ASM International NV

AEX:ASM

Earnings Call Transcript 2018-Q1

[Operator]

Good day, and welcome to the ASM International First Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Victor Bareño. Please go ahead, sir.

[Victor Bareño, Director of Investor Relations]

Thank you, Allison. ASMI issued its 2018 first quarter results last evening. For those of you who have not seen the press release, it's along with our latest investor presentation, it's accessible on our website, asm.com. We remind you that this conference call may contain information relating to ASM's future business or results, in addition to historical information. For more information on the risk factors related to such forward-looking statements, please refer to the company's press releases, reports and financial statements, which are available on our website. And with that, I will turn the call over to Chuck del Prado, President and CEO. Chuck?

[Charles Dean del Prado]

Thank you, Victor, and thanks to everyone for attending our First Quarter 2018 Results Conference Call, and for your continuing interest in ASM International. Before I start with review of the first quarter results, Peter van Bommel, our CFO, will first provide an explanation on a couple of changes in our accounting policies and reporting. So Peter, go ahead.

[Petrus Antonius Maria van Bommel, CFO & Member of the Management Board]

Thanks, Chuck. IFRS 15 is the first change I will discuss. IFRS 15, which is redefining the way revenues have to be recognized is, as you know, mandatory as of this year. For us, the largest impact is related to revenue from Japanese customers. Previously, recognition of revenue with Japanese customers took place on the moment that the customer accepted the 2. Under IFRS, this will be on the moment that we ship the 2. Hence, we will also, for Japanese customers, recognize sales a couple of months earlier as compared to the previous situation. For other geographies, as we explained in some of the earlier calls, revenue recognition took already place on the moment of shipment. If you look at the impact from IFRS 15 in 2017, it's same from quarter-to-quarter. But for the full year, the impact was relatively limited, decreasing sales by about 1% and operating profit by 4%. In the annex of the press release, we've provided the restated profit and loss figures for the quarter and the full year 2017. The impact in 2017 was negative as under IFRS 15, some revenue needed already to be recognized in prior periods. Note that these changes are of course noncash. Another change in our reporting is that starting with the first quarter of 2018, we disclose the breakdown of sales between spares and services on one hand, and the equipment sales on the other hand. Again in the annex of the press release, we provided the comparable quarterly and full year figures for 2017. Spares and services is an important business line for our company and it gives us the opportunity to provide additional value to our customers and to build stronger relationships with them. Last year, spares and services accounted for 22% of our total sales, following solid double-digit growth in 2017, this business grew -- this business line grew by 10% in the first quarter of 2018 on a currency comparable level. It's primarily driven by the growth of the installed base of our equipment. We are investing in this activity to further enhance our capabilities to drive growth in the coming years.

[Charles Dean del Prado]

Thank you, Peter. Let's now review our first quarter financial results. Revenue in the first quarter amounted to EUR 159 million, an increase of 2% compared to the first quarter of last year, and a decrease of 12% compared to the fourth quarter of 2017, with both periods of last year on a restated basis. Revenue in the quarter was in our guidance, which was a range between EUR 155 million and EUR 175 million, albeit somewhat to the lower end, mainly related to some last moment reschedules. Our ALD business was a key driver of revenue in the quarter. By industry segment, revenue was led by memory, in particular 3D NAND followed by logic. The gross margin decreased to 37.8%, down from 39.6% in the fourth quarter and 43% in the first quarter of last year. The negative impact from the new products in Epi and PECVD moderated to 2% in the quarter, down from 3% in Q4 and 5% in Q3 of last year. Cost reduction programs are on track, and we expect the gross margin of the new products to improve further in the course of this year. In addition, the gross margin was negatively impacted by the sales mix of the existing products, which was less favorable during the quarter. As we explained on earlier occasions, the sales mix can vary from quarter-to-quarter leading to fluctuations in the gross margin. Finally, the gross margin included higher cost related to preparations for higher activity levels, particularly in manufacturing and services. The effect of these higher costs and the sales mix was a bit more pronounced because of the relatively low sales level in Q1. In Q2, we expect our gross margin to improve substantially compared to Q1, which will bring us back to our target range for gross margins of the low to mid-40s percentage. SG&A expenses increased by 9% compared to the previous quarter, which is mainly explained by costs associated with the patent litigation. R&D expenses increased by 2% compared to the fourth quarter, whereby R&D cost decreased offset by a lower capitalization of R&D as compared to Q4. Financing results in the first quarter included EUR 8 million currency translation loss compared to a translation loss of EUR 5 million in the fourth quarter and EUR 7 million in the first quarter of last year. As a reminder, we keep a substantial part of our cash balances in US dollars and the related translation differences are included in the financing results. Let's now look at ASMPT. Results from investments, which reflects our 25% ownership -- which reflects our 25% share of the net earnings from ASMPT amounted to EUR 60 million, up from EUR 40 million in the fourth quarter, and down from EUR 35 million in the first quarter of last year. On a 100% basis, and excluding one-offs, the net result of ASMPT amounted to HKD 616 million in the quarter, up 16% compared the fourth quarter and up 36% from the first quarter of last year. In the first quarter, ASMPT reported sales of USD 556 million, up 3% compared to the fourth quarter of 2017 and 16% up from the same quarter last year. The latter compares favorably to ASMPT's first quarter guidance, which was for a year-on-year percentage increase of high single digits to low double-digit percentage. ASMPT reported bookings of USD 754 million in the quarter, an increase of 52% compared to the fourth quarter and up 24% from -- compared to the first quarter of last year. Bookings in the quarter represented a new record high and were driven by strong broad-based demand in both Back-end equipment and SMT solutions. So let's now turn back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to EUR 19 million -- 1-9, EUR 19 million in the first quarter down from EUR 37 million, excluding the book profit of EUR 184 million on the sale of the 9% stake in ASMPT in the first quarter. Our new orders in the first quarter were EUR 206 million, up 2% from the fourth quarter and up 1% year-on-year. Orders were at the higher end of our guidance which was a range between EUR 190 million and EUR 210 million. Orders were mainly driven by our ALD business. Looking at the breakdown in bookings by industry segment, logic represented the largest segment in the first quarter, driven by advanced node investments. And logic was followed by DRAM and 3D NAND. Orders in DRAM segment increased substantially compared to the first quarter, mainly for ALD patterning tools, and driven by customers' investments in new capacity. DRAM orders, coming from a low base, were at the highest level in more than 2 years. So looking at the balance sheet and cash flow. At the end of March, the cash position decreased to EUR 741 million, down from EUR 836 million at the end of December. And we generated EUR 50 million in free cash flow. Net working capital decreased to EUR 156 million, down from EUR 180 million at the end of the first quarter, driven by the sequential decrease in revenue and accounts receivables -- and as account receivables, which were relatively high at the end of December, were collected during the quarter. In the first quarter, we spent EUR 102 million to repurchase almost 1.8 million of our own shares. These repurchases were part of the EUR 250 million share buyback program that started last September, and that was recently completed to be specific on March 29. In total, we repurchased more than 4.3 million shares under this program at an average price of slightly more than EUR 57 per share. With this program, we have returned in full, the cash proceeds of the 5% stake in ASMPT that we sold in April of last year. As most of the attendees of this -- on this call are probably aware, we sold another 9% stake last November for proceeds of approximately EUR 450 million. We're using the proceeds for a tax efficient capital return of EUR 4 per share. This is subject to approval by our shareholders at the upcoming AGM, that is scheduled for May 28. Next to the redistribution of this EUR 4 per share. We intend to return the rest of the proceeds in the form of a new EUR 250 million share buyback program that we will launch later in the year. At the upcoming AGM, we also propose to the cancellation of 6 million shares that we currently hold in treasury. This will bring down the total issued number of shares by almost 10%. And last but not least, as we also announced last February, we proposed a 14% increase in dividends to EUR 0.80. This marks the eighth consecutive year that we pay significant dividend to our shareholders.Okay, so let's now have a more detailed look at the trends in our markets. 2018 is expected to be another growth year for our industry. If we look at the average forecast of market observers, such as Gartner and VLSI, the WFE spending, Wafer Fab Equipment spending, is expected to increase by a high single-digit percentage in this year, following approximately 30% growth in 2017, let's say, measured in U.S. dollar terms. In 2017, as you may know, WFE growth was primarily driven by 3D NAND and DRAM. This year, the key drivers of WFE growth are currently expected to be the DRAM and the logic segment. Regarding the logic segment, we also would like to highlight here that we were recognized by Intel as a recipient of their preferred quality supplier awards, so-called PQS award, for our performance across 2017. And we were handed this award in March of this year. And this was the second PQS win for the company, and we are of course again very honored to have received this prestigious award from Intel. In the foundry segment, most of the investments are currently focused on the 7-nanometer node, where customers are ramping volume manufacturing. Later in the year, the foundry customers are likely to make the first early-stage investments in the 5-nanometer node. As we discussed earlier, the single-wafer ALD market opportunity and logic/foundry has more than doubled in the past 3 to 4 years. The transition to 10-nanometer in both logic and foundry was a particularly important inflection, which drove several new ALD applications. The 7-nanometer foundry node brought further increase in ALD applications. We believe the upcoming node transition to 5-nanometer with equipment investments to be made in 2019 and 2020, will be the next important inflection for our company, with again multiple new ALD applications. Based on the progress in our R&D engagements, we believe our company is well positioned to capture a substantial part of these new opportunities. So let's now take a look at DRAM. In DRAM, customers are currently stepping up investments in new fab expansions. In line with our expectations, this is driving renewed demand for ALD-patterning tools. As we explained on previous occasions, our DRAM customers mainly invested was in existing fabs in the past several quarters. This lead to higher levels of reuse which had particularly negative impact on our ALD patterning tools business. As customers are now investing in new capacity again, our DRAM orders strongly rebounded in Q1 and compared to the relatively low levels in the previous quarters. Looking at the full year, we expect DRAM contribution to our sales to increase markedly. Although, a return to the previous peak [ though ] of 2015 is not likely. In addition, we have been broadening our R&D scope in the DRAM-ALD market. We invested in, as we shared before, in new non-patterning applications, of which some are currently in the qualification phase at customers. First top line impact of these new applications is expected in the course of 2019. 3D NAND demand in the first quarter remained solid. Looking at broader WFE markets, 3D NAND investments grew at, as we all know, at the very high rate in 2017. And it is likely that in 2018, growth in this segment, if any, will slow compared to 2017. Looking at 2018, we are focused on serving current demand at the 3D NAND manufacturers. And we're focused on expanding our R&D engagement for the upcoming device generations. The transition to even more complex higher stack device generations will drive the need for an increasing number of single-wafer ALD applications. Longer term, we expect 3D NAND to stay an important contributor to the single-wafer ALD market. In addition, we target an increase in our Sam, in our served addressable market, in the 3D NAND market. And as we shared with you before, so far we estimate that we are participating in a bit more than half of the addressable market within 3D NAND. And we aim to increase this percentage as we develop new solutions and broaden our customer base in the 3D NAND market segment.Looking at our other product lines beyond ALD, we continue to see good momentum in PECVD, in part driven by the customer win in 3D NAND that we announced last year. And in Epitaxy, we remain strongly focused on further broadening our position in the Epi market down the road. Another area I would like to highlight is the development of our business in China. The Wafer Fab investment environment in China is strong right now and ASM's business in China has good momentum. This year, we expect our revenue from the China region coming from a low base to at least double, compared to the 2017 level. Also, in terms of product lines, we expect several of our product lines to really contribute to that growth in China in this year. So now let's look at the guidance we issued with our Q1 press release. For Q2, on a currency-comparable level, we expect sales between EUR 200 million and EUR 230 million, and we expect an order intake between EUR 160 million and EUR 200 million. And at the broad -- and as we shared in the press release, the broad ranges for Q2 on both sales and order intake reflect so much uncertainty around the exact timing of individual tools. So that's a short message on the guidance. At this point, like always, we are more than happy to answer any questions that you may have.

[Victor Bareño, Director of Investor Relations]

[Operator Instructions] All right, Allison, we are ready for first question.

[Operator]

[Operator Instructions] Our first question comes from the line of Sandeep Deshpande from JP Morgan.

[Sandeep Sudhir Deshpande, Research Analyst]

My question is, in the second half of the year, I mean, your -- based on your current guidance on the market and on your second quarter guidance, you seem to be looking towards a much stronger revenue ramp. Could you possibly talk about what is the driver of these ramp in -- the substantial ramp in the second half of the year and where these new tools are going to go into? And secondly, with regard to the first quarter margin in particular, Chuck, you've had very good record in terms of gross margin for many years now, and why is it that over the past year that you've had these stalls in terms of the gross margin going -- getting impacted when you've had new product introductions in the past 5 years as well when this did not happen?

[Charles Dean del Prado]

Okay, Sandeep, thanks for your questions. So yes, first of all on the -- yes, second half versus first half. Yes, let me share that, if you look -- it's best to answer it by looking at the different industry segments. As we look at it now, as we look at our full year forecast, our current estimate is that for both logic and foundry, for example, Q1 is the weakest quarter of the year. Yes, that's one remark. Secondly, if you look at the different segments, then we think that logic, the second half, will be stronger than the first half in terms of [ this all ] revenue. Foundry, we also think based on our current forecast, that foundry, also second half, will be stronger than the first half. And thirdly, DRAM, we also think second half will be stronger than the first half. So to repeat: logic/foundry, as we see it now Q1, the weakest quarter of the year; and for logic/foundry and DRAM, we expect the second half to be stronger than the first half. The only area where we foresee now that the second half will be weaker than the first half in terms of revenue is the 3D NAND. And of course there are variations by quarter in the revenue outcomes. But this is the big picture. And that explains, I trust, your question. So then on the margin -- yes. And then on the margin, Peter, I propose you answer that.

[Petrus Antonius Maria van Bommel, CFO & Member of the Management Board]

Yes, Sandeep. It's a combination of a few things. First of all, I think, we have explained in these calls already earlier that we were investing heavily in Epitaxy and PECVD and that we have some initial impact of that on the gross margin. I think that is developing according to plan. We have negative impact of 5% in Q3 last year. It went to 3% in Q3. And in this case -- this quarter it's 2%. So you would leave that out and you would - [ on a ] comparable level of 40%. And what we always have said is that we expect our margins to be in the low to mid-40s. And why that range? That was mainly driven by the fact that we have certain products of certain applications for certain customers which have either a higher margin or a lower margin. And while we have seen in the past period that margin was -- the lower margin products were compensated by the higher margin products, we have seen a very uneven distribution this quarter. And that had a onetime 2% impact on our sales mix. And of course, it's not the guarantee that, that mix will not -- in the coming quarters or so sometimes be a bit lower, because it's very [ slowly ] dependent and hence, that was also the reason why we have always given that range of 40% to 45% on those difference in product mix. And the third one, which is also 2%, and that's also highly impacted by the fact that we have a relatively lower sales is that we are preparing ourselves for a much higher sales level. When we look to the indication that we have provided, first of all, a range of EUR 200 million to EUR 230 million, but also an expectation that in euro terms, our market share will be above the high single -- of the sales will grow for the year as a whole. And above the high single-digit percentage, where you calculate at 2, then you need an organization which can cope with the sales level well above the EUR 200 million. And therefore, we have made, especially in Q1, extra costs for training of a [ transhiring ] of new [ INQ ] people, and for extending our manufacturing activities. That, in combination with what already has been mentioned earlier that we have some last-minute changes, which was leading to some substantial extra costs in our manufacturing organization, that has led to some inefficiencies as a result. And that combination together led to a 2% decrease of our gross margin within the quarter. And I said in the press release, we estimate the gross margin in Q2 to show a very substantial improvement and bringing it back again in the range of the low to mid-40s. And that's where we also aim to be in the rest of the year. I hope that this gives you sufficient color.

[Operator]

Our next question comes from Peter Olofsen from Kepler Cheuvreux.

[Peter Olofsen, Analyst]

Basically two follow ups from the earlier questions. So for 3D NAND, you expect a weaker second half compared with the first half. In that respect, could you talk about the progress on some of the opportunities and vendor selections that you have been working on, especially for some of the new applications? And then, as a follow-up on the gross margin discussion, could you shed some more light on the at-first mix in the existing products? Has it to do with the split between ALD and non-ALD? Or is it more related to client segments like memory versus logic/foundry?

[Charles Dean del Prado]

Okay. So Peter, yes, first on progress on vendor selection, so, yes, it has been some interest, especially on 96-stack, a new 3D NAND application. What we can say there, basically very short answer, we did ship another system. So we received a PO and we took revenue on another tool this -- in Q1 for a specific leading 3D NAND customer. So in that respect, we made a lot of progress with that customer. But at the same time given the fact that we think that the second half, the climate in 3D NAND, we expect to be somewhat weaker. We did not take into account currently a steep ramp of revenue for those new applications. Again, not because of our performance, but because of lack of volume ramp at the customer. And what was your first question? Sorry, go ahead, Peter -- Olofsen. Pete Olofsen, do you have any additional question?

[Peter Olofsen, Analyst]

Yes, yes. So is that because you expect the ramp to take place in 2019 rather than second half this year. The 96 [indiscernible] [ DRAM? ]

[Charles Dean del Prado]

This is not, let's say, a hockey stick application. It is one layer, so revenue contribution will grow gradually. But at the same time, indeed, I think that the contribution we, indeed, think that more -- the benefit from volume, the customer will, we indeed anticipate to see more in 2019 or at least towards -- earliest towards the end of this year. It's just a little bit depending on -- that's the visibility we have on that now. But we don't count on significant contribution from that application before the end of the year. That's the way we deal with it now in our own projections. Yes, Peter Bommel, please go ahead.

[Petrus Antonius Maria van Bommel, CFO & Member of the Management Board]

Yes, with regard to your question Peter, about the gross margin at first mix. It has nothing to do with ALD versus non-ALD. It's really -- it's application related. So we have certain configurations for certain customers, which have lower margins and/or higher margins than the average. And what I've said earlier, normally you have a more balanced distribution that what we had this quarter. So we have really a very unbalanced distribution. And that was in combination with relatively low sales leading to that 2% impact on the gross margin.

[Operator]

The next question comes from Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

You talked about the expansion of Korea and Singapore -- a new manufacturing facility in Singapore and a cleanroom in Korea. What kind of revenue level could you support when those investments have completed in middle of next year? Could you support linear revenue? What are you aiming to be able to support on an annual basis?

[Charles Dean del Prado]

Yes, Peter can address that question.

[Petrus Antonius Maria van Bommel, CFO & Member of the Management Board]

Yes. We hope -- we have not provided that detailed information, but to give you a color, we have looked to a strategic plan for the next 3 to 5 years. We expect that it will be more than enough to show -- to have the growth for the next 5 to 10 years to support that growth.

[Robert Duncan Cobban Sanders, Director]

Got it. And the second question, just a quick follow-up about 3D NAND. Why do you think H2 is a weaker environment than H1? I mean, one argument could be the yields are going up, therefore spending -- if supply goes up, therefore people are a bit more conservative about spending. That's one argument, or it could just be something else temporary just because you have 2 big customers and maybe there's just a temporary issue there. But why do you think there's -- because we've heard other semi caps flag that, that 3D NAND is slowing a little bit in the second half. Why do you think that is?

[Charles Dean del Prado]

Yes, we, of course -- we cannot give an answer, let's say, representing the customer. But this is just, we have -- we try to work according to a very sophisticated forecasting system where we -- multiple quarters out forecast demand at our -- at those customers. And this is what we see at this moment in time. With, let's say, the -- among the leaders in 3D NAND. Maybe -- China is maybe a little bit different. But let's say, among the leaders in 3D NAND, this is the view we have at this moment in time. Is there -- are you -- if your question is could that change in 3 to 6 months from now? Yes, of course, it could change. But for, let's say, the better. But this is the, yes, the assumption we took at this moment in time. Again, there is business. There is demand in the second half. But in our current forecast, it's lower than in the first half.

[Robert Duncan Cobban Sanders, Director]

And so Chuck, can I just squeeze in one more question just about the Gartner data that was out yesterday? I think it was yesterday on ALD. Could you just give us some commentary about that? I think Lam took a lot of share from a low base. So how do you see that progressing into '18 and '19? What's your latest thoughts?

[Charles Dean del Prado]

Yes. Yes, indeed. So you're referring to Gartner, because of course, earlier in the week also VLSI published a market share report. And I think in the market share report of VLSI, our share, according to them, dropped by 9%. Gartner said that they estimate our share to drop by 10% in 2017. And what we can say about those numbers, 2 individual views is that based on our own assessment, we think that, indeed, our single-wafer ALD market share has gone down as we already communicated with our Q4 results. Although, we believe that the size of the market share decrease is slightly more moderate compared to what both of them estimated. And we -- yes, we also in the past gave some color that the single-wafer ALD share, it decreased to a large extent because of the industry segment mix effects next to, of course, the broadening of the base of competitors. But the industry segment related mix effects also played an important role. And to explain that, as you know, we have our strongest market share in logic/foundry. And the logic/foundry part of the single-wafer ALD market was relatively stable last year. While most of the growth was, as you know, driven by memory where our share is a healthy one, but clearly not as high as in logic/foundry. So yes, that's basically, let's say, an explanation of the current numbers. And of course, we would like to emphasize in this call that we take these numbers seriously. And we have a very strong focus on defending and expanding our position in the ALD market. And as we already talked about before, we see in logic/foundry, we see very good opportunities to increase our share of wallet, and to extend our leadership with the next node transitions that is upcoming as we go to 5-nanometer, which gives us great opportunities. And so that's on logic/foundry, especially on the foundry segment. Looking at 3D NAND. As we shared before, we target to increase our share of the available market. And -- because right now, as we shared in the introduction, we focus on only a bit more than half of the single-wafer ALD market in 3D NAND. But we're working hard on new solutions that will drive this share of the pipe up in the coming years. And finally, in DRAM, as we also shared before there, we so far have targeted primarily the patterning market. And we target substantial increase in our relative served available market, especially as we are going to address the non-patterning part of the market. So those are elements we all focus on to maintain our leadership in ALD. And I trust that answers your questions, Rob. Any further clarification you would [indiscernible]

[Robert Duncan Cobban Sanders, Director]

No, no. That was great.

[Operator]

Our next question comes from David O'Connor from Exane BNP Paribas.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Maybe a couple of follow-ups on my side from previous questions. Maybe --firstly on the -- just going back to 3D NAND in the second half. Wasn't your initial expectation that 3D NAND would be stronger in the second half, and now it seems to be that bit weaker?

[Charles Dean del Prado]

Can you repeat that question? I did not fully understand what you meant, sorry.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Yes, just going back to your previous comments, I think it was to Peter's question about the second half on 3D NAND. You now expect a weaker 3D NAND second half. Did you say that your previous expectation was that the second half would be stronger in 3D NAND? And now you've seen a weakening of that based on what you're seeing at a -- at the major vendor where you have some new wins?

[Charles Dean del Prado]

Yes, I think, maybe a couple of months ago, we might have thought that it would be a little bit more evenly distributed among the year. And indeed we -- our view has developed there. And yes, based on, at least our visibility, again, you have to compare that with visibility from peers. Our opinion is that the second half likely is somewhat weaker than the first half. That's, indeed, a little bit more recent insight we developed. But we now -- I don't think we thought that in the past the second half would be stronger than the first half. We just thought it would develop in an even pattern throughout the year. And that opinion was -- that view has been adjusted somewhat by us. And it's taken -- has been taken into account in our current projections for the remainder of the year.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Okay. But on an overall level across segments, would you say your view has strengthened about the second half versus earlier in the Q1?

[Charles Dean del Prado]

You mean across-the-board now, not 3D NAND specific?

[David O'Connor, Analyst of IT Hardware and Semiconductors]

No, across-the-board.

[Charles Dean del Prado]

Well, we just -- again, there are dynamics -- there are several dynamics between the different industry segments that change every 1 or 2 months. And again, I think the best answer is that our outlook for the year that we foresee the second half to be stronger than the first half, and that we aim to outgrow the WFE market, assuming the WFE market will grow with a high single-digit percentage. That view has not changed.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Got it. And maybe another one on the WFE markets. I see in your presentation, particularly Slide 6, you're quoting some of the Gartner numbers. And looking at 2019, which is down kind of double digits, is that a view for -- based on your discussions with customers, is that a view you subscribe to as well? Or are you seeing a different kind of dynamic from your customer discussions?

[Charles Dean del Prado]

We -- well, we see a pretty strong downward correction in the current projections by industry watchers. And so far, we don't fully see [ that back ] in dialogue with customers. No, we see may be some corrections in some parts of the memory market, but not to the same extent that they forecast. Again, we're not saying that they are not right, because it's, of course, in this industry way too early to say something for sure that much in advance. But if you ask, do they already acknowledge these strong downward trends, then the answer is no.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Okay, great. And maybe if I could squeeze one more in on the -- again, a follow-up to previous questions on your share. Given all your investments currently on the 3D NAND side and the non-patterning DRAM, how much of the ALD market do you think you would ultimately address, say, in 2 years' time?

[Charles Dean del Prado]

You mean how much of the TAM?

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Yes.

[Charles Dean del Prado]

Yes, yes, yes. That's a good question. Yes, we have not specified those numbers in detail, but we are -- if you now look at the total TAM, the single-wafer ALD TAM in 2017, as we are finalizing our own estimates of the size of the market, then we, indeed, don't address the full TAM. And that's why we defined a few years ago that, in several segments, especially in memory, but also in logic and foundry, that we want to increase our share of the available market. And we are -- yes, we have not finalized those projections. But of course, our target is that, ultimately, we not only increase our share of the available market significantly in the coming years in this market, but that we also -- as a percentage of the TAM, that we also increase the percentage that the SAM represents within the TAM in ALD. And -- but it's too early to share any numbers with you, but that's what we are driving. That's exactly what we are driving. And of course, the most to gain is in the memory space. But also -- again, in the logic/foundry space, there is also, of course, from an absolute point of view, a lot to gain. Because we currently still foresee that, on average in the coming years, not maybe every 12 months, but on average, the logic/foundry space compared to DRAM specifically, compared to 3D NAND specifically, is going to be the biggest segment.

[Operator]

The next question comes from Tammy Qiu from Berenberg.

[Tammy Qiu, Analyst]

Firstly, it's again on DRAM. So for next year, do you think it's mainly your customer investing in the old fab or do you think it will be new capacity again? And also, the second question is on, in terms of the applications which are relevant to single-wafer ALD. In which specific market are you patterning non-patterning? Or which application do you think you have the strongest market position and strongest market share?

[Charles Dean del Prado]

Yes, on the latter question, I am not very eager to answer that very specifically, Tammy. I understand you would like to know, but I think in 2017, what is good to know is that our estimate is that clearly in 2017, the non-patterning part of the DRAM market was bigger than the patterning market, and meaningfully bigger in DRAM single-wafer ALD. We're talking about DRAM single-wafer ALD. So that's even more is an indication that we should focus on that market. And as we shared in the introduction, Tammy, we -- yes, we have -- we're working on several applications and multiple applications, and with some of those, we already have -- we have clear engagements ongoing with customer's qualification, let's say, partnerships ongoing with customers. And some will go faster than others. We would -- we expect the first results in the P&L to become visible in 2019. So that's only your second question. On your first question, yes, will DRAM expand in new fabs or in existing fabs in '19? That's a difficult one. The only thing we can say is that it depends on 2 things. It depends on let's say, the ASP development, supply-demand situation in DRAM by that time. That's one element, of course, that's going to be very relevant. And secondly, what also will be relevant is how the 3D NAND space at that time looks. Because if some customers, as you know, are active in both areas. And if the 3D NAND space is similar to as it is today, then they may be more inclined to invest the capacity in DRAM than when there is a huge surge again in 3D NAND, then they can make a choice. So -- at least some of them can make a choice. There are some vendors that only focus on 3D NAND. So the elements that influence that decision depends -- vary a little -- varies a little bit by customer.

[Tammy Qiu, Analyst]

Okay. Can I squeeze in another one? Because you didn't clearly answer the second one. In China, the revenue you said is basically increasing significantly when compared to the 2017 level. Do you know if that's actually coming from the foundry/logic space mainly or the memory space?

[Charles Dean del Prado]

It's a mix. I say that if you look a few years back, we were primarily focused on, let's say, the logic. It's logic [ as ] foundry space of China that we've been working hard also to improve our infrastructure in China, and made a lot of progress also in getting to know the players in memory. So it will be a mix. And yes, next to that, I think, in general, also there are more and more market, for example, it's becoming, of course, more and more important. And of course, that also plays into China, but not only to China. It's across-the-board. It's a market that includes wide range of devices, analog processors, MEMS sensors, power chips, you name it, that are being used in mobile [ in mode of ] IoT. And so we are more also focused on that part of the market, for example, also with our furnace. So that also plays into it.

[Operator]

We have a follow-up question from Peter Olofsen from Kepler Cheuvreux.

[Peter Olofsen, Analyst]

Looking at the SG&A line, there were some costs related to the patent disputes. Is there any news that you can share on these disputes? And to what extent should we model additional costs in the coming quarters?

[Petrus Antonius Maria van Bommel, CFO & Member of the Management Board]

Yes, let me take that question, Peter. I mean, as you know, we have 4 disputes at this moment. One is in arbitration case, which is related to dispute that we have over the period -- over the license that we agreed with Hitachi Kokusai for the period 2012 through 2017. So we filed for arbitration there by the end of August. And there are 3 legal cases on this moment. And while arbitration cases normally will last for, say, 1 year, legal cases in the U.S. can last for a more extended period of time. So it's too early on this moment to say how much of it exactly will cost and how much is that you have to pencil in per quarter, but for sure, this is not the last amount that we have to book under legal costs related to these cases. I said earlier, for us, protecting our strong IP position is very important. And we will diligently prosecute the cases. And we will rigorously defend against Hitachi Kokusai's claims.

[Peter Olofsen, Analyst]

Okay. So there will likely be some cost, but difficult to quantify at this stage?

[Petrus Antonius Maria van Bommel, CFO & Member of the Management Board]

And difficult to quantify what the cost will be over which quarters. Because it also highly depends on when exactly the preparation work for legal cases started now that when the hearings will be. That's not known yet.

[Operator]

Ladies and gentlemen, that concludes today's question-and-answer session. Mr. Del Prado, I'd like to turn the conference back to you for any additional or closing remarks.

[Charles Dean del Prado]

All right, so I would like to thank you all, especially this late in the day. We apologize, especially for the Europeans, for the U.S. people, it's different, but for the Europeans, it was this late in the day. And on Friday, normally we will have this call at least 2 hours earlier and sometimes also earlier in the week. But thanks anyway for your attendance and all your sharp questions. And feel free, of course, to touch base with us in the coming weeks with any further questions that you may have because -- to make sure that everything is very, very clear. Thanks again, and enjoy the rest of your day. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.