? We didn't really get any business out of that until it really started shipping in 20 eighteen-twenty 19. So you've got to think long term about some of these new growth markets, but vacuum transportation could be 1. We're also looking at several other new segments in advanced industrials.
I'm looking at how VAT can take technology and know how into different segments. I'd say the advanced industrial market is behind in our efforts compared to semiconductor and display. We put a lot of effort into semi first because we really know that market. I mean, we are experts in that market. We know what to do, when to do, how to do.
So it was kind of easier to get our adjacencies in place first. As Karen builds up her team in the advanced industrial, she is going to do the same thing, try to understand where we can leverage opportunities. And the same in display. Display, very similar to semi in a market downturn, but we also see opportunities with our smart valves with our connected VAT program and how we can drive new opportunities in the display market. So a very rich environment.
And that's why I haven't focused too much on M and A because there's a hell of a lot of growth opportunities that we can go after ourselves.
Okay. There is probably the last question for today we're reaching the end of our time slot. It's from Araceli Strasburger from Ananda Asset Management. And she is interested in the fact that we are already generating very high returns on invested capital. And there is a chance that we can also reinvest part of the cash flows that we generate at those high returns rather than returning 100 percent of the free cash flow to shareholders in the form of dividends?
Yes, a good question. I mean, we I think we're investing already pretty heavily. There's also a question of what a company can achieve in any given period. So we are quite aggressive in our R and D spend, in our business unit spends. If we see the right opportunity, no question we will invest in it.
I mentioned earlier that our investors like the dual approach of growth stock plus dividend stock. So we want to balance that. But I think we have no concern investing if we see the right opportunity. In fact, one of the adjacencies we're looking at would require a slightly different capital model compared to what we have in valves. In valves, we outsource about 70% to 80% of our components.
This would be more of a machining focused adjacency that may require a different percent of in sourcing. So we'll always review the business model. If it ticks the right boxes and that we can generate strong shareholder value, we'll definitely do that. Any comments from rest of the team on that question? No?
Okay. Okay. I think we've exhausted the questions on the online and in person. So I'll just round off by thanking everybody with staying with us online. I know it's a little bit harder than doing it in person.
We've had a lot of fun doing this as a team. We thank you a lot and we hope as the COVID crisis slowly comes to an end over 2021 that we get out to see you all and I kind of more in person discussions. But I hope today you saw a really incredible company firing on all cylinders with strong growth prospects and also a great team here. And also back in the factory, some of our executive team are not here today. But together, we are focused very much in achieving this €1,100,000 in growth by 2025.
Okay. So thank you very much. And with that, we'll end today. Thank you.